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Join Mariah L. in signing this petition.

To: Securities & Exchange Commission

Remove Barriers to Startup Capital: Democratize Accreditation

Remove Barriers to Startup Capital: Democratize Accreditation

The Securities and Exchange Commission (SEC) regulates how founders raise capital, including whom they raise from, how, and how much they can raise. Under the SEC’s Regulation D, “accredited investors” must meet established thresholds for income ($200K per year individually or $300K for couples) and/or net worth ($1MM, excluding personal residence). Through this definition, both founders and funders face separate and unequal access to startup offering and investment opportunities. Such a policy disproportionately disadvantages underrepresented stakeholders and widens the wealth gap. It is essentially redlining the startup ecosystem.

This petition asks signatories to indicate their support for the current “accredited investors” definition to be replaced with regulations that promote equitable access to capital markets. This could be achieved by allowing investors to self-attest that they are aware of and able to tolerate an offering’s capital risk and illiquidity. Please sign to indicate your support for this policy change!

Why is this important?

BACKGROUND

Sources estimate that between 9.8 and 13 percent of Americans meet the qualifications to be “ accredited investors,” according to SEC standards, meaning the vast majority of Americans are excluded from some of the most lucrative investment strategies, such as investing in Reg D startup and VC Fund offerings. Due to the long-term effects of discriminatory barriers to wealth creation, like redlining (housing and loan discrimination) and exclusion from private offerings, Black, Latinx, and female investors are underrepresented, comprising just (1.3, 2.8, and 22 percent of angel investors respectively). The Angel Capital Association notes that “the observed racial disparity [among angel investors] may explain similar disparities in which entrepreneurs receive funding.”

Investor segregation through accreditation has a significant economic impact. Because investors tend to invest in those who are most like themselves, access to capital is limited for underrepresented founders, whose lack of access to high net-worth networks contributes to market inefficiencies. The Center for Global Policy Solutions found that discriminatory financing practices cost the U.S. nine million jobs and over $300B in annual collective net income.

The SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” Yet the current definition of “accredited investor” defies all three of these mandates. The SEC claims that the accredited investor definition serves to protect investors, but only requires accreditation for private-equity investments (e.g., in startups and venture capital funds), not for public equity (e.g., the stock market). Data from Cambridge Associates and Capital Dynamics show that “private equity investments offer greater protection against financial downturns than public equity indices.” Restricting access to less volatile, high risk, high return investment options is unfair. Moreover, it impedes the development of efficient private markets. The definition also constrains capital formation by using income and net worth as proxies for investment readiness, without regard for investors’ individual risk tolerance.

SOLUTION

To do its part to dismantle economic apartheid, the SEC should amend the accredited investor definition to empower investors to self-certify as accredited, by demonstrating that they are adequately informed, sophisticated (having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment), and/or have access to sufficient counsel, such as lawyers, certified public accountants (CPAs), and advisors.

The self-certification process could be carried out through a digital attestation system hosted on the website of the SEC’s Office of Investors Education and Advocacy, which could also host links to educational materials enabling prospective investors to enhance their sophistication. The digital attestation should disclose that private-equity investments are often long-term, illiquid (can’t be easily sold), and can result in total loss. It should also require investors to acknowledge their awareness of and tolerance for an offering’s risk and illiquidity. This change would harmonize offering regulations with a “ framework that is more consistent and addresses gaps and complexities” while more efficiently facilitating capital formation and wealth creation for those disadvantaged by the current definition.

REFERENCE

Read the 2 page policy brief:
https://www.aspentechpolicyhub.org/wp-content/uploads/2020/07/Mariah_policy_brief.pdf

Learn more:
https://www.techfundingequity.com/

Visit the project on the Aspen Tech Policy Hub website:
https://www.aspentechpolicyhub.org/project/closing-the-tech-funding-gap/

See Rule 501(a) of Regulation D
https://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=8edfd12967d69c024485029d968ee737&r=SECTION&n=17y3.0.1.1.12.0.46.176

How Many Accredited Investors Are There by Age?
https://dqydj.com/accredited-investors-by-age-in-america/

The Risks and Rewards of Startup Investing
https://fundersclub.com/learn/guides/vc-101/the-risks-and-rewards-of-startup-investing/

A 'Forgotten History' Of How The U.S. Government Segregated America
https://www.npr.org/2017/05/03/526655831/a-forgotten-history-of-how-the-u-s-government-segregated-america

The American Angel
https://bit.ly/TheAmericanAngel-ACA

Distribution of Wealth in 9 Charts
https://apps.urban.org/features/wealth-inequality-charts/img/Nine%20Charts%20All%20Charts.pdf

Diversity in U.S. Startups
https://ratemyinvestor.com/pdfjs/full?file=%2FDiversityVCReport_Final.pdf

Deconstructing the Pipeline Myth and the Case for More Diverse Fund Managers
https://www.kauffmanfellows.org/journal_posts/the-pipeline-myth-ethnicity-fund-managers

The Color of Entrepreneurship: Why the Racial Gap Among Firms Costs the U.S. Billions
http://globalpolicysolutions.org/report/color-entrepreneurship-racial-gap-among-firms-costs-u-s-billions/

What We Do
https://www.sec.gov/Article/whatwedo.html

Understanding Venture Capital
https://fundersclub.com/learn/guides/vc-101/understanding-venture-capital/

Private Equity During the Global Financial Crisis
https://www.capdyn.com/Customer-Content/www/news/PDFs/privateequityfinancialcrisis_nextgeneration15sep17.pdf

Call the Racial Wealth Gap by its Name
https://www.blackenterprise.com/naming-the-racial-wealth-gap/

Rule 506 of Regulation D
https://www.sec.gov/fast-answers/answers-rule506htm.html

Office of Investor Education and Advocacy
https://www.sec.gov/page/oieasectionlanding

“Concept Release On Harmonization Of Securities Offering Exemptions,” Securities and Exchange Commission (2019), https://www.sec.gov/rules/concept/2019/33-10649.pdf.

How it will be delivered

This petition is part of the #TechFundingEquity Project developed at the Aspen Tech Policy Hub and will be delivered via email to the Securities and Exchange Commission.

Learn more at: https://www.aspentechpolicyhub.org/project/closing-the-tech-funding-gap/


Reasons for signing

  • Worthwhile cause.
  • I signed because, as a formerly FINRA licensed professional, who was required to study federal securities laws as well as general state (blue sky) laws that govern how investments are offered and made, I know that the most powerful way to achieve wealth is through early stage startup investments, but that those opportunities are limited almost entirely to those who are already wealthy. The accredited investor definition is the key rule (Rule 501 under Regulation D) driving this economic divide.

Updates

2020-09-09 19:51:22 -0400

On August 27, 2020, the Small Business Capital Formation Advisory Committee issued the following recommendation:
https://www.sec.gov/spotlight/sbcfac/underrepresented-founders-recommendation.pdf

Highlights:

√ The Committee acknowledges that the country is at an inflection point
with respect to confronting matters of racial equity and inclusion, and
access to capital is a powerful tool to help achieve racial and economic
equity.

√ Regulatory action to improve the current capital-raising system – in which minorities and women have been underrepresented and inadequately supported – is critical.

√ The Committee supports regulatory revisions to the capital-raising rules and ecosystem that promote increased opportunities for diverse entrepreneurs and investors, particularly minorities and women, and asks the SEC to take leadership in the area.

2020-09-09 19:43:45 -0400

On August 26th, the SEC published a new rule on the Accredited Investor Definition.
See the press release here: https://www.sec.gov/news/press-release/2020-191

Do you agree with the statements made by Commissioners?

Statement on Modernization of the Accredited Investor Definition
Chairman Jay Clayton
https://www.sec.gov/news/public-statement/clayton-accredited-investor-2020-08-26

•Statement on Amending the “Accredited Investor” Definition
Commissioner Hester M. Peirce
https://www.sec.gov/news/public-statement/peirce-accredited-investor-2020-08-26

• Joint Statement on the Failure to Modernize the Accredited Investor Definition
Commissioners Allison Herren Lee and Caroline Crenshaw:
https://www.sec.gov/news/public-statement/lee-crenshaw-accredited-investor-2020-08-26

• Commissioner Roisman Statement on Amending the “Accredited Investor” Definition
https://www.sec.gov/news/public-statement/roisman-statement-amendments-accredited-investor-definition

2020-09-09 18:30:39 -0400

What is the "Southern Strategy" and dog whistle rhetoric?

TLDR: It is not partisan, it is a strategy that panders to racist ideology. Per Lee Altwater, terms include: "forced bussing," "states rights," etc., where, "you're talking about cutting taxes...totally economic things, where Blacks get hurt worse than Whites."

"So when Richard Nixon is talking about 'Law and Order' He didn't have to be racist, to appeal the racists. You don't want to look like a racist, you don't want to sound like a racist, you probably aren't a racist, but you NEED those votes, and that's the idea of the Southern Strategy."

Hear the history of the Southern Strategy per Hip Hughes:

https://youtu.be/MUzoEvSC_AU?t=379

2020-08-06 11:38:20 -0400

For Facebook:

Founders and funders face separate and unequal access to startup offering and investment opportunities based on network, income, and net-worth. Such a policy disproportionately disadvantages underrepresented stakeholders and widens the wealth gap. It is essentially redlining the startup ecosystem.

Support #TechFundingEquity, sign the petition:

Remove Barriers to Startup Capital: Democratize Accreditation
https://bit.ly/StopStartupRedlining-Petition

2020-08-04 18:31:37 -0400

50 signatures reached

2020-08-04 08:25:13 -0400

Tweet:

Join me in the @TechfundingEquity Project born at @AspenPolicyHub (part of @AspenInstitute's @AspenDigital):

Remove Barriers to Startup Capital: Democratize Accreditation
✊🏼✊🏿✊✊🏾✊🏻
#StopStartupRedlining #TechFundingEquity

https://sign.moveon.org/petitions/stop-redlining-startups?source=twitter-share-button&utm_source=twitter&share=d3027001-38d5-4034-930a-03c77f41e359 @TechfundingEquity

2020-08-03 17:57:34 -0400

25 signatures reached

2020-08-03 12:48:14 -0400

10 signatures reached