Jeff Amerine

Techpreneurship, with Jeff Amerine

(Jeff Amerine is an IA advisor, entrepreneurship educator, and officer with the University of Arkansas Technology Licensing Office. Each Thursday, his Techpreneurship blog will appear in INOV8. Drop him a line in comments.)

Does anybody out there believe successfully creating a new venture is easy?  Have any of you been blown away by too much investment funding falling from the sky to make your journey across the valley of death, just so much easier?      I didn’t think so.  Most of us with a lick of common sense realize that raising capital for a new venture in the best of times equals significant pain and suffering.

So imagine how difficult the picture would become for start-ups, if under the guise of “consumer protection”, the Finance Reform Bill offered by Senator Dodd more than doubled the requirements to be an accredited investor!

The proposed language would allow the SEC to establish a moving target for accreditation, which is a terrible idea.  Angel investors and entrepreneurs need a consistent set of rules. Even worse, the bill proposes to adjust for inflation since the original rule was set in 1970.  The minimum the requirement would go from $1 million in net worth or an annual salary of $200,000 to $2.3 million in net worth or $460,000 in annual salary!!

So let’s all take a moment to reflect on this.  How many new angel funds will not be able to come together should these new rules be enacted?  How many new businesses will fail from undercapitalization?  How many new jobs will never happen?  I have to say the idea that the government needs to “protect” anybody making $200,000 per year or with a net worth of over $1 million from investing their own money as they see fit, is beyond insanity.  Frankly, the idea the government can dictate to any interested, informed investor that they aren’t “accredited” to invest their own money as they see fit, really, really rubs me the wrong way.

And yet, the government clearly plans to increase the tax burden on this group of “wealthy Americans” to pay for all the other fantastic programs rolling out of Congress.  So let me get this straight.  This group of Americans (soon to be formerly “accredited”) is not savvy enough to invest their own money as they see fit to create new ventures, which in turn creates lots of new jobs (hey and maybe even new tax revenues!!).    But the autonomic Congressional bureacrats that suggested this particular idea are completely competent to make much better use of the money… Really?

Folks the logic just doesn’t work for me.  I would encourage you all to read the detailed analysis of this issue at the link below:

http://www.xconomy.com/boston/2010/03/23/dodd-bill-could-render-startups-too-small-to-succeed/

Once you do that, and you regain your composure, please let the Arkansas Congressional delegation know how you feel.  Finance reform to fix the real issues that caused some of the economic woes of the past few years has merit.  Finance reform to limit angel investment in early stage ventures had to be created by a group of people that have never created a business, never created a private sector job, and have never walked in a struggling techpreneur’s shoes..

In view of all of this, I had some ideas of my own.  See what you think.

1.  To be in Congress or on a Congressional staff, you have to pass an IQ test, that we the people plan to adjust upward each year.

2.  To be in Congress or on a Congressional staff, you have to pass a free market capitalism economics literacy test.  This will be an annual requirement and the minimum passing score will be 90%.

If you don’t pass either of these, you can’t run for office.  So I’m being silly, I know, but we need  people to begin to exercise some common sense in D.C.

What are they going to suggest next?

“You can’t spend or invest any money unless you can provide proof of adequate disposable income, and you have government approval”.  “Oh, and be sure to have your last three years tax returns in your back pocket or you can forget going to the casino….”

Techpreneurs, what say you?

8 Responses to “Techpreneurship: Dodd Finance Reform – Start-up Killer?”

1. jamerine says:

   April 22, 2010 at 11:49 am

   Let the delegation know how you feel:

   http://lincoln.senate.gov/contact/email.cfm

   http://pryor.senate.gov/public/index.cfm?p=ContactForm

   https://writerep.house.gov/writerep/welcome.shtml

   Let’s make sure they understand that we know how to invest our own money.
2. Do Business Plan Competitions Really Help Startups? | Innovate Arkansas says:

   April 22, 2010 at 12:36 pm

   [...] do you think, Arkansas techpreneurs? (We’re sure Amerine won’t mind…) Have these competitions, especially those hosted by universities, become [...]
3. John says:

   April 22, 2010 at 11:09 pm

   I agree–the angel investors rule is nonsensical. Hopefully with more pressure it will be changed.

   Sometimes, I would love an IQ test to be mandatory to serve Congress. Sometimes I think the same for voters, too.

   As for the economics test (I’m an econ minor), I would say you need to make take and intro AND intermediate econ class, with Calculus III as a prerequisite. If you don’t get into the math of economics, you’re not fundamentally registering how different variables work–you’re essentially learning the summary of how those variables work instead. With the math, you can pinpoint (well, to the extent you can pinpoint with a model) government inefficiences, private market failures, etc. I think the Calc III requirement would cut out 95% to begin with.

   I wary of where this blog post leaks into other political issues (based on previous posts, I’m assuming healthcare it’s referencing healthcare), and I would argue that most techpreneurs–who are, based on my personal experience and research, quite progressive–would be wary too. I’m not fond of delving into politics, but I feel this blog tends to lean a certain way, so it’s fair game.

   Interestingly, if you break down universities by average ACT or SAT score, which is a proxy for intelligence, and political leanings in the 2008 election, you find a remarkable correlations. Same with states–but that’s obviously more complicated. The same idea rests with how nobel prize scientists tend to endorse one party over another. On average, you’ll find pro-market liberals or libertarians or moderate conservatives (all pro-market, to varying extents) as you go up the education/IQ spectrum. Not a hard rule, but on average. I’d say that’s my experience, whether at my magnet high school in AR or my current U. Another way to look at it is to see which Universities have the highest endowment, which reflects successful alumni, and map political correlations–you would certainly find a correlation.

   If you look at the qualities of students who get hired by Google, Microsoft, etc, they tend to be world-changing types. Bill Gates noted this–I forget where–when he said that the people he hired wanted Microsoft to be engaged with humanitarian projects. Moreover, the basic values that underpin companies like Google–freeing information to the world– and creating free programs like Google, are actually quite progressive. Witness their massive diversity/affirmative action programs (Google Bold, I think it’s called) that go beyond what’s necessary, or their offices opening in Africa, or their free Google Earth program, or their strong committment to net neutrality, or their leaving China due to its hacking of human rights protestors. Sure, a lot of it is rooted in business–maybe all of it, ultimately–but there is a clear viewpoint there.

   Tech companies are fundamentally different types of companies. They don’t require labor–or scuffling with unions. They’re allowed to be more idealistic because they’re dealing with products that rest on innovation–not solely large scale efficiency and the nitty gritty of commodification. All their workers are highly educated types, and they solve problems with their minds. It’s just a whole different mindset, and it is about as merit based as it comes (the reigning Arkansas good ole boy mindset would not work).

   (Interesting anecdote: my friend listed 6 or so tech companies he argued were conservative, and I simply did a Google search and found out 5 of the 6 had CEOs/high level officers had supported a certain candidate in 2008. I couldn’t find any info on the 6th company. They were: Google, Microsoft, Apple, Sun Microsystems, Intel, and I can’t remember the last.)
4. Jeff Amerine says:

   April 23, 2010 at 8:02 am

   Folks

   Here are two additional detailed accounts of what’s in play. In the second link, TechFlash believes the existing Reg D rules for accredited investors may survive and may even be improved. Let’s hope that is the case in the final bill. Please keep an eye on these issues. A Wall Street Journal Op-Ed yesterday indicated that 77% of angel investors current in the market would be disqualified if the original language in the Dodd Bill was maintained.

   http://seekingalpha.com/article/199271-dodd-bill-will-kill-angel-investing

   http://techflash.com/seattle/2010/04/rules_for_angel_financing_saved.html

   Jeff
5. Wilson K. says:

   April 25, 2010 at 8:41 pm

   This would be a huge disaster to innovation in the economy.
6. Arkansas Bankers Association CEO on Community Banks and Financial Reform « Lance Turner says:

   April 26, 2010 at 9:33 am

   [...] Entrepreneurship educator Jeff Amerine of Innovate Arkansas thinks financial reform could be a “start-up killer.” [...]
7. VIDEO: Web Ross Speaks to Jeff Amerine’s UA Entrepreneurship Class | Innovate Arkansas says:

   April 27, 2010 at 9:53 am

   [...] Way,” which is, by all accounts, a must read. And not just for aspiring entrepreneurs. Jeff, IA advisor and entrepreneurship professor at the UA, even made it required reading for his class. [...]
8. Compromise Close That Would Eliminate Angel Restrictions in Finance Reform | Innovate Arkansas says:

   April 27, 2010 at 1:23 pm

   [...] Amerine blogged here very recently about the potentially startup-killing components to Sen. Christopher Dodd’s finance reform [...]

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