59–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 114–509 

HELPING ANGELS LEAD OUR STARTUPS ACT 

APRIL 19, 2016.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 4498] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 4498) to clarify the definition of general solicitation under 

Federal securities law, having considered the same, report favorably thereon without amendment and recommend that the bill do 

pass. 

PURPOSE AND SUMMARY

Introduced on February 9, 2016, by Representatives Chabot, 

Hurt, Sinema and Takai, H.R. 4498 the, ‘‘Helping Angels Lead Our 

Startups’’ (HALOS) Act builds on the success of the bipartisan 

Jumpstart Our Business Startups (JOBS) Act (Pub. L. No. 112– 

106). The HALOS Act furthers the JOBS Act’s mission to promote 

access to investment capital for small companies and ensure that 

startups can continue to connect with angel investors. H.R. 4498 

defines an angel investor for purposes of the Federal securities 

laws and clarifies the definition of general solicitation contained in 

the Securities Act of 1933 (Securities Act) to ensure that startups 

have the opportunity and ability to discuss their products and business plans at certain events, known as ‘‘demo days’’ where there is 

no specific investment offering. 


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BACKGROUND AND NEED FOR LEGISLATION

Title II of the JOBS Act makes it easier for startup enterprises 

to market their securities to a larger pool of investors. The Securities Act requires that offers to sell securities must either be registered with the Securities and Exchange Commission (SEC) or 

specifically exempted from such registration. One such exemption 

is Rule 506 of Regulation D, which allows companies to offer securities for sale to up to 35 non-accredited investors and an unlimited 

number of accredited investors (with accredited investors selfverifying their status) as long as the company does not market its 

securities through general solicitations or advertising. Title II of 

the JOBS Act extended this exemption to securities marketed 

through a general solicitation or advertising so long as the issuer 

takes steps to verify that all purchasers of the securities are ‘‘accredited investors.’’ 

When the SEC implemented Title II of the JOBS Act, the final 

rule classified events held by angel investors as general solicitations, thus requiring entrepreneurs and startups to verify accredited investor status. This process can be burdensome and jeopardizes educational and economic development events like ‘‘demo 

days’’—where startups may interact with angel investors and venture capitalists. 

Angel investors are wealthy individuals who often are actively 

involved in the startups they back, and who typically are not professional investors. According to the Angel Capital Association 

(ACA), angel investors deployed $24.1 billion in capital in 2014 

which is an increase from $17.6 billion in 2009. As a result, angel 

investors have now surpassed venture capitalists as the largest 

funding source for startup enterprises in the United States. Angel 

investors, like venture capitalists, fund early-stage entrepreneurs 

and serve as mentors or outside directors of startups. 

Access to such potential investors is important; in 2014, as previously noted, angels invested approximately $24.1 billion in over 

73,000 startups, and companies such as Amazon, Costco, Facebook, 

Google, and Starbucks were all initially funded by angel investors. 

‘‘Demo days’’ existed prior to the JOBS Act as investors self-certified their accredited investor status, but steps taken by the SEC 

to implement the Act have created uncertainty as to whether this 

preexisting practice may continue. H.R. 4498 ensures that angel 

funding remains available to startups by defining the term ‘‘angel 

investor group’’ and exempting angel investor events from being 

considered a general solicitation. 

On February 15, 2016, the ACA’s Executive Director noted in a 

blog post that, ‘‘Demo Days have been an important part of the entrepreneurial financing process for literally decades, often with lead 

sponsorship by federal, state and local government entities for the 

purpose of economic development. Thousands of these events have 

been held annually.’’ The ACA further noted in the same blog post 

that the HALOS Act removes the uncertainty of the SEC’s actions 

to implement Title II of the JOBS Act as ‘‘requiring verification of 

accredited investors for these events creates a new burden for participating entrepreneurs and makes investors less likely to invest 

in participating companies because they are concerned about the 

requirements of the SEC rule.’’ 


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Specifically, H.R. 4498 defines an ‘‘angel investor group’’ and 

clarifies that the Securities Act’s general solicitation limitations do 

not apply to a presentation, communication, or event conducted on 

behalf of an issuer at an event sponsored by certain organizations; 

where any advertising for the event does not reference any specific 

offering of securities by the issuer; or where no specific information 

regarding an offering of securities by the issuer is communicated 

or distributed by or on behalf of the issuer. 

On December 2, 2015, Chris Mathieu, the Chief Financial Officer 

of Horizon Technology Finance, testified before the Subcommittee 

on Capital Markets and Government Sponsored Enterprises in support of H.R. 4498 and noted that: 

The HALOS Act provides essential protection for trade associations that facilitate such meetings between investors 

and fund managers, and would be greatly helpful in cultivating small business capital formation. More importantly, 

it provides protection for fund managers engaged in meeting potential investors at these events. 

HEARINGS

The Committee on Financial Services’ Subcommittee on Capital 

Markets and Government Sponsored Enterprises held a hearing examining matters relating to H.R. 4498 on December 2, 2015. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

March 2, 2016, and ordered H.R. 4498 to be reported favorably to 

the House without amendment by a recorded vote of 44 yeas to 13 

nays (record vote no. FC–100), a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole record vote 

in Committee was a motion by Chairman Hensarling to report the 

bill favorably to the House without amendment. That motion was 

agreed to by a recorded vote of 44 yeas to 13 nays (record vote no. 

FC–100), a quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 4498 will provide business start-ups with greater access to capital by ensuring 

that they are not prohibited from participating in ‘‘demo days’’ 

sponsored by certain entities. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, April 15, 2016. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4498, the Helping Angels 

Lead Our Startups Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Stephen Rabent. 

Sincerely, 

KEITH HALL. 

Enclosure. 

H.R. 4498—Helping Angels Lead Our Startups Act 

The Securities and Exchange Commission (SEC) exempts certain 

sellers of securities from registering their securities with the SEC 

and from related filing and disclosure requirements under RegulaVerDate Sep 11 2014 01:52 Apr 20, 2016 Jkt 059006 PO 00000 Frm 00005 Fmt 6659 Sfmt 6602 E:\HR\OC\HR509.XXX HR509

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tion D. Private offerers of securities who are exempt under Regulation D are not allowed to engage in general solicitation or general 

advertising for their securities unless the purchasers of the securities meet specific requirements. H.R. 4498 would expand the manner in which securities issuers who qualify for exemptions under 

Regulation D can solicit and advertise their securities. 

CBO estimates that implementing H.R. 4498 would cost less 

than $1 million for personnel and administrative costs to revise 

SEC rules. However, the SEC is authorized to collect fees sufficient 

to offset its annual appropriation; therefore, CBO estimates that 

the net effect on discretionary spending would be negligible, assuming appropriations actions consistent with that authority. 

Pay-as-you-go procedures do not apply because enacting H.R. 

4498 would not affect direct spending or revenues. CBO estimates 

that enacting H.R. 4498 would not increase net direct spending or 

on-budget deficits in any of the four consecutive 10-year periods beginning in 2027. 

H.R. 4498 contains no intergovernmental mandates as defined in 

the Unfunded Mandates Reform Act (UMRA) and would not affect 

the budgets of state, local, or tribal governments. 

If the SEC increases fees to offset the costs of implementing the 

bill, H.R. 4498 would increase the cost of an existing mandate on 

private entities required to pay those fees. Based on information 

from the SEC, CBO estimates that the aggregate cost of the mandate, if imposed, would be minimal and fall well below the annual 

threshold for private-sector mandates established in UMRA ($154 

million in 2016, adjusted annually for inflation). 

The CBO staff contacts for this estimate are Stephen Rabent (for 

federal costs) and Logan Smith (for the private-sector mandate). 

The estimate was approved by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 4498 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 


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DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the 

Committee states that no provision of H.R. 4498 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the 

Committee states that H.R. 4498 contains one directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1: Short title 

This section cites H.R. 4498 as the ‘‘Helping Angels Lead Our 

Startups Act’’ or the ‘‘HALOS Act.’’ 

Section 2: Definition of angel investor group 

This section defines an ‘‘angel investor group’’ as any group that: 

is composed of accredited investors; holds regular meetings and has 

specific procedures for making investment decisions; and is not affiliated with brokers, dealers, or investment advisors. 

Section 3: Clarification of general solicitation 

This section requires the SEC to revise Rule 506 of Regulation 

D to clarify that general solicitation limitations do not apply to a 

presentation, communication, or event conducted on behalf of an 

issuer at an event (1) sponsored by certain organizations, (2) where 

any advertising for the event does not reference any specific offering of securities by the issuer, (3) and where no specific information 

regarding an offering of securities by the issuer is communicated 

or distributed by or on behalf of the issuer. This section also limits 

the SEC’s actions to amend the requirements of Regulation D with 

respect to presentations and communications, and not with respect 

to purchases or sales. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

H.R. 4498 does not repeal or amend any section of a statute. 

Therefore, the Office of Legislative Counsel did not prepare the report contemplated by clause 3(e)(1)(B) of rule XIII of the House of 

Representatives. 


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MINORITY VIEWS 

The Jumpstart Our Business Startups Act (or the ‘‘JOBS Act,’’ 

P.L. 112–106) was signed into law in 2012 with the goal of expanding opportunities for small business capital formation. Democrats 

in Congress played a critical role in ensuring that the JOBS Act 

included modest investor protections, to balance out some of the 

capital markets deregulatory provisions in the Act. Indeed, Democrats believe that capital formation is only possible when investors 

have confidence that markets are transparent and fair. 

H.R. 4498, or the Helping Angels Lead Our Startups Act 

(‘‘HALOs Act’’), runs contrary to Democrats’ goals under the JOBS 

Act, by undoing one investor protection put forward under Title II 

of the Act. This investor protection, included in the JOBS Act pursuant to a Democratic amendment, requires that companies, which 

sell securities in the private markets by advertising or soliciting 

buyers from the general public, to take ‘‘reasonable steps’’ to verify 

that the purchasers of their securities are, in fact, ‘‘accredited investors’’—a special category of individuals deemed sophisticated 

enough under securities laws to need less protection in the marketplace. 

The HALOs Act repeals that requirement when companies solicit 

their offerings at sales events (also called ‘‘demo days,’’ ‘‘venture 

fairs’’ or ‘‘pitch days’’) that are sponsored by a governmental entity, 

a college or university, a nonprofit organization, an angel investor 

group, a trade association, or a venture forum or venture capital 

association. 

This exemption raises investor protection concerns since these 

sales events constitute private securities offerings that are not subject to the heightened oversight by the Securities and Exchange 

Commission (‘‘SEC’’) and state securities regulators and have less 

legal recourse for purchasers. For example, under H.R. 4498 companies, including not only startups but established businesses and 

hedge funds, could pass out fliers on a college campus advertising 

their ‘‘hot new equity offering.’’ Individuals on the college campus 

could walk into the pitch, and purchase the offering on the spot 

with little to no understanding of the risks associated with the investment. Under the JOBS Act, this type of transaction would be 

permitted, but would require verification that the buyer has sufficient income or assets to meet the SEC’s standards to be considered an accredited investor. Under H.R. 4498, companies would not 

be required to take reasonable steps for verification of accredited 

investor status. 

Finally, the SEC has already provided limited, administrated relief for sales events, recognizing that facilitating more tight-knit 

‘‘pitch days’’ may, in some circumstances, be prudent. Under that 

relief, for example, companies, need only to have a pre-existing, 

substantive relationship with the potential buyers hearing their 


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pitch, or must have contacted the potential buyers though a personal network before the pitch, in order to avoid the verification requirement. 

Had H.R. 4498 merely codified this existing SEC relief, the Minority would not have opposed the legislation. However, given the 

expanded exemptions provided in the bill, and the investor protection concerns they raised, the Minority opposed the passage of H.R. 

4498. 

MAXINE WATERS. 

Æ 


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