Fending for Themselves: Why Securities Regulations Should Encourage Angel Groups

Abstract

Angel investors are an increasingly important source of funding for high-growth startup companies. These investors often organize into groups to invest more efficiently. Recently, the regulatory status of these groups has been questioned. This article argues that angel groups do not violate securities laws because their investor-led nature distinguishes them from regulated securities professionals and makes them similar to investor forums that operate under Securities and Exchange Commission no-action letters. More broadly, it argues that the current framework of private placement regulation adapts poorly to a changing market for startup company finance. It concludes with a reform proposal to clarify the regulatory status of angel groups and future innovations in startup company finance.

Keywords: venture capital, private placements, angel investors, general solicitation

JEL Classification: K00, K22