The U.S. House of Representatives passed unanimously passed a bill this week that is designed to improve access to capital markets for investors.
The Accredited Investor Definition Review Act, introduced by Rep. Bill Huizenga (R-MI), would update the list of certifications that an investor must satisfy to qualify as an accredited investor to invest in private offerings.
Currently, one of the qualifications the Securities and Exchange Commission (SEC) uses to determine an accredited investor is an asset threshold of one million dollars. Huizenga said this limits funding for small business startups and shuts most Americans out of this portion of capital markets. This bill, which passed unanimously by voice vote, expands the definition to let more people qualify as accredited investors.
“The current definition the SEC uses to identify accredited investors is outdated and based solely and wrongly on wealth and net income. You shouldn’t have to be a millionaire to be an accredited investor,” Huizenga said on the House floor before the voice vote. “The ability to participate in a private offering should not be limited to individuals that pass some type of federal government assets test. Instead, participation should be expanded to include all individuals that demonstrate they have a sufficient understanding of the offering.”
Huizenga said this legislation is about leveling the playing field for investors to support small business startups. He told the story of an entrepreneur named Omi Bell, who founded Black Girl Ventures, an organization focused on providing women of color with access to community networks, capital, and capacity building to develop and grow their businesses.
“Omi testified before the Subcommittee on Capital Markets that her mother invested 10,000 dollars of her own retirement to support Omi’s first business venture. Yet her mom was not considered an accredited investor, and despite her desire to support her daughter’s ambitions she could have been disallowed from investing,” Huizenga said.
He also cited testimony from David Olivencia, the CEO and co-founder of Angeles Investors, who, while earning his MBA from Notre Dame, learned about startups and how early-stage investments could lead to outsized returns.
“Unfortunately for David, as he said he told his story, he said he did not qualify as an accredited investor, because his immigrant family did not have wealth that he could inherit. That is a horrible way to decide whether someone should or can invest in a dream. I can tell you this, the stories of Omi and David are all too common in the investment world,” Huizenga added.