New Bill Could Raise Cap Of Venture Fund Investors From 99 People To 250
Representative Nydia M. Velazquez (D-NY), has introduced a new bill that could potentially pave the way for diverse startups led by LGBTQ founders, Black founders and women, to get easier access to funding.
When it comes to startups, access to capital is often times the biggest constraint when it comes to startups led by people of color, LGBTQ founders and of course women. While the numbers for funded women led startups have risen, it was still at a meager 14% in 2016, a number that must increase.
Representative Velazquez is hoping that a bill she introduced in the House, could pave the way for startups led by people of color, LGBTQ founders and women, to get more access to capital. Now the bill isn’t some kind of initiative with a tax abatement or anything like that. Velazquez is hoping that her bill can increase the number of venture backers for a non registered company.
“The Investment Company Act of 1940 now caps the number of venture fund investors to 99 people, before the fund must register with the Securities and Exchange Commission. However, Velázquez’s bill will enable up to 250 accredited investors to filter money into a venture fund without registering, boosting the amount of equity investment small businesses could use.The bill, passed earlier this month, is co-sponsored by Rep. Patrick McHenry (R-North Carolina).” Black Enterprise Magazine reported.
While this bill won’t pave the way for Sand Hill investors to start throwing money at startups, it does mean that new angel networks could form with more members to help diverse founders. An angel network is where a group of investors join together to back a startup. Typically an angel group charges an annual membership to potential investors and then they vote on whether to back a deal. After that, each investor has the option to participate or not, the group as a whole holds the equity.
“This bill will mean that businesses that have traditionally struggled to secure capital will have more options available to them,” Velázquez said. “By easing this restriction, we’ll help more Americans pursue dreams of business ownership, and more companies to scale-up and hire people.”
Marianna Hudson, the Executive Director of the Angel Capital Association, says that this bill is a big deal for diverse founders. She is currently a member of a national investor group that backs women led startups. “Current rules keep us to 99 investors,” she says “Think of how many more companies we could have supported if we could have as many as 249.”
Hudson’s organization, ACA, holds their annual conference later this week in San Francisco. Investing in diverse startups will be a big topic at the conference, including a session called “Investing in New Markets: Veterans, People of Color, and LGBTQ.”