Senator Dodd – Making it harder for small businesses to get funded

Several of my Seattle friends pointed out that Senator Dodd has proposed changes to the regulations that govern angel and VC investments.

Every time a VC or angel investor participates in a venture financing, there is a Reg D statement that is filled.  Currently, it’s a federal file that you file with the feds and then each of the states involved (company domicile, investor state, etc.) accepts the Reg D form. This is good because companies only have to pay to comply with one set of rules, rather than many.  The Dodd legislation would repeal the existing federal preemption of state regulation over “accredited investor” securities offerings. States would then, presumably, have to come up with their own rules and standards. 

It is important to have uniform regulation of securities offerings.  Otherwise the costs increase for everyone as startups are required to comply with differing state-by-state laws.  As state laws drift away from each other, eventually this might include startups having to hire multiple legal counsel.  It’s simply a waste of good capital, unless you are a lawyer who wants to make more money.  (In all fairness, the folks who pointed this all out to me ARE lawyers and aren’t concerned with billable hours, rather their clients). 

I am not sure why Senator Dodd would want to change this.  I have no experience in anything going “wrong” with the current regime.  It has been around for decades and the system works well.  There is no compelling reason to add these new costs to the companies and their investors.  I’d like to know what is driving this proposal. 

If you agree, there is an online petition.  Please sign at