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At his blog A VC, Fred Wilson examines a few provisions of the banking reform bill currently being debated in Congress and highlights a couple of provisions that could affect filmmakers.

From his blog:

1) Changing the definition of a “qualified investor” in angel and venture deals. Not just anyone can invest in a startup company. You have to be a qualified investor. A qualified investor is currently defined as anyone with a net worth of over $1mm or net income of over $250k. Dodd’s bill would increase that to $2.3mm and $450k respectively. And then index those numbers to inflation.

2) Eliminate the existing federal pre-emption over state regulation of “accredited offerings.” Angel and venture financings could be regulated state by state creating a fairly burdensome set of rules and regulations that each financing would need to be subject to. Currently there is a federal pre-emption that makes getting these kinds of deals done fairly easy.

I have no idea why either of these provisions ended up in a bill designed to regulate the banking industry. Entrepreneurs and startups don’t use banks to finance them. They get their initial capital from angel investors and then VCs as they grow. This system works well, did not blow up in 2008, and is not in need of reform of the type Dodd wants to throw at us.

In fact, what we need is to eliminate all accredited investor requirements for small investments of up to $25k. Why does someone have to be a millionaire to invest in a friend’s startup? I understand that we don’t want someone mortgaging their home, or betting their entire life’s savings on a startup. But for a small amount, like $25k, we should not be regulating angel investing.

Wilson’s second point here is interesting. As a film producer, I have never minded the accredited-investor rule. I know that film investment is highly risky, and this rule directs the siren call of glamorous film investing away from those who really shouldn’t be in the business. However, with the rise of microinvesting and new distribution and content platforms that require far less capital, perhaps lower thresholds are called for? After all, sites like Kickstarter and Indiegogo are essentially operating under a patronage model, where supporters are funding projects but not receiving equity stakes. Why not a middle tier for support that’s higher than the typical amount donated on these sites but far short of a traditional unit in a larger equity offering?

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