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76–471 2012

EQUITY FINANCE: CATALYST FOR SMALL BUSINESS 

GROWTH 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, TAX, AND 

CAPITAL ACCESS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

APRIL 19, 2012 

Small Business Committee Document Number 112–064 

Available via the GPO Website: www.fdsys.gov 

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E:\Seals\Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

CHUCK FLEISCHMANN, Tennessee 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

ROBERT SCHILLING, Illinois 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, General Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Mick Mulvaney ............................................................................................... 1 

Hon. Kurt Schrader ................................................................................................. 2 

WITNESSES 

Mary Dent, General Counsel, SVB Financial Group, Palo Alto, CA ................... 4 

Jason W. Best, Co-Founder, Startup Exemption, San Francisco, CA ................. 6 

Tony Shipley, Founder and Chairman, Queen City Angels, Cincinnati, OH ..... 8 

Angela Jackson, Managing Director, Portland Seed Fund, Portland, OR .......... 10 

APPENDIX 

Prepared Statements: 

Mary Dent, General Counsel, SVB Financial Group, Palo Alto, CA ............ 29 

Jason W. Best, Co-Founder, Startup Exemption, San Francisco, CA .......... 41 

Tony Shipley, Founder and Chairman, Queen City Angels, Cincinnati, 

OH .................................................................................................................. 44 

Angela Jackson, Managing Director, Portland Seed Fund, Portland, OR ... 54 

Questions for the Record: 

None 

Answers for the Record: 

None 

Additional Materials for the Record: 

None 

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(1) 

EQUITY FINANCE: CATALYST FOR SMALL 

BUSINESS GROWTH 

THURSDAY, APRIL 19, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND CAPITAL ACCESS, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:05 a.m. in room 

2360, Rayburn House Office Building, Hon. Mick Mulvaney presiding. 

Present: Representatives Mulvaney, Chabot, Schrader, Cicilline, 

and Chu. 

Mr. MULVANEY. If everybody is ready, we will go ahead and get 

started. Thanks again for coming in today. 

As I was just mentioning to Mr. Schrader, I am filling in for Mr. 

Walsh, who was unexpectedly called back to Illinois. So on his behalf and on Chairman Graves’ behalf, thanks very much for coming 

in today. 

All of us in the room today know that small businesses are important to job creation and the economy. But the question is how 

does a business go from the idea of a business to an engine of job 

creation? That is one of the things we will be looking at today. 

One thing entrepreneurs need to grow a business, obviously, is 

access to capital. Most businesses begin with an original investment from the entrepreneur or borrowed funds from friends and 

family, as did the four businesses that I started. In these early 

growth stages, the future is very uncertain. Entrepreneurs are trying to prove that their idea is viable and can attract customers for 

their product or their service. 

For successful ventures, once the idea shows promise, the entrepreneur will typically need more capital to expand. Because of the 

high failure rate of new companies, financing from a lending institution can be difficult to come by. So where do entrepreneurs go for 

this access to capital when they are turned away by a bank? They 

must rely on outside investors who share in the vision that the entrepreneur has that the new company can and will be successful. 

While equity investment can come in many forms, an entrepreneur receives funding in exchange for a stake in the success of 

a company. While this is a risky proposition for the investor, they 

are motivated by the belief they can add value to the company and 

one day profit from the investment. 

We are here today to hear from a distinguished panel of witnesses about the current state of entrepreneurial finance and repwalker on DSK7TPTVN1PROD with HEARING

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cent legislative changes impacting this environment, and finally, 

what can be done to focus our efforts as lawmakers on job creation. 

With that, I will yield to Mr. Schrader for his opening comments 

as well. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

And thank you, panel, for coming all this way to give us your 

thoughts and advice, which we definitely need. 

Today, more than ever, we are relying on America’s small businesses to create our jobs, driving the innovation that our country 

is known for and to unlock new markets. In previous recoveries, it 

has always been the entrepreneurs that have paved the way. Companies like Microsoft, FedEx, Hewlett-Packard, all those great companies started in someone’s basement or garage. 

And at this time, we hope that entrepreneurship is again the 

driving force that gets this economy going again. It takes money to 

get a business off the ground, as I well knew in my small business; 

mortgaged basically everything I had to start my business. Probably wasn’t the smartest thing I did, but I was successful, thank 

goodness. It also takes capital to keep the business running. 

And under normal circumstances, access to capital has not been 

a problem. Today, that task has become particularly challenging for 

small businesses and continues to be a big, big issue for small businesses. 

During the hearing, hopefully, we will examine some of the challenges these businesses face. On the positive side, it would appear, 

now I stand to be corrected, at the same time investment activity 

in early stage companies, the so-called angel investors, is starting 

to pick up a little bit and rebound. I would like to hear the extent 

to which that is and what we can do to actually foster that. 

We passed a JOBS Act bill, nice bipartisan bill that hopefully is 

of some value in getting some of these small businesses off the 

ground and continue to stay viable going forward. These developments I think are a source of optimism in the current investing climate. Still, there is much more we need to do to get a robust return for our Nation and small business. Although the JOBS Act is 

still in its infancy, hopefully, it will prove to be of great value. And 

your suggestions today will hopefully pave the way for the next 

JOBS Act. 

Thank you very much for coming. 

Mr. MULVANEY. Very briefly, one logistical matter before we get 

started. You will see that television screen change here probably in 

the next 15 or 20 minutes, and we will be called to our first vote 

series of the day. 

Mr. Schrader and I will have to excuse ourselves to go over and 

vote, hopefully for only a very short period of time. So when we get 

to that, we will adjourn the meeting for as brief a period of time 

as possible to allow us to go over and vote. 

We will try and find a nice convenient stopping point when we 

get to that point. Now what I would like to do is introduce the witnesses for the record. And then, after we do that, we will take your 

testimony, and we will finish with questions at the end. 

So we will begin, the first witness today is Ms. Mary Dent, general counsel at the Silicon Valley Bank, located in Palo Alto, California. Silicon Valley Bank provides financing for a wide variety of 

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entrepreneurs, investment funds, and start-up companies. As general counsel, she is responsible for the banks’ legal and compliance 

departments, providing strategic guidance to the company’s management team and board of directors. 

It is always nice to hear your own bio read back to you, isn’t it? 

We go through it all the time. 

Mr. SCHRADER. It is embarrassing. 

Mr. MULVANEY. Every time I go through this on my Web site, it 

gets shorter and shorter. Prior to joining Silicon Valley Bank, Ms. 

Dent served as general counsel to New Skies Satellites, a global 

communications firm where she was responsible for the company’s 

regulatory filings related to its IPO. 

Ms. Dent, thank you very much for being here today. 

Our next witness will be Mr. Jason Best, co-founder of the Startup Exemption. The Startup Exemption has played a key role in developing the framework to change securities laws to make 

crowdfunding a reality. 

Prior to becoming involved in the Startup Exemption, Jason has 

served in a variety of roles at Medem, Inc.—am I pronouncing that 

correctly—a technology company that provides communication 

services to the health care sector. 

He has an MBA from the Thunderbird School of Management 

and an undergraduate degree from William Jewell College. 

Thank you again, Mr. Best, as well. 

I am also going to introduce Mr. Shipley. 

Mr. Shipley, I understand Mr. Chabot is on his way, but we will 

go ahead and introduce you before he gets here. And I apologize for 

stepping on his toes. 

Mr. Shipley is the founder of Queen City Angels in Cincinnati, 

Ohio. After being a successful entrepreneur, he founded Queen City 

Angels, an angel capital investment group with 50 investors which 

provides financing for seed stage and small high-growth companies. 

Queen City has invested over $30 million in 52 entrepreneurial 

companies. 

He is testifying on behalf of the Angel Capital Association, a 

trade association representing more than 7,500 accredited angel investors. 

Mr. Shipley, thank you again for being here today and for your 

testimony. 

With that, I will yield to Mr. Schrader for the introduction of our 

final witness. 

Mr. SCHRADER. Thank you again, Mr. Chairman. 

I am really pleased to introduce Angela Jackson as co-founder 

and co-managing director of the Portland Seed Fund, a $3 million 

private-public seed fund investing in high-growth capital-efficient 

companies in my State of Oregon. 

She brings significant experience securing angel investments in 

multiple business sectors for the seed fund. She advises hundreds 

of entrepreneurs and seed stage companies across the broad spectrum of industries at AB Jackson Group. 

Also oversees Portland State University’s Business Accelerator, 

which is a really neat deal in our State. 

Ms. Jackson is president of the Portland Chapter of the Keiretsu 

Forum—— 

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Ms. JACKSON. Well done. 

Mr. SCHRADER [continuing]. The largest angel network in the 

world, and was chair of the State’s premiere angel investment 

event, Angel Oregon, in 2010. 

She holds a B.A. from Boston University, M.A. from University 

of Oregon. 

Go Ducks. 

And thank you for being here today. 

I yield back, Mr. Chairman. 

Mr. MULVANEY. We are not going to have a quack attack in this 

meeting, are we? My brother married into a family of Oregon 

Ducks. It is a disturbing group of people sometimes. 

One housekeeping matter. For those of you who haven’t testified 

before, the general rule is that the testimony is supposed to take 

about 5 minutes. There should be some green, yellow, and red 

lights that you can see in front of you. While that is the rule, we 

don’t typically enforce it very strictly here. So if you feel the need 

to go over a few minutes, that is fine. If you get extraordinarily 

long-winded, and believe us, we know what it is like to be longwinded, you will hear me very quietly tap the gavel. If you could 

start to wrap up at that time, that would be great. 

And what we will do is we will go through as much of your testimony as we can before we have to break, and then Mr. Schrader 

and I will ask questions after we come back. 

STATEMENTS OF MARY DENT, GENERAL COUNSEL, SVB FINANCIAL GROUP, PALO ALTO, CA; JASON W. BEST, COFOUNDER, STARTUP EXEMPTION, SAN FRANCISCO, CA; TONY 

SHIPLEY, FOUNDER AND CHAIRMAN, QUEEN CITY ANGELS, 

CINCINNATI, OH; AND ANGELA JACKSON, MANAGING DIRECTOR, PORTLAND SEED FUND, PORTLAND, OR 

Mr. MULVANEY. So Ms. Dent, with that, please tell us why you 

are here. 

STATEMENT OF MARY DENT 

Ms. DENT. Representative Mulvaney and Ranking Member 

Schrader, thank you very much for having me here today to talk 

about the very important question of how we make sure that small 

businesses get the capital they need to thrive. 

As you said, my name is Mary Dent, and I am here as general 

counsel for Silicon Valley Bank. I will focus in particular on a small 

but critically important part of the overall landscape, which is 

high-growth, small young businesses. 

As you said, we all know why these companies are so important. 

It is because they are the single best source of job creation we have 

as a country. High-growth companies create roughly 12 million jobs 

and more than $3 trillion in annual revenues. They are also helping us solve challenges in fields like health care and energy. And 

importantly, they serve as the growth pipeline for mature American corporations around the country. 

SVB, as its name implies, works pretty much exclusively with 

these high-growth companies. We work with about half of the venture-backed companies all around the country through 27 different 

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offices, and we are one of the only banks in the United States that 

will lend to startups before they are profitable. 

I will first talk for a minute about what I see in bank lending. 

I will then touch on what is happening on the venture capital investing side of things and then a bit on the intersection between 

policy and the world of startups as we see it. So, first, on bank 

lending, while access to credit does remain an issue in the broader 

economy, in the sectors that we serve, actually loans are readily 

available. There are few other sectors today that can deliver the 

kinds of risk-adjusted returns that banks can get lending to highgrowth technology companies, and so competition there is actually 

fierce. 

Even for very early stage companies, on the debt side, we think 

about the right amount of financing is generally available. The 

availability of debt does, however, vary by sector. And in clean energy, for example, companies face a very well known what we call 

valley of death as they try and scale from technology proof to commercial scale production. 

Turning to the equity front, we recently did a survey of early 

stage companies, and their executives said that access to equity 

funding is their second most significant challenge, right after scaling operations for growth. And we think this reflects a few underlying trends. 

On the positive side of things, companies are adopting much 

more capital-efficient models, which means they just need less 

money to get started and to begin growing. Venture capital investing levels have largely recovered from the steep falloff we saw during the financial crisis. And other sources of capital, including 

many of those you are going to hear from today, are providing more 

and more funding to early stage companies. 

Public equity markets are also starting to rebound. And the 

health of the IPO market, as you understand from your work on 

the jobs bill, is very important, because traditionally about 90 percent of growth, of job creation by high-growth small companies has 

occurred after they have gone public. 

But the picture isn’t universally rosy. While venture investing 

has recovered, venture fundraising actually has not. In addition, 

access to capital remains more difficult in capital-intensive, heavily 

regulated sectors, most notably life sciences and clean technology. 

This is already affecting the kinds of innovation that is occurring, 

and it has potentially serious long-term implications for our country. 

Turning to the question of the role of policy, we believe that the 

innovation economy depends first and foremost on the people who 

build and back high-growth companies. But we also think that policymakers can have a dramatic effect on the overall ecosystem. 

To thrive, startups need government leaders who take the long 

view, who understand the importance of letting people take risks, 

who base decisions on facts, and who refuse to entrench the status 

quo. Top of my issues for start-up entrepreneurs include education, 

access to talent, the regulatory environment, intellectual property 

protection, health care, and R&D funding. 

Like you, Mr. Schrader, I see the recently enacted JOBS Act as 

a very positive sign, and I commend the House for its leadership 

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and its bipartisan approach to passing this important piece of legislation. I have also been heartened by steps that Members of Congress have taken and are taking to make sure that Dodd-Frank is 

implemented in a way that doesn’t inadvertently stifle the amount 

of capital flowing to high-growth small businesses. 

Looking forward, I hope the House will reauthorize the U.S. Export-Import Bank soon. To give you a sense for this agency’s impact 

on small business, in 2010 just our EX–IM loan commitments 

helped 75 small businesses generate more than $1.4 billion in sales 

and support more than 6,000 U.S. jobs. 

The United States is lucky. We have a vibrant innovation sector. 

Other countries are trying desperately to recreate what we are 

lucky enough to have naturally. All we need to do is avoid stifling 

it. 

I commend this Committee for holding this hearing, and I look 

forward to working with you to strengthen the vibrant part of our 

economy that we are here discussing. Thank you for your time, and 

I am happy to answer any questions you may have. 

Mr. MULVANEY. Thanks, Ms. Dent. 

Mr. Best. 

STATEMENT OF JASON W. BEST 

Mr. BEST. Chairman Mulvaney and Ranking Member Schrader 

and members of the Committee, thank you very much for the opportunity to discuss crowdfunding and how it can function as a 

part of the solution for the small business funding crisis in the 

United States. 

I would like to begin by thanking the members of this Committee 

and the House at large for their bipartisan and overwhelming support for the crowdfunding as part of the JOBS Act the President 

signed on April 5. It was a great testament of the willingness of 

both parties to work together in support of small business and entrepreneurs, which we all know are America’s economic engine. 

When entrepreneurs have access to capital to grow their organizations, it translates into new American jobs and American innovation. 

My name is Jason Best, and I am an entrepreneur who has been 

part of the executive management team also of Kinnser Software, 

that was ranked as one of the 500 fastest growing private companies in the United States both in 2010 and 2011. 

I am also co-founder of Startup Exemption. Startup Exemption 

was formed to advocate for the legalization of equity-based 

crowdfunding. I and my co-founders, Sherwood Neiss and Zak 

Cassady-Dorion, saw firsthand the realities of the capital formation 

crisis in January of 2011. We created a proposal to update securities laws that were written almost 80 years ago to enable 

crowdfunding to take place in the U.S. 

We began working with the House on our ideas. And thanks to 

the collaborative leadership of the House, the Senate, and the 

President, crowdfunding has now become law. 

Now the SEC has begun its 270-day rulemaking process, and I 

appreciate the opportunity to share my perspectives on what this 

means for small business, as well as what I would respectfully sugpwalker on DSK7TPTVN1PROD with HEARING

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gest that this Committee and the House consider between now and 

the conclusion of the rulemaking period. 

Crowdfunding will enable organizations to use SEC-regulated 

Web sites to raise modest amounts of capital from large numbers 

of regular Americans. In exchange for that capital, these small 

businesses will issue equity or debt securities. If we think of the 

Internet as Web 1.0 and then the rise of social networks, like 

Facebook and Twitter, as Web 2.0, this legislation really creates 

Web 3.0. Web 3.0 is where the social Web meets capital formation. 

Finally, we are able to harness the power of social networks as well 

as communities of geography and communities of interest to build 

businesses that create jobs and innovation. 

I live in San Francisco, California, where venture capital and 

angel investors are plentiful. The same can be said of places like 

Austin, Texas, and New York City. How will this crowdfunding 

benefit companies in these places? It really is looking at providing 

them with another option for some early stage businesses who need 

to establish proof points with professional investors that the management team can execute and there are markets for its goods and 

services. 

Mr. Chairman, I believe that companies may use crowdfunding 

as an onramp to professional capital and investment from angels 

and VCs. 

But what about places like Natchitoches, Louisiana, where I 

grew up, or Arnold, Nebraska, where my family first settled in this 

country? There are great ideas, talented entrepreneurs, and hardworking small business people in towns like these all across the 

country, and many of these individuals have no access to venture 

capital or even bank loans. Many Main Street businesses may 

never fit the typical venture-backed business model, but may be 

really good investments for individuals in those communities. Now, 

crowdfunding can provide these businesses and entrepreneurs the 

chance to raise capital from their own communities. Soon the dry 

cleaner could crowdfund to add much needed equipment or a restaurant could open a second location. While crowdfunding alone 

cannot solve all capital formation challenges, it may provide benefits to many businesses. 

Mr. Chairman, there is still a great deal of work to do in the 256 

days remaining in this rulemaking process. As the President noted 

during his signing ceremony, the crowdfunding industry has 

formed the Crowdfunding Leadership Group. I was meeting with 

this group yesterday in fact. This group’s goal is to collaborate with 

the SEC during the rulemaking period as it seeks to provide oversight, education, and investor protection for the industry. These 14 

crowdfunding companies and industry experts that created this 

group have already begun their work. And as a board member of 

this group, I ask for this Committee’s help in ensuring the SEC can 

complete its work within the 270 days mandated by the legislation 

of the JOBS Act. 

The crowdfunding industry has committed to do all it can to create an orderly market with investor protection, investor education, 

transparency, and data flows that can demonstrate that the market 

can create jobs, innovation, and successful companies. Please help 

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us as we collaborate with the SEC to create rules that will enable 

this industry to thrive. 

Thank you, Mr. Chairman and this Committee, and I look forward to your questions. 

Mr. MULVANEY. Thank you, Mr. Best. 

If you can give me just a second to go over a couple housekeeping 

things with Mr. Schrader. 

At this point, with Mr. Schrader’s approval, I would like to yield 

a few minutes to Mr. Chabot for an opening statement. 

Mr. CHABOT. Thank you. I will be very brief. I just wanted to 

welcome and thank Tony Shipley, who is from my district, from my 

city, Cincinnati. And Cincinnati is known as the Queen City. And 

they are the Queen City Angels. And they have invested I believe 

in 52 entrepreneurial companies now, have raised about $30 million, and have I believe about 50 investors in your company. 

And Tony Shipley is testifying on behalf of the of the Angel Capital Association, which is a trade association representing more 

than 7,500 accredited angel investors. And I know we have got a 

vote, so I don’t know if we want to get his testimony in before. 

If so, I will yield at this point. 

Mr. MULVANEY. Actually, I think we have just enough time for 

that. 

Mr. Shipley, if you would present your testimony. And then, after 

that, we will adjourn for a brief time. 

Mr. CHABOT. So, welcome to Washington. You have 5 minutes. 

STATEMENT OF TONY SHIPLEY 

Mr. SHIPLEY. That is what I was told. 

Thank you very much. 

Chairman Mulvaney, Ranking Member Schrader, Member 

Chabot, and all the other members of the Subcommittee, thank you 

for holding this hearing on equity finance as a catalyst for small 

business growth. 

The capital that equity investors provide, both financial and intellectual, is important for the successful creation and growth of innovative entrepreneurial companies. My name is Tony Shipley, and 

I am a co-founder of the Queen City Angels, a Cincinnati, Ohio, 

group of 50 angel investors that have invested more than $30 million of our own money in 52 entrepreneurial companies in 11 years. 

We make multiple investments in these small businesses to support their development, and as such, we have made a total of 115 

investments in our portfolio companies. Our money has leveraged 

an additional $60 million in direct co-investments in our companies 

and $120 million in follow-on venture capital. 

I am pleased to represent the Angel Capital Association, a growing community of sophisticated private investors known as angel 

investors, who invest money and expertise in high potential startup companies. The Angel Capital Association, ACA, is the professional alliance of angel groups in the United States and Canada, 

and includes 165 member angel groups in 44 States and another 

20 affiliated organizations. 

The Angel Capital Association has about 350 angel groups in its 

database, located in every State, compared to about 100 groups 10 

years ago. The new HALO Report from the Angel Resource Instipwalker on DSK7TPTVN1PROD with HEARING

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tute, Silicon Valley Bank, and CB Insights describe the investments angel groups made in 2011: Median round size of $700,000; 

58 percent of investments were in health care/life sciences and 

Internet/IT sectors; two-thirds of the investment rounds were syndicated, often with multiple angel groups; and investments were 

distributed throughout the country. Two-thirds of the deals were 

outside of the traditional equity centers California and Boston. 

Queen City Angels’ experience fits within these national statistics. From conversations with my colleagues in Cincinnati and 

across the country, my angel journey has a lot in common with 

many active angels, including past entrepreneurial experience and 

interests, investing for more than financial returns, connecting 

with other smart investors, becoming part of a start-up ecosystem, 

and providing continuing support to entrepreneurs and start-up 

companies. 

Angel groups like Queen City Angels actively work to market 

and brand themselves so that entrepreneurs can find us. We work 

with many organizations to conduct initiatives, such as monthly 

mentoring sessions and incubators, and conduct an annual 2-day 

entrepreneurial boot camp to prepare entrepreneurs who are making effective presentations to investors, judging business plan competitions, participating in regional venture forums, and many other 

events. 

I recommend a few things to help strengthened the environment 

for starting and growing businesses, including leverage the large 

number of Baby Boomers. In addition to their equity capital, they 

can bring many of the skills, experience, and mentoring needed by 

startups and early stage companies to help them be successful in 

shorter periods of time without making many of the costly mistakes 

that startups tend to make; leverage private investments to get 

companies out of the capital gap that was testified to a moment 

ago, the valley of death; ensure enough angel capital to support 

new ideas. 

The Angel Capital Association calls your attention to a few public 

policy issues to ensure the health of these investors. Reinstate the 

100 percent tax exemption on gains in qualified small business 

stock; consider tax credits for angel investments in qualified entrepreneurial companies; and develop education, training, and awareness programs for investors and entrepreneurs. 

Thank you for this opportunity to describe the unique role and 

significant impact that angel investors have in our economy supporting the innovative startups that create important jobs in our 

country. I would be happy to answer any questions you may have 

and for the Angel Capital Association to provide you with additional information where and when you need it. 

Thank you. 

Mr. MULVANEY. Thank you, Mr. Shipley. 

And Ms. Jackson, with our apologies, I think we are going to 

draw a temporary close right now. 

Mr. Schrader and I and Mr. Chabot need to run over. So what 

we will do, three votes, gentlemen, best guess 30 minutes? We are 

going to shoot to be back here as close to 11 o’clock as we possibly 

can. So as soon as everybody is back in the room, we will get right 

back to it and wrap up this afternoon. 

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Thank you very much. We will see you in a little bit. 

[Recess.] 

Mr. MULVANEY. If it is all right with everybody else, we have got 

one more witness to testify, and we have got some questions. 

We also welcome Ms. Chu from California. 

And so, Ms. Jackson, when we were so rudely interrupted, it was 

your turn. So fire away, and then we will move to the questions. 

STATEMENT OF ANGELA JACKSON 

Ms. JACKSON. Thank you very much. 

Thank you, Chair Mulvaney, Ranking Member Schrader, members of the Committee. 

As you know, I am Angela Jackson, and I am delighted to be presenting my testimony here today. 

I am fortunate to be involved in the entrepreneurial ecosystem 

from several angles, one as fund manager of a professionally managed seed fund, called the Portland Seed Fund; one as a chapter 

president of an angel group of private citizens getting together to 

invest angel capital; and third, as the director of the Portland State 

University Business Accelerator, which is a facility housing 25 to 

30 fast high-growth technology, biotech, and clean-tech companies. 

In addition, I grew up in a serial entrepreneur household. And 

much like Mr. Schrader, got to witness my father betting the last 

$2,000, $3,000 on starting a company, which fortunately one day 

did have a nice exit and generate a lot of jobs and economic activity. I got to go to college off the earnings for one. 

Like my father, many entrepreneurs do choose to bootstrap their 

companies. And in that case, they trade sort of a slower level of 

growth—this was a 20-year overnight success—for the faster, explosive growth that you might achieve by seeking venture or angel 

capital, where you can accelerate that growth. 

So I look forward to answering questions later. I thought it 

would be helpful to talk about some things that are going on in 

Portland, Oregon, which is a real entrepreneurial destination. We 

are actually having entrepreneurs start to move to Portland to 

build their companies because of the quality of life, the access to 

tech talent, and the cost of living vis-a-vis other communities 

where they might like to be. 

So, from my vantage point, things are looking good and getting 

better. Investors are coming back into the game, startups are creating companies. So from the Portland Seed Fund standpoint, my 

partner, Jim Huston, and I raised $3 million in a hybrid public and 

private fund; $3 million doesn’t sound like a lot by anyone’s measure. But what we do is invest initially very small amounts of capital, $25,000 to start, in who we see as the highest potential, highgrowth, capital-efficient companies that we can find in Oregon. We 

do these in classes or cadres of eight at a time. And with the capital comes strings attached in the form of mentorship, intensive 

connections and investor introductions, as well as introduction to 

the ABCs of running a business. Very often these seed stage entrepreneurs come at it from the standpoint of the product, but they 

don’t understand the other nine-tenths of what building and running a successful business encompasses. And we expose them to 

that. 

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To date—this is quite new—we kicked off the fund with our first 

investments last July, eight at a time, and we did a second class 

just in early March. So 17 total investments to date. Those companies, even after we just invested an initial $25,000, have created 

60 jobs and have gone on to raise over $4 million in follow-on 

priced capital. 

So we are very proud of the progress to date. But I also want to 

point out and set expectations, we are playing at a high-risk, highfailure rate asset class, the seed and angel class, and we know that 

failure is a key part of the game. And we do expect failures. 

So we call this the catalyst and the crucible. The discipline 

around what we do at the seed fund is we think what makes the 

difference in accelerating these company’s success. 

We take a similar approach at the Portland State University 

Business Accelerator. But the types of businesses that we serve are 

a little different, and they have a longer time to market. Bioscience 

cannot be a $25,000 overnight success, for example. So, instead, we 

help these companies access larger formal rounds of capital. And 

we are proud to report that those companies were the subject of a 

Portland Business Journal lead article last November, something 

along the lines of, What is in the water at 2828 Southwest Corbett? 

These companies have attracted $128 million in private capital to 

Oregon, which is kind of a cash-starved venture State, through 

their great work. And that was over a 5-year period. These companies are hiring rapidly. These 25 to 30 companies have 15 open positions today. So these are in fact job-creating companies. 

The third hat I wear is with the Keiretsu Forum, the angel 

group. And this is actually a global angel group, but I participate 

in the Northwest Circuit, which encompasses 240 members. Those 

240 members last year invested $24 million of their own capital in 

36 companies, to grow them and to expect a return. I would sort 

of tap groups like Keiretsu Forum as a logical partner with the 

new crowdfunding legislation to put a face in a room to create an 

online-offline experience to vet out some of the deals, the due diligence, and the deal screening that will be a necessary part of 

crowdfunding, which we are excited about, by the way. 

If there were, if I could wave a magic wand and ask for a couple 

of things, I am seeing that—first of all, we are supportive of the 

crowdfunding legislation. We also know, we are cautiously optimistic, we know that the devil will be in the details of rulemaking. 

So we are hopeful that that process will go well. But it is early to 

tell. We are probably more excited about the easing of the nonsolicitation ban in the short term anyway from Reg D, which will 

make it easier for the already in place angel infrastructure to advertise, attract, and recruit new members, who, by the Keiretsu example, you can see are ready and willing to put, you know, funds 

into good companies. 

In the yet-to-do column, increased incentives to angel investors 

who are putting risk capital into place to grow the economy would 

be a top priority as well as easing the friction through the Tax 

Code to startup companies, who are struggling to create these jobs. 

And I know you are well aware of many proposals. I am not going 

to suggest or back a specific one. 

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A couple of other potential upstream choke points to be aware of. 

I am not experiencing the easing of lending with the small companies that I work with yet. I would like to see some provision where 

the top performers, as vetted by groups like mine, can access loan 

capital earlier in the form of working capital and inventory financing. These are huge potential choke points to the growth that they 

could put on. And they are still, in my experience, struggling to get 

those loans. And I am happy to talk to anyone who knows a way 

around that. 

And lastly, we are seeing a choke point of talent actually. So the 

training, and whether we are training organically here or recruiting highly skilled tech workers to fill out these jobs that are becoming available, this is the new choke point that I am seeing in the 

job-creating companies. 

So, with that, I am looking forward to your questions. Thank 

you. 

Mr. MULVANEY. Thank you, Ms. Jackson. 

Thanks to all the witnesses. 

As is my custom, I usually defer to the ranking member. 

So, Mr. Schrader, you are recognized for as much time as you 

will consume. 

Mr. SCHRADER. Thank you, Mr. Chair. 

Appreciate everyone for coming. Both the chair and I were kind 

of anxious to hear your testimony and learn how we can continue 

to help this critical part of our economy develop and grow. 

I guess I would start with Ms. Jackson, if that is all right. Elaborate maybe a little bit on your last two points about the choke 

points. And maybe Ms. Dent could chime in also about—I agree, in 

my State at least, the small, small businesses are still having a lot 

of trouble with the credit. The middle stage and larger businesses 

I think are in much better shape. So, you know, a little bit on what 

some of the solutions are that you think. 

And Ms. Dent, if you could follow up on that. 

Ms. JACKSON. Sure. Understanding bank underwriting, that is 

not my sweet spot. But what I can report is when we put in the 

hours and—you know, we are professional fund managers; we are 

able to select top performing companies and surround them with 

everything they could possibly get and need to ensure their success. 

And again, there will still be failures. But there are companies that 

will fail first because of lack of access of that next year capital and 

not for any other factor. If there is a way to achieve some sort of 

seal of approval or some sort of loan guarantee that those particular hotshot companies could achieve some, you know, kind of 

line of credit—again, it is not for every company. It is not for small 

business, Main Street America; this is a different type of company 

I am talking about—— 

Mr. SCHRADER. Are you familiar with the new market venture 

programs SBA has? Are they too cumbersome, too whatever? What 

is the deal? 

Ms. JACKSON. In my experience, again, I work with hundreds of 

entrepreneurs, I have yet to meet one who has successfully 

accessed those programs. 

Mr. SCHRADER. That is telling. 

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Ms. JACKSON. It is not to say that they aren’t elsewhere, but in 

my experience in Oregon, that is true. 

Mr. SCHRADER. Ms. Dent, any comments? 

Ms. DENT. Sure. I think there are probably at least two things 

going on. One is, by definition, we see the companies that we see, 

and there are relatively small lenders who will lend to these very 

small startups. So some of it may be an information flow thing. If 

the companies can’t find their way to one of the handful of people 

who is open to lending to very early stage companies, by definition, 

we will believe everybody is getting the credit they need, and they 

won’t be getting the credit they need. So I am happy to introduce 

you; we do have an office in Portland, and I am happy to introduce 

you to my colleagues there and let them continue the conversation. 

Ms. JACKSON. I know your colleagues. They are lovely people. 

Thank you. 

Ms. DENT. The second is, frankly, harder to solve. And that is 

that lenders have relatively little upside; they earn interest, and 

they really can’t therefore take the downside risk that an equity investor can and often chooses to take. 

In addition, under the banking regulations you have to have one 

or two sources of repayment. That doesn’t mean potential repayment, that means accounts receivable, cash on hand, or something 

else that you can count on as a source of repayment. And if you 

don’t have that, you actually have to treat the loan as a loss. It 

doesn’t matter if you remain optimistic that it will be recovered, 

but you have to take it out of income in this period and then hold 

it basically in a separate account. And then when you recover that, 

that flows back in. But it does impose a rigidity on what banks can 

do on potential they believe in, potential they see and they share 

with the investors. A belief that the company will perform well and 

will be able to pay, that is not enough for a bank to be able to lend. 

They really need to see the actual source of repayment. And there 

usually have to be at least two sources of repayment. 

And that is a basic gap between I think the desire for credit, the 

realistic and reasonable desire for credit on the part of the entrepreneurs in these startups and the legitimate views of the lenders 

looking at the credit from a credit perspective. 

Mr. SCHRADER. So then a question for the whole panel I guess 

is, I agree, banks never lent me money unless I really didn’t need 

it. And that is not a slam on the banks; it is just the real world. 

Because like you said, they have to have some sort of asset. And 

when I started, I didn’t have a whole heck of a lot. 

So what do you use to guide your decisions? You know, obviously, 

you have more flexibility as angel investors. How do you decide 

which is a better risk than another? Because eventually, you do 

want to make some money on your investment at some point in 

time. So what are some of the things you look for to guide your decisions? 

Ms. DENT. There are probably two big differences between Silicon 

Valley Bank and most banks. One is that we will lend against the 

probability of the next round of financing as a source of repayment; 

that when we are in conversations with the investors and we know 

that they are backing a company and we know that when that company reaches the next round, they will be there. In the near term, 

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the company usually has cash because equity goes into companies 

in chunks. So they sort of get a load of cash, we can lend against 

that cash. As they use that cash and develop their product or service, as it gets closer to the point where they are going to need to 

raise another round, then we can engage more with the investors. 

And it is our focus on the ecosystem and our deep relationships 

that let us have all the conversations we need to have to go figure 

out, is this company going to get that next round, in which case 

we can hang in there with them, or not going to, in which case we 

would work with the management to wind down the company because it is approaching that end point. And it is better to do it 

gracefully if they are not going to make it. 

I think the second difference that we believe really differentiates 

ourselves comes later. It is after you get the credit, so you get past 

that initial gate, what happens when you hit the inevitable bumps 

in the road? And I think we believe, again, because we focus on the 

sector and we work so much with entrepreneurs, that we are better 

able to understand what is really going on and not react too strongly to things that happen, and sort of hang in there and figure out, 

again, we have an obligation to the Federal Government and to our 

shareholders to continue to be safe, sound lenders. But the more 

you understand, the more you can differentiate real risk from perceived risk and hang in there where it may look like there is a risk, 

but you understand the facts, and it actually is a risk that is manageable and can you stay with the management team and let them 

work through that risk. 

Mr. SCHRADER. Very good. 

Mr. Best. We will just go right down the road. Comment? 

Mr. BEST. I guess we definitely see, in my work with Kinnser 

Software in the last 4 years, we spent a lot in Austin, Texas, and 

certainly a lot of venture capital there. But from a small business 

lending perspective, definitely a very challenging environment still. 

I think Mr. Shipley has made an investment in a company that 

is part of the leadership group, this crowdfunding leadership group 

that we are working on on the debt side, SoMoLend, and he may 

have some more specific comments about them. But certainly this 

crowdfunding on the debt side, the opportunity there really is in 

the research work that that platform has done, the typical amount 

of money that a small—a Main Street business needs is around 

$20,000 to $25,000. So it is a fairly small amount. It is an amount 

of money that could certainly be crowdfunded effectively for Main 

Street businesses. So I think whether that is on the equity side or 

the debt side, I think there is a lot of opportunity there. 

Mr. SCHRADER. Very good. 

Mr. Shipley. 

Mr. SHIPLEY. Yes, just a couple of follow-on comments. 

Mr. Best talked about the company that we have invested in, 

which is SoMoLend. And it is a part of this crowdfunding. In fact, 

the lady who started that business is going to be working with the 

SEC and the committee that they are putting together to finalize 

the regulations on this. So we are really interested in what will 

come out of that. 

And as Ms. Jackson pointed out, I think the devil will be in the 

details. So it is going to be very interesting to see how that shakes 

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out at the end of the day. And I think the question is, is it going 

to be more appropriate, ‘‘it’’ meaning crowdfunding, for those companies that are more lifestyle oriented, or will it also apply to companies that are venture oriented, that can actually get organized 

angel rounds of capital or VC rounds of capital. So I think we are 

going to shake that out over this next several month period. 

There is another company in Cincinnati that we are affiliated 

with. One of our angel members started a company called the Business Backer. And it is exactly for those companies who need— 

maybe it is a pizza parlor and, they need a $25,000 loan that they 

can’t go through the bank and get because they don’t have the collateral to support the loan. And as long as they have a revenue 

stream, they can get a loan from this organization. And the way 

the loan is repaid is on every revenue transaction they take a little 

piece of that revenue and repay the loan. So over a several month 

period, and generally a 9-month period, they have repaid that loan. 

So it is one way to fund these companies who need these small 

amounts of capital. 

Another concept that one of our ACA members is working on is 

this idea of revenue funding. And it is a higher level of activity 

that I have talked about with the Business Backer. And a gentleman that is looking at all of the ins and outs of how you would 

do revenue funding, in fact he is Rob Wiltbank. I am sure you 

know Rob. 

Ms. JACKSON. Yes. 

Mr. SHIPLEY. I think that is a very interesting concept, because 

there are a lot of companies that are never going to be the strategic 

kind of companies where venture debt or recognized angels or VC 

money will come to the table. But they can be very nice $5 million, 

$10 million, $15 million kinds of companies, and they may need a 

half a million or a million dollars, and they could raise this through 

revenue funding. It is the same concept where the people lending 

will take money back on the revenue stream until they have gotten 

the returns that they expect to get. If it is a 2× return or a 3× return, once that happens, there could be some follow-on warrants 

that you retain some small equity sliver in the company. But it is 

another way for those more lifestyle kinds of companies can actually get the revenue—or the funding that they need to grow their 

business. So I think that as a pretty nice concept. 

And Rob Wiltbank is doing a lot of work around standard term 

sheets, standard documentation that these kinds of companies 

would sign and put in place for that kind of funding. So we are 

really looking forward to see what comes out of that. 

Ms. JACKSON. Thanks. 

I would agree with Mr. Shipley; that is a really interesting and 

important new trend. And Professor Rob Wiltbank and also Thomas Thurston, both in Oregon, are taking a leadership role on defining what those types of deals would look like. 

The type of investor that that might attract is a little different 

than a pure angel investor, who sometimes is going for more of a 

home run return. So I think what is important here is there is a 

role for everyone to play. 

And to Ms. Dent’s point, absolutely, we understand there is certain regulatory issues and covenants. But there is an opportunity 

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for somebody to lend money—and I don’t know who it is—to lend 

money quickly to the right types of companies, and they will get 

a nice return. Now, who that is I think, you know, bears some discussion. But it is an interesting topic for filling in the gaps. 

We need to create this seamless capital ecosystem. And I think 

we are doing a really good job now on a seed level, where 3 years 

ago, that was seen as the area of greatest paucity. Now, I almost 

think we might be—I hate to say we are over-allocated on the seed 

side, but I promise you companies will get funded that probably 

don’t deserve to be because there is a lot of seed capital out there 

right now. 

I think the next place we need to turn our sites is just upstream 

of that, so the real top performers get the capital they need to continue. 

Another issue I just want to mention, loan versus equity. Professional investors don’t want to come into a deal that is over-allocated to other investors. And so everyone has a role to play. Can 

grants, can loans create a nondilutive sort of capital influx into the 

company at the key moments? If that can, it is a better deal for 

the investor. You can have an easier time attracting upstream institutional financing. So these are all things to consider at the 

early stage. 

Mr. SCHRADER. Last question for me, Ms. Jackson, and anyone 

else who wants to comment. You talked about the talent pool choke 

point. Could you elaborate a little bit on that? 

Ms. JACKSON. Absolutely. So, in Oregon, we are benefitting from 

an extreme talent choke point in Silicon Valley right now and a lot 

of competition for individual developers and teams. Some people 

say acquisitions are happening just to acquire tech teams. So there 

is a dearth of that top talent. 

Now, in Oregon we have a lot of that talent. It has also become 

very competitive for that talent. But we have the advantage of you 

can build in scale a company and hire top talent for less than you 

can in those talent pools. 

But if a company is scaled, you know, to take the next step and 

has 50 open key positions, it is a choke point. So how do we address that through training and acquiring by any means the appropriate talent to keep our businesses growing? 

Mr. SCHRADER. Very good. 

Ms. DENT. If I might briefly add, we do an annual survey of very 

early stage start-up companies. And we have just gotten the results 

back. We will be releasing it in a few weeks. But there were a 

number of findings from that that speak to your question. One, the 

biggest challenge they see is scaling operations for growth, which, 

based on our conversations with them, we do think is directly tied 

back to talent. Two, only one in five believe that the higher education system is training people with the skills they are going to 

need. And three, on a more optimistic note, I think there are 

emerging sectors with enormous potential. We talk a lot about regaining manufacturing in the United States. There are huge sectors that require new skills where the fight is not going to be based 

on the lowest cost producer; it is going to be the highest skill force. 

And so there is an opportunity, if we address this and start really 

getting our educational institutions, mostly at the higher ed level 

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and then percolating down to earlier education, training people 

with the skills they need, I think that the opportunity for the U.S. 

economy is really enormous. 

Mr. BEST. Just to echo that, one of the things I heard a couple 

weeks ago is there is now a vocational school in Massachusetts that 

is offering a vocational degree in development, software development. And so to begin—and so in addition to the traditional vocational education programs that occur today, to add an information 

technology track, the ability to train people to write code in Java 

and Ruby and these other languages that are desperately needed. 

Having spent a lot of time in Austin and in San Francisco, there 

are so many open positions now for developers. And so, especially 

in States like where I am from, Louisiana, or in other places where 

there are not a lot of—where you can develop software and you 

don’t have to be physically in the same place as the company, a lot 

of virtual workers that could be in South Carolina, or Oregon, or 

other places, there is an opportunity to create these kind of vocational education programs that could make a huge difference in 

local economies and also to stop the gap we have right now in these 

technical positions. 

Mr. MULVANEY. Thank you, folks. 

Thank you, Mr. Schrader. 

At this time, I yield to Ms. Chu for any questions she might 

have. 

Ms. CHU. Thank you. 

A very important point of the Community Reinvestment Act is 

that it brings lending investments and services to low- and moderate-income neighborhoods that are traditionally underserved by 

lending institutions. And we have a situation here where historically minority-owned businesses have not taken advantage of equity financing. In fact, it is estimated that of the total amount of 

equity capital invested in the United States, minority businesses 

receive 1 to 2 percent. 

So how can we work together to help underserved entrepreneurs 

learn more about equity financing and start to utilize equity financing? Do you have any policies with regard to diversity in lending and helping these underserved small business communities 

through equity financing? For everybody on the panel, if you have 

any thoughts on that. 

Mr. BEST. At the Startup Exemption, the organization that 

worked on the crowdfunding portion of the JOBS Act, one of our 

early supporters actually was Whoopi Goldberg, because she really 

believed that it was an opportunity to bring financing on an equity 

basis to underserved communities. So in her neighborhood in New 

York City, the ability to allow women entrepreneurs the ability to 

get microfinance and community-based lending, community-based 

equity investments to those people who are able to build businesses. 

You know, so I think that is one of the opportunities that is 

there. I think that providing education programs and providing, 

you know, through the SBA or other touch points where we could 

reach out to those communities and explain the opportunities for 

crowdfunding, for crowd lending, I think would be really powerful. 

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Ms. DENT. I have a couple of thoughts. One is there are programs for kids that are really interesting. There is one at the high 

school where my kids attend. It is a very mixed high school with 

a very high dropout rate. And it is a program called BUILD. And 

they spend the first 3 years working with the kids to develop little 

micro businesses, maybe making a cover for a cell phone or something like that. And local entrepreneurs and VCs from the area 

coach the kids. They build the business. They sell their products. 

They make a few hundred dollars. And then, during their senior 

year, they still work with them, but they use all those skills they 

have developed over the prior 3 years to help them select a college 

and get a college application. And they have a wonderful success 

rate with the kids, and the kids learn entrepreneurism. And they 

also increase dramatically their chances of going to college. It as 

relatively young program, but at least the data they have so far 

shows that the chance they stay in college and finish college also 

seems to be higher. So I think programs to teach entrepreneurship 

to kids and give them the skills and the aspirations is part of it. 

The second, there is a program in San Francisco called Astia that 

works with women entrepreneurs, because actually funding for 

women entrepreneurs is also surprisingly less prevalent than for 

companies led by men. And they do a lot of coaching of very early 

stage companies to help them get ready, develop their business 

model, develop their staffing plans, their marketing plans, their 

pitches so that they get ready and are more successful when they 

go to seek institutional investments from venture funds or others. 

And I think that kind of—it really takes I think a lot of mentoring. 

And that kind of program might also be helpful. 

And the third is a little bit more to a legislative fix. The Community Reinvestment Act was enacted a long time ago, where banking 

was much more physically based. And it has moved to a more virtual system. Silicon Valley Bank, for example, exists in 27 different 

offices all over the country, but we only have four—five branches, 

and they are all in California, in Napa Valley and in Silicon Valley. 

All of the other offices don’t count as branches. So, from a Community Reinvestment Act perspective, they are irrelevant. And I think 

if you stepped back and realized that so much of banking is now 

virtual and rethought about Community Reinvestment Act in 

terms of, how do you get pools of capital into the communities that 

need them, and that may or may not be a strict geographic tie between a bank that physically sits in a location with a branch and 

the community that physically surrounds that branch, that might 

be a really interesting way to go. 

Mr. SHIPLEY. Just a couple of other comments. I absolutely agree, 

pushing entrepreneurship down to the lowest level we can to get 

kids interested in it is—that is a longer-term program, but I absolutely endorse that. 

You know, kids these days have their heroes. And most of them 

that they think are rock stars or sports figures and people like 

that, movie stars. But most of them don’t have rock star heroes 

that are entrepreneurs. And so one of the programs we are looking 

at in Cincinnati is how do we take our entrepreneurs and really 

elevate them to that rock star status and give them special privileges in the city so that we become a magnet so that people who 

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want to be entrepreneurs come into our city because we treat entrepreneurs in a special way? And of course, sports stars are really 

treated in a special way. So why don’t we do that same thing with 

entrepreneurs? 

And one other idea, this lady I mentioned that started this 

crowdfunding company also has a venture called Bad Girl Ventures. And it is for women who want to start basically small businesses, and they need $5,000 or $10,000 or $15,000 to allow them 

to start the business. I don’t know a lot of details about how it operates, but she has had a successful—or a number of classes of 

women who have gone through their program and then have started their own lifestyle kind of business. So that would be something 

to look into. 

Ms. JACKSON. These are wonderful ideas being shared by my fellow panelists. 

I just want to point out a trend that I think is exactly the opportunity you point out and that crowdfunding is serving so well, and 

that is just the democratization of information and entrepreneurship. Literally, anyone can be an entrepreneur today. The costs of 

entry have come down so far. Anyone can study and learn how to 

write—can create a mobile app, get it out on the marketplace very 

quickly. So anyone can be an entrepreneur for very little capital. 

With that democratization of entry comes more competition. And 

people actually need to get better at what they do to stand out 

above the other entrants. And that is where I think it gets trickier. 

You can get a lot of people to play, but how do you nurture them 

so they can actually succeed? And, you know, I maybe have more 

questions on that than answers at this point, but there are some 

great programs. 

The other point is just to keep in mind, we are at the point now 

where over half the world’s population is under 25. And the acquisition in the news lately is Instagram and a billion dollar market 

cap by 15 people. I am not sure of any other example of a per-headcount market cap like that in 3 years. And these are all, you know, 

young people. But if you go upstream, the fish that acquired 

Instagram was created by someone at the time who was under 25. 

So how do we really bring not just access to create a company, but 

that velocity education to scale a company quickly? Because as 

these two examples have pointed out, they can create a lot of economic value in a short time. 

Ms. CHU. Thank you. 

Mr. MULVANEY. Thank you, Ms. Chu. 

I have a couple of general questions to begin with, and then I 

will have some final questions for you as individuals. But one of 

the things several of you mentioned in your testimony was the recent JOBS Act that we passed. And I know the parts that I liked, 

and I know the parts that my colleagues across the aisle liked, but 

I would be curious to know the parts of the bill that stood out as 

being particularly helpful to each of you. And then perhaps as a follow-up to that, things that you would have liked to have seen in 

that bill that were missing if we decide to take it up again in sort 

of a 2.0 version next section. 

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So I will start down here, Ms. Dent, with you. If there is anything about that bill that particularly stood out to you, let’s hear 

about it. 

Ms. DENT. We probably knew best the IPO onramp provisions. 

We had worked on and off with that committee over the course of 

last year developing the recommendations. And we see the impact 

that the lack of IPO—or maybe better said, the unpredictability 

about whether an IPO will be a possibility. It takes about 2 years 

to get ready for one. And so it is not a question of whether you can 

pull it off when you are ready; it is a question of do you devote the 

resources to try to get ready and the costs, millions of dollars of 

costs, away from all the other things you could use that money and 

your time to do. So we think that providing a more predictable 

path, scaling those requirements is really, really important. The 

other piece that we had worked on, the other pieces we had worked 

on were, what if you don’t want to go public? What if you still are 

the right size to be a private company, and so the Reg A, the Reg 

D and the shareholder limit provisions, we think in some ways the 

bill was strong because it addressed both halves, from the earliest 

stage to the latest stage, to give people different options. I forget 

who it was who said, there is no single answer; it is a mosaic. 

In response to your other question, I guess I don’t have a version 

2.0. What I loved about the IPO act was it avoided the desire to 

solve all problems. And it said, let’s going something done. So I 

think it is great if you are looking to 2.0, but I think what you really should be commended for is being willing to do 1.0, get it done, 

move it forward, pass something and then keep moving forward. 

Mr. BEST. Obviously, for us, for Startup Exemption and myself, 

it would be the crowdfunding act that was part of the JOBS Act, 

and the opportunity to raise—for regular Americans to make investments in their communities and with ideas—entrepreneurs 

they believe in and ideas that they love. For a while now, the donation-based crowdfunding space has been in act. So companies, like 

Kickstarter and Indiegogo, where you can go and contribute in sort 

of the PBS model of, I would like to donate money to an artist or 

a filmmaker or a band, and in return for that, I get a prize. And 

typically that is the movie or the CD or whatever it is that that 

artist is creating. There will be more money that is donated 

through those platforms this year than the NEA will distribute this 

year. So well over $100 million. And that has all been delivered 

with virtually no fraud. And so it is a real huge opportunity. 

To give you a sense of the scale of what crowdfunding could become from an equity or debt perspective, I think it is a data point 

to look at. So I think that is one of the things that we are really 

thrilled about. And again, from the opportunity to say let’s get 

something done, let’s put a stake in the ground and move forward, 

we were so grateful for that, for taking, you know, for really moving forward with a new idea in this way in a really rapid and 

meaningful way. And we appreciate that so much. 

From a 2.0 perspective, I think that I would like to ask for the 

opportunity to continue to engage with you, Mr. Chairman, and 

this Committee during the SEC rulemaking process. Because that 

is where we are really going to need support in making sure that 

we create a process that does protect investors really well but also 

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doesn’t create so much friction on the process of making these 

small investments, these modest investments, that it kills the market. So it really is going to be that delicate balance, because so 

much of—a few data points about what is happening today on 

those donation-based platforms. Only about 40 percent of those, of 

projects that are posted on those platforms that say, please, we 

would like to—please, fund my idea, only 40 percent actually reach 

their funding goals. So what that says is the crowd is doing a pretty good job of vetting the ideas that they think are good ones and 

bad ones. 

My guess would be that as we look at the equity side, that those 

numbers may be even a little smaller than that, as people really 

are looking at, what are my returns, and really taking a very close 

look at those things. So making sure—and also typically these investments will be made by people you know. And so your first-degree connections on LinkedIn, or your second-degree connections, or 

third-degree connections, people who know you or know people who 

know you. What we see on these donation-based platforms today is 

you have to get to a tipping point of about 30 percent of your funding goal being reached by people that know you or know of you before strangers will invest in you. I think that also will be true with 

equity-based or debt-based crowdfunding as well. 

And so really allowing this market that is very delicate from a 

social interaction perspective to take place, I think there is a way 

to do it and ensure—create some prudent investor protections. But 

just making sure that we can work with the SEC effectively to do 

it in a way that doesn’t restrict the market so much that it kills 

that market dynamic. So thank you. 

Mr. MULVANEY. Thank you, Mr. Best. 

Mr. SHIPLEY. The other panel members are much more expert in 

the JOBS Act than I am. But certainly we—and we have never had 

a company that has gone through an IPO. But certainly with the 

modifications made that would allow some of our companies to perhaps go through that process much quicker and for less cost, we 

like that feature of the bill. 

On a personal basis, I like the idea that companies that previously couldn’t get access to appropriate amounts of funding to 

start their companies, because I think there has been comments 

made on that, it could be more lifestyle kinds of companies, they 

may never be an organized angel or a venture capital kind of opportunity, but they are companies that if you can put a half a million bucks or a million dollars a year into those companies, they 

can be very significant lifestyle companies. 

And I like to tell the story of when I was a part of a CEO group 

of about 15 members, and we had low-tech, no-tech, and high-tech 

folks in the group, but the most successful company in the group 

was a lifestyle business. It was $250 million in annual revenue. He 

wouldn’t tell us the profits that he made, but I am sure they were 

much more significant than the profits we ever made. But that was 

considered to be a lifestyle company. So the fact that we could get 

more of those kinds of companies, and probably 80 or 90 percent 

of the companies that we have in the country today are lifestyle 

kinds of companies. So to be able to give them funding to them get 

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the traction that they need in the marketplace I think is pretty significant. 

Mr. MULVANEY. Ms. Jackson. 

Ms. JACKSON. Thank you. 

Again, supportive and complimentary that this exciting new form 

of crowdfunding can be passed this quickly and soon will be available to the market. 

A couple of concerns, and they have yet to—we have yet to know 

if they will be concerns, but this is an area for possible future 

work. As a large number of investors relates to converting into follow-on rounds, there may be the need for some changes in regulation on some upstream funding to accommodate the crowdfunded 

investor invested companies. Again, it is too early, I think, to know 

whether that is going to be an issue. 

Mr. MULVANEY. And that sort of transitions into my next question. Maybe it is you, maybe it is Mr. Best, anybody else. 

You mentioned something that was of interest to me. I am not 

a new-tech kind of person. The companies I have started have always been old-tech, very old-school, boring companies. But you 

mentioned the restaurant in Louisiana. Maybe now there is the opportunity for them to use this crowdfunding. Why don’t you walk 

through how you would like to see that work? Ideally, how would 

it work if you are a small business owner of a restaurant in Lafayette, Louisiana, and you want to do this? And then I would like 

your input into what needs to happen during this rulemaking process that we are in the middle of right now to get to that ideal outcome. 

Mr. BEST. So, in the best-case scenario, I am a restaurant owner, 

I want to add a second location. I would go to a Web site that 

would be what we call it a funding platform, a place where all of 

these transactions will take place. I as a business owner and equity—investment seeker would then put in a lot of information 

about myself and my business. My Social Security number, and my 

business information, and my sources and uses of cash, and some 

pro forma kind of business statements, accounting statements so 

that I am able to explain fully to my potential investors what I am 

going to be doing with that money and how I am going to be utilizing it. There will be a video there, like there are on a lot of these 

sites today, letting you sort of get a chance to virtually interact 

with this entrepreneur. 

And then I would then go out to my social network, both physically in the community, and I love the idea Ms. Jackson has of creating a physical space for this to take place as well as an online 

space, but also through my virtual community of saying, you know, 

to my customers and my friends and my relatives and say, please, 

invest, I want to add a second location. That money would come in 

over some period of time. Let’s say, you know, typically, we would 

say between 60 and 90 days would be a typical window you would 

want to leave this open for. And then, once the funding goal was 

reached, because the legislation requires, obviously, there to be a 

100 percent of the funding goal to be reached, if I reach that goal, 

then the cash call occurs and I am able to then receive that money 

and then continue to communicate through this funding portal with 

my investors. And so there would be, you know, standards required 

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for this restaurant owner to be able to then say on a quarterly 

basis. 

Mr. MULVANEY. Tell me what those are. Now we have moved into 

what has to be done during the rulemaking. So give me the standards. Tell me the type of things that when the SEC calls my office 

and says, what happened at the hearing today, what is your input, 

what am I supposed to tell them? What do we want to focus on as 

we go through this rulemaking process? 

Mr. BEST. You want to provide the same type of quarterly reporting that would be expected from a bank loan or an investor. Just, 

you know, provide that basic level of information on—— 

Mr. MULVANEY. Does it have to be audited? 

Mr. BEST. The legislation—I think it depends on the level. I 

think that below a half-million dollars, it basically should be just 

a signature of the CEO. Above a half-million dollars, what we have 

called for is not fully audited, but that it would be certified by a 

CPA. Reviewed and certified by a CPA. 

Mr. MULVANEY. Now tell me, you mentioned something else, 

about it is not the charitable, but the other type—— 

Mr. BEST. Donation based? 

Mr. MULVANEY. Exactly. And you mentioned something very interesting to me, which is that it is almost completely fraud free. 

How is that happening? 

Mr. BEST. I think it is just the power of the social Web I guess 

is one way to say it. And I guess what that means is it is, to use 

a term Ms. Dent used, it is an optimistic way of moving into this 

sort of arena, where I say I really want—because people make donations for a number of reasons. They do it because they want the 

perk that comes along with what you get. Like if you give me $50, 

I give you my CD of my band. They do it because they believe in 

the individual and want to help out. They want to be a micro patron of the arts. Or they just believe in the cause or the idea, or 

want to be part of something bigger than themselves. I may never 

be in a band—I will never be in band—but I might want to support 

someone who is. And so those are the things that, reasons that people would donate. 

I think that when you add the equity return piece to it, I think 

all those things still exist. But you are adding also to it the desire 

to be part of something bigger that may have a financial return for 

you. 

Mr. MULVANEY. And do you think that the risk for fraud would 

be higher or lower? Because you have just described essentially the 

old-fashioned charitable—you are right, you are a micro patron of 

the arts, which is a slightly different calculus that you go through 

versus investing in that restaurant. Do you think when we switch 

over into that return on equity, that the risk of fraud goes up, goes 

down, or stays about the same? 

Mr. BEST. I think it stays about the same. I mean, there may be 

some—it is totally hard to predict because it is kind of a whole new 

area. But I don’t see it being orders of magnitude different than 

what we are seeing today with the donation-based platforms. Because I think that the main reason is the disinfectant quality of social media, the ability—the power of sunlight, if you will. If I am 

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24 

preneur, and I am signing in with my online identity, and all of 

my network is there, it is really hard to hide. Because in the past, 

the fraud that took place was I knocked on a door, or I made a 

phone call, or I sent you a one-to-one communication email that 

said, you know, I got this great idea. This is you putting yourself 

out in front of the entire Web, with all of your social connectivity 

watching. And there will be online rating systems, just like there 

are on Amazon or on the other Web sites. 

Mr. MULVANEY. So it sounds like there is a strong argument for 

a fairly light hand when it comes to prophylactic fraud prevention. 

Because it is people that you know, because of the forums that you 

are moving in, that I guess you are trying to—I am trying to make 

an argument for you that the SEC and whoever else gets involved 

in rulemaking should not go too heavy on trying to anticipate fraud 

and hope that perhaps the market will insulate itself against that 

to begin with. Okay. That is great. 

Ms. Dent, very quickly, and I don’t want to have a hearing and 

mention the words IPO and not have somebody saying something 

about Sarbanes-Oxley. So you win by default, because I have got 

my angel investor, my crowdfunder, and you are the closest we get 

to IPOs. And you actually mentioned it a couple times. Is it working? We all know that formation of public entities is at an all time 

low. I think it was you who mentioned, I think accurately, that it 

is when that company gets over that hump and becomes public 

that we see the dramatic increase in jobs because the access to capital allows the company to grow so dramatically. So how are we 

doing on IPOs, and if you have some suggestions on fixes to Sarbanes-Oxley, would there be any? And what would they be if there 

are? 

Ms. DENT. I think for growing companies the two most important 

things are they have scarce resources, so you really want to make 

sure—it is not a question of I wouldn’t say get rid of SarbanesOxley across the board. Personally, there are things I would get rid 

of about it. But it is really scaling to the level of risk. And so I 

think what the JOBS bill did, for example, which is reduce the 

number of years of audited financial statements you have to provide when you go public, and remove the audit, the external auditor attestation around the 404 controls, those were both steps in 

the right direction. Because for a smaller company, those don’t add 

almost any value to investors, and yet they add a lot of costs. And 

that cost is coming out of somewhere else, hiring an engineer or expanding into a new market. 

So I think continuing to really look at what have we learned 

from Sarbanes-Oxley for a larger, more complicated institution that 

it may be that the costs are justified, but I think as you go down 

the curve, it gets into a much bigger question. 

I think a second thing that really came out during the debate 

over the JOBS Act is, do people understand small business? I think 

there is still in Washington policy circles a view that small business is really, really small. And the reality is that for these technology companies, you can get pretty big in terms of revenue and 

still be investing everything you have got in new products and not 

profitable. 

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Mr. MULVANEY. I can assure you we don’t understand small business. Right now, the current debate right now was a small business 

tax reduction that could go to companies that have several tens of 

billions of dollars in revenues. But go ahead. 

Ms. DENT. Oh, really. That is probably a whole different problem. 

But I think the tendency is sometimes to cut off small business at 

a very low level. So I think Sarbanes-Oxley had a $75 million 

threshold. And that is just not really that relevant. I think something that slides is more relevant than saying small ends at a certain end point. 

And then the third I would say, which arguably is the most important, which is predictability; that in a sense what people need 

to know is what they have to do. And they can cope with any reality. Different things will happen. And so, for example, there are 

some things that won’t happen if the cost of doing them is higher. 

And that is a loss to our country. But at least with predictability, 

you can start to make investments that make sense. And I think 

that is what we are seeing play out right now in life sciences; there 

is so much unpredictability. The cost of getting through the regulatory process has increased so dramatically—and I recognize this 

isn’t Sarbanes-Oxley, but it is that same theme of, how much do 

we require companies to spend on extra levels of protection? And 

are we really sure that we are getting extra levels of protection 

that warrant that additional investment, recognizing that it is coming out of somewhere else? And I think those are the questions I 

would really recommend this committee look at, because my guess 

is there is still more movement to scale 404, other parts of Sarbanes-Oxley and regulation more generally back, so that it hits 

companies with a responsible level of regulation. 

Mr. MULVANEY. One last question for Ms. Dent. You mentioned 

earlier that you all have the ability to lend against the likelihood 

of the next round of equity funding or next round of funding. Is 

that a choice that you make, or is there something specific to your 

bank that you have done that you can do that, or is it something 

all banks could do if they chose to do it? 

Ms. DENT. All banks could do it if they chose do it. It does take 

very deep relationships and a very deep understanding of how companies grow in order to do it well. 

Mr. MULVANEY. So that is not our problem or our issue. That 

flexibility exists in the marketplace already. Some choose to do it; 

some banks choose not do it. 

Ms. DENT. Yes. 

Mr. MULVANEY. Mr. Shipley, before we wrap up, and I am trying 

to wrap up here by noon, you had three recommendations. And I 

want to make sure I got all three of them, because I am pretty sure 

I missed one. You talked briefly about your 100 percent exemption 

suggestion. The last one was develop education and training. And 

then I didn’t even get notes on the second one. So if you could 

maybe walk me through those for the record, that would be helpful, 

sir. 

Mr. SHIPLEY. Sure. These are recommendations that are generally approved by the Angel Capital Association, with our public 

policy group that we have as part of ACA. First one was reinstate 

the 100 percent tax exemption on gains of qualified small business 

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stock. And I think a number of organized angel groups saw a dramatic increase in investments that they were willing to make. I 

think they felt like they were on the clock, so they were pushing 

investments into that time period. So we think if you made this a 

permanent part of the bill, that we would get more investments in 

companies because people would be—the idea in angel investing or 

venture investing or basically any kind of investing is to have 

greed overcome fear, and so if we think we can get enough return 

so that we are willing to make the investment in a company, and 

this is one way to help people step up to the plate and make that 

investment. 

The second point there, consider tax credits for angel investments. There has been a very successful program in our State and 

other States that are using investor tax credits. 

Mr. MULVANEY. We just passed a bill in South Carolina this 

week I think. 

Mr. SHIPLEY. Is that right? 

Mr. MULVANEY. Yeah. 

Mr. SHIPLEY. In Ohio, we give a 25 percent tax credit. And we 

have had literally hundreds of millions of dollars invested in companies over the period of time that this has been in play. 

I know, in the State of Wisconsin, which is part of the testimony, 

you can see the impact that it has had on both job creation and 

on amounts of money that angels have invested in companies. And 

I think, from my perspective, we view it as a way to derisk the investment in some ways. Because as we have all talked about the 

kinds of investments that we make, the failure rate is going to be 

about 50 percent. These are stats that have been generated 

through studies that the ACA has done, where we surveyed literally hundreds and hundreds of deals that angels had invested in. 

And 52 percent was the number that came back. So we invest in 

10 deals; five of them we expect to write those off. So I think some 

people—they are going to invest in the deal not because there is 

a tax credit, but it is a little more icing on the cake. And if it is 

a failure, then we have got some of the money back by virtue of 

the tax credit. So I think that has been very important in our 

State. 

And the third point was then developing educational tools, training, and awareness programs for both investors and entrepreneurs. 

I think a lot of the panel members have talked about those issues. 

But certainly from an investor standpoint, to have more accredited 

investors who understand the process of angel investing. When we 

first started, we actually created a one-day boot camp to teach prospective angel investors what it means to make an angel investment. So the ACA now offers those kinds of programs, which I 

think are invaluable, so that you teach people not only the process, 

but the fact that it is a high risk that you are taking. And so they 

understand that risk profile before they start writing checks. You 

don’t want an angel investor to write one or two checks, see those 

investments go south, and then declare that angel investing is not 

worth it. You have to understand that risk profile. 

Mr. MULVANEY. Thank you, Mr. Shipley. 

Last question, and it is to you, Ms. Jackson. You mentioned a 

suggestion, an idea you had about at some point companies that 

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you term ‘‘vetted companies’’, companies that sort of received a seal 

of approval at some level of early equity financing, would have better access to debt. And I am just wondering if you have any suggestions on how the government could help that happen. Are there 

regulations that need to change? Are there specific things we need 

to do in order to encourage that type of behavior? 

Ms. JACKSON. I will use a community bank as an example. We 

have use run into lots of cases where there is a desire to support 

a specific company with a loan product but the inability to overcome, you know, some of the regulations in order to do so. Again, 

I am not an expert in banking, so I don’t want to go too deep on 

what specifically. But what I do see is an opportunity to have another couple of conversations to put people together. 

I think it is because of the failure rate; I understand why people 

don’t want to loan money to this risk pool. But if we have a known 

behavior of selecting, nurturing, vetting, you know, the least likely 

to fail, then is there something that we could do to get them a loan 

product? And is there any regulation that could be eased to make 

the community banks, for example, comfortable doing that? 

Ms. DENT. Might I also offer one suggestion? 

Mr. MULVANEY. Please. 

Ms. DENT. There is a provision in the Dodd-Frank Act called the 

Volcker rule that says that banks—it was intended to deal with 

very high risky activities, proprietary trading and investing in 

hedge funds in particular, private equity funds as well. And one of 

the issues before the regulators right now is, will it apply to venture funds? And that includes both venture equity funds as well as 

venture funds that provide credit, debt. And if it is applied broadly 

to all those funds, banks will no longer be able to sponsor or invest 

in venture debt funds. 

I think they are an incredibly important part of this overall ecosystem because they aren’t regulated banks; they do have more 

flexibility to come up with some hybrid solutions that I think are 

more likely to be able to address the opportunity Ms. Jackson says. 

But if Volcker is applied broadly and all bank capital is legally prohibited from going into those funds, arguably the investors who are 

most able to understand and back those funds are now locked out 

of that. 

And so I would encourage the committee to join with other Members, there have been a lot of Members of Congress who have gone 

on the record saying that the Volcker rule should not dry up equity 

going into venture generally. And I think that is an important 

thing, because it will affect the very people who are most likely to 

solve the gap you are talking about. 

Mr. MULVANEY. Thank you, Ms. Dent. 

Thank you to everybody. I really appreciate you all taking the 

time to do this. I know that sometimes it seems that you spend all 

this time to come all this distance, as many of you have, and then 

you get maybe 5 minutes to ask questions—or give your testimony 

and then get a chance to just do a couple of questions. And I can’t 

overestimate for you the importance of what it is that you all do 

when you come and do this. What we are helping to do here is 

drive the debate. 

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Inevitably, something that you said today, all of which goes in 

our permanent record, will end up being discussed in a trade association paper someplace. And then it turns into a discussion at the 

next symposium. And then it turns into something that somebody 

brings through an association to their Member of Congress. And 

that is how we drive the debate. And I have seen that firsthand. 

I know then that at some times, you think it is a complete waste 

of time to come out here and talk for 5 minutes and travel for 3 

days to do it, but I can assure it is not. The opportunities we get 

to get your ideas on Sarbanes-Oxley and the Volcker rule, the 

trends about the donative funding or whatever, I can’t remember 

the term, and then the experiences with the fraud especially, it has 

been very helpful. And we certainly do appreciate your input into 

the process. 

With that, since there is no objection, because there is nobody 

else here but me to object, I will allow members to submit questions for 5 days after the hearing. 

And with that, we will stand adjourned. I thank you for your 

time. 

[Whereupon, at 12:04 p.m., the subcommittee was adjourned.] 

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