A 2011 report by IHS Global Insight and the National Venture Capital Association found that companies, which at one point were venture-backed, were responsible for 11% of total private sector employment and 10% of total U.S. sales in 2010.
Many of the country's most successful tech companies have been venture-funded, including Google (GOOG), Facebook (FB) and Twitter (TWTR). Opening up private equity, venture capital, and other alternative investments, to sophisticated investors who have been excluded solely on the basis of their net worth or income provides those investors with attractive new opportunities and encourages increased business formation and growth.
Although I share the Securities and Exchange Commission's concern with protecting investors from unsuitable investment products, I believe this objective can still be satisfied while providing a mechanism for sophisticated investors who don't qualify under the current income and net worth tests to qualify as accredited investors.
Democratizing access to private investment opportunities would benefit investors by providing them with a wider range of opportunities. It would also aid company executives, who would see more competition for investments in their companies, and investment managers, who could solicit a wider pool of investors. In addition, it would promote new business formation and growth.
I encourage readers to submit their comments to the SEC and contact their representatives and senators about the unfairness, and unintended consequences, of the current accredited investor rule. Under a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC is scheduled to review the accredited investor standard in 2014.
It is my hope that the commission relaxes the standard to expand access to private placements to sophisticated investors who do not current qualify. I wouldn't bet on it, however!
At the time of publication, the author owned shares of Google.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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