– Not ready for Prime time

I really wanted Jet.Com to work. When they announced the service as an alternative to Amazon, I thought that a new kind of competition would be good for the industry. Unfortunately, my experience shows that great ideas and intentions that are not ready for prime time = just a terrible customer experience that appears doomed. offers a membership service with what they believe to be prices 10-15% below the competition. As Costco has proven, a membership purchasing concept can be great for both customers and business. With free shipping on purchases over $35, the offer seems attractive.

I was pleasantly surprised to find a wide array of products on Jet.Com. Their UI is simple and straightforward – well suited to the task. Graphics are good and their purple theme interesting.

Given that I am a photographer, as well as techie, I first went to cameras. I was astonished to see a Nikon pro camera (D4S) in their listings. I immediately added it to my cart and the savings were indeed substantial enough to convince me to upgrade from my three-year-old D4.

Then the fun started. I clicked check out, entered my shipping and credit card info, and clicked purchase. They seems to process my order. Then a message popped up that they had a problem and please retry or call a “Jet Head.” I tried again. And again. No luck.

I called and Auli’i was really pleasant. Saw the item in my cart, confirmed that they had it, confirmed the price, confirmed that it was indeed a US sourced item, but got the same error. She put me on hold (with my permission) and talked with support who acknowledged that they were having problems. I was asked to try a different browser – I tried two more. Same result. She said that she would work with support to get my order through the system, process it and I would receive an email acknowledgement.

Two days later – not received. So, I called again. Brandon acknowledged that they were have some problems. (Can you say “not ready for prime time?” Yes.. pun intended) When he looked at my account, there were no items on order, nothing in my shopping cart, even though my account still showed the Nikon camera. He asked me to re-purchase. I did and there was no such product.

He told me that they had some issues with items that they priced too low and then removed from the system and that was probably what happened. They would not honor the price for an item that had already been ordered. And then, repeated the part line about service and price.

After I hung up, I got even angrier. Clearly this is amateur hour! They post items and prices to attract you to the site, don’t have them at that price, let you add them to your cart, and then have the “cart fail” so that they don’t have to honor their commitments.

And then, two days later, got an email response, again apologizing and asking for patience while they worked through technical issues. So, I checked and the same item was reposted, with the same price. Added to my cart, clicked purchase and got exactly the same error. And was informed, that the customer service staff had no ability to do a work around.

Intolerable policy and service. Chalk this up as another startup that doesn’t get it.


Trophy Hunting – I just don’t understand

Like many animal lovers, my first reaction was outrage at the senseless death of Cecil the lion by Walter Palmer. I let my first draft post that reflected my outrage subside into thought – I just couldn’t understand why a successful American dentist would feel the need to take the life of a beautiful African creature. Then I learned that he has done it many times in the past and that big-game hunting has supported the imperiled species to be taken to the brink of extinction, where the lion population has decreased from over 100,000 in the early 1990s to between 15,000-47,000 currently (ref: Wikipedia). The justification is that “trophy hunting” is a smaller factor than poaching. To me that is a specious argument, since it exacerbates the rapid decline of these magnificent creatures. Paying $50,000 to slaughter, behead, and skin a lion is unfathomable and should be condemned.

Our society has moved beyond this! We should not tolerate this. 2000 years ago, hunting and killing humans was considered acceptable. Army’s would plunder captured villages, beheading humans and displaying their heads on spikes or hanging them from walls. As our society matured and became more civilized, this was condemned and is considered abhorrent. ISIS still maintains this practice in their conquered territory – they considered conquered people trophies and not deserving of any compassion.
Are big-game trophy hunters, like Walter Palmer, very different from them? Future generations of humanity will look back on the barbaric practice of trophy hunting with disgust, just as we should now.

So, what should we do?
1) Clearly, the first step if for all civilized countries (led by the US) should put in place a permanent ban on Trophy Hunting; no part of a threatened or endangered species should be allowed to be brought back into the US or any other country.
2) Social pressure, like that shown to Walter Palmer, must be ferocious. We should shun anyone who does Trophy Hunting. Peer pressure should be massive. They should understand that this is as unacceptable as being taken to a remote location to hunt a human.
3) Economic stick. The countries that allow Trophy Hunting should face economic sanctions if they continue to do so. These include not just Zimbabwe, but also South Africa, Namibia, etc.
4) Economic carrot. We need to support non-destructive ways to preserve wildlife and their environments in the affected countries. I am a photographer and love photographing animals in their natural habitat. Photo trips like these are expensive and support the local economy. I also contribute to wildlife conservation. As a society, we need to make sure that preserving these natural habitats and their wild inhabitants is a high priority.

Let’s make sure that Cecil’s senseless killing was not in vain. #CecilMattered

Note to the SEC on Accredited Investor Definition

8 June 2014


The Honorable Mary Jo White, Chairman

US Securities and Exchange Commission

100 F St. NE

Washington, DC  20549


RE:  Accredited Investor Definition


Dear Chairman White:


As a board member of the Angel Capital Association (ACA) and the Chair of the Seattle Alliance of Angels, I urge the Commission to protect angel funding to ensure the health of the startup economy we support, by retaining the existing financial thresholds in the current accredited investor definition.  These thresholds — $1 million in net worth or $200,000 in income — have worked well for decades, creating a vital accredited angel investor sector that is the primary source of funds for early-stage companies that drive the innovation economy and job-creation nationwide, and with very little fraud.

I have been an active angel investor for over 25 years, founded and chair the Alliance of Angels (the largest angel network in the Pacific Northwest that has invested over $80M in almost 200 companies during the last 18 years), and have helped start many companies, leading several to IPOs.  During this period, I have come to know many entrepreneurs and even more angel investors.  I have yet to encounter even one investor who said that they would benefit from changing the accredited investor threshold.

Angel investors are sophisticated.  Unlike bankers or VCs, we invest our own money – not someone else’s.  We are not in just the financial centers of New York, Boston, and San Francisco, but are in every major city and town in the country.  We invest not just our own money, but also our time, energy, expertise, and reputation in helping startups get off the ground, thrive, and become major forces in the economy.  We do this because many of us have been entrepreneurs and benefited from the innovation ecosystem.  And we do this knowing that a large percentage of the investments we make will not succeed.  But some will and what successes they can become!


If financial limits were sharply increased, angel investment in early-stage companies would suffer.  An increase in the net worth threshold to $2.5 million, advocated by some, could cut upwards of 60 percent of current accredited investors out of the market.  The startup ecosystem would be devastated by such a dramatic shrinkage of this vital investor pool, especially in regions where venture capital is not prevalent. A contraction in angel investing could stall local economic development, university technology initiatives, and stem innovation and job growth. At the same time, millions of Americans would instantly lose the opportunity to participate in the innovation economy that is largely the purview of companies raising funds privately from accredited investors.


It is important to consider investor protection, the public interest and our current economy.  However, the SEC should note that, as more accredited individuals have engaged in angel investing, direct investment in startups has remained largely free of fraud.  This is a result of concerted due diligence, negotiated terms, and ongoing entrepreneur support and mentoring that are the hallmark of angel investing.


Given the importance of the innovation economy to the nation, the need for capital formation in the early-stage sector, and the need to balance access to investment opportunity with investor protection, I urge the Commission to adopt the following approach to the accredited investor definition:


  • Maintain the current financial thresholds of $200,000 income per individual; $300,000 for joint filers, or $1 million net worth not including primary residence for individuals to qualify as accredited investors.
  • Incorporate the concept of “sophistication” for individuals who do not meet the above thresholds to prudently expand the accredited investor pool, using a detailed questionnaire to identify qualitative information about knowledge and experience with this type of investment.


Such an approach will continue to provide investor protection while also recognizing the growing role and importance of accredited investor investment in innovation and growth that are essential to serve the public interest and sustain our nation’s economy.


I believe that raising the limits will have a chilling effect on the angel investment ecosystem, with adverse effects on the entire economy for a generation.  At a time when risk capital is exceedingly hard for entrepreneurs with great ideas to obtain, any action to place further limitations on angel investors is likely to cause a further retraction of the highest growth segment of our economy.  While I understand that is not your intent, it will be an unintended consequence.  In the strongest possible terms, I urge you not to take such an unwarranted action that will have deep repercussions for years to come with no real upside benefit.


Thank you for your consideration.



Daniel Rosen

Chair, Alliance of Angels (Seattle)

Member of the Board, Angel Capital Association


Comment to the SEC

November 4, 2013

Elizabeth Murphy, Secretary

U.S. Securities and Exchange Commission

100 F Street NE

Washington, DC 20549


Re: File No. S7‐06‐13, Amendments to Regulation D, Form D and Rule 156

Dear Ms. Murphy:

Thank you for the opportunity to provide comments to the Commission on your proposed amendments to Regulation D and Form D.  Many others have provided you detailed comments on why the proposed rules are neither suitable to current market conditions nor aligned with the goals of the JOBS Act that they were supposed to support.  I am not a securities attorney, and recognize that many of the legal arguments in these other comments will have more sway with the commission, so rather than pile on to those already exhaustive and accurate comments, I would like to take a more personal approach.

I have been an accredited investor who has been an active angel investor for over 20 years.  As such, I’ve made well over 50 investments in startups and have chaired the largest angel group in the Pacific Northwest that has made over 200 such investments.

Angel investing has moved from a curiosity to an asset class.  Angel Investors are individuals, scattered across the country in every major city and town in the US, who invest their own money (unlike banks or VCs).  And, to make their companies succeed, they must also invest their time, knowledge, experience, and networks.  We do this willingly, giving back to the communities that help us become successful, knowing that on the average over 50% of these startups will fail and not return the investment capital we have contributed.  Occasionally, one or our companies succeeds wildly, creating many jobs and sometimes a whole new industry.

Here in the Pacific Northwest, as in many other areas of the country, the amount of venture capital financing has diminished.  Angel Investors have often stepped into the breach, investing both more and for longer than in the past.  These private investments are not liquid; we know that going in.  We know that we typically have to hold our investments for over 7 years from time of first investment and often over 10 years.  These are risky investments.

Since we operate on our own, we do not have the infrastructure of a large firm.  Typically, our individual investments are small – in the range of $25,000 to $100,000 – and the companies are at their very earliest stages (when we can add the most value to help them succeed), raising only a few hundred thousand dollars to get going.  More often than not, we invest in a small technology team with a good idea, who have not yet hired any real “business people,” have no infrastructure and are working out of a temporary office.  It is our hope that the capital and time we contribute (we are not paid; just equity) will help these companies become the next Microsoft, Google, or Facebook, creating thousands of high-paying jobs.

In order to get these companies going, simplicity is required in financing and deal structure.  Having travelled and worked in many countries, the US system has been the envy of the world.  Simple Reg D financings have been the cornerstone of the entire asset class and ecosystem.  We learn of a small team, help them get up and running, do a simple and quick financing, and then help them grow.  The SEC deserves a lot of credit for their foresight in this asset class and the Federal preemption that has allowed it to grow and create jobs and companies.

However, your latest rule-making has put all of that in jeopardy.  You have proposed a set of rules that would at best make these financings difficult and at worst completely crippled the asset class.  By asking the proverbial 2 guys in the garage to take on the same responsibilities that you would require of an established company with on-staff legal departments and millions in revenue is the definition of insanity.  Requiring potential investors to turn over personal financial information to a company that has no real ability to keep it secure is ridiculous.  But most of all, it strikes me that you are trying to fix a problem that doesn’t exist – angel investors know each other and the risks they are taking.  There is little or no fraud in this asset class.

If you do impose a host of restrictions and limitations on the asset class that is working well and is not suffering from any problem other than, perhaps, needing even more capital, you risk causing the capital to dry up for these fragile companies that have driven the US economy.

This is exactly opposite the intent of the JOBS Act.  And, in my humble opinion, contrary to our national interest.  We need more capital going into angel deals, not less.

Please resist the temptation to cripple angel investing.


Daniel Rosen, CEO

Dan Rosen & Associates

Kirkland, WA

Too Much Complexity, so Tell the SEC

As a rule I live by, “if it ain’t broke, don’t fix it!” The new SEC rules violate that basic principle (see: or my previous posts). There is virtually no fraud in the Angel Investing asset class, but the SEC has decided to impose (without a Congressional mandate) stringent new rules that will cripple angel investing.

Let me use an analogy. Let’s say that you are a wine connoisseur. You buy a superb bottle of wine each month from a new small winery, knowing full-well that it will be expensive. But you really like supporting small, unknown vineyards and hope that the wine will mature into on that is exceptional in 5-10 years. You have been doing this for years and find that it is worthwhile.

All of sudden you are told by the federal government that before you are allowed to buy a new wine from any small, new vineyard that has announced their new wine, that winery must verify that you can afford to buy this wine.

The winemaker must verify that the purchaser is allowed to buy this expensive new wine or lose the license to sell wine at all. The winemaker says: “I’m just a wine maker and don’t have any ability to check or store financial records.” So she asks his distributor, who says: “I can do that for you, but it will be time-consuming and expensive.” The winemaker is befuddled, since she knows that, unless she can sell his wine in a timely fashion, her business will flounder, so she agrees to pay the distributor, even though the winemaker has always sold directly. She learns that if she never announced that she had a new winery to customers or was a large, established winery these rules would not apply.

So the distributer calls you and says, “give me your financial records, so that I can verify that you can afford to buy this wine.” You really want to buy the wine, since you have done hours or days of research finding the winemaker and studying how she makes great wine. Getting the financial information together is another time-consuming task that has nothing to do with studying wine. You decide it’s just not worth it, so don’t buy the wine.

But being forced to do this EVERY time raises the complexity and difficulty of finding new winemakers. So you decide that buying from only large vineyards is good enough, since you won’t have to go through the hassle. It’s not as much fun, you aren’t supporting the new winemakers that move the industry, but it is less difficult.

This is a direct analogy of what the SEC is imposing on entrepreneurs, startups, and their angel investors. We are being told that we must add to the complexity, cost, and hassle of doing these risky, early-stage deals (where over half fail anyway), while assuming additional risk that the company will have violated a cumbersome and costly regulatory process. If they have made a mistake, then they can’t raise money for a year, which we all know is a death sentence of a startup.

Please contact the SEC, your Congressional Delegation, any anyone else who will listen and spread the word.

Why is the ACA making a big deal about the SEC proposed ruling?

I am being asked, why is the SEC proposed ruling such a big issue?

Unless you read the entire ruling and get to talk either directly or indirectly to SEC staff, it doesn’t seem like a big issue. 

Simply put, the proposed SEC ruling is (a) trying to fix a problem that doesn’t exist; (b) will increase risk in our early-stage deals by adding a dimension of regulatory risk that isn’t there now; (c) will increase the cost and time for getting deals done; and (d) violates the Congressional intent of the JOBS Act, which recognized that using angel investment to create more jobs in startup companies was good for the US.

Their proposed ruling is setting new policy by bureaucrats in an area where the policy should be set by legislators

There are several issues here:

  1. What constitutes a general solicitation?  One reason I welcomed the JOBS Act provision on general solicitation was that Angel groups hit that boundary many times.  My angel group, the AoA, was ultra-conservative. For example, we didn’t give our 2 page startup summary sheets to guests, who had not yet given us the accredited investor forms.  Other groups, like Zino Society, did big events (Zillionaire Forum) that are attended by many people who aren’t accredited.  While I think this is a great idea, since it exposes new people to startups and helps fund them, are the companies that present there using general solicitation?  When a company posts its plan to Gust (as the AoA requires), are we generally soliciting?  We live in a connected world, with social media being the norm, so the new rules should take that into account. But, the boundaries are murky and, if the proposed rules are adopted, the consequences of a mistake are draconian.
  2. When the JOBS Act passed (and remember I was an insider), Congressional intent was to help angels fund more companies.  The new SEC rules not only won’t achieve that intent, but will make it harder, because of the uncertainty.  I will likely avoid investing in any deal that uses general solicitation. If the startup company makes a mistake, I will lose my investment quickly, since they will have spent my money (as I want them to) and not be able to return it when the deal is rescinded. Even if the deal is not rescinded, they will be prohibited from raising money under Reg D for one year; that is a death sentence for a startup.
  3. The old rules provided a safe harbor to the companies (the investors were accredited if they said they were).  The new rules do not provide safe harbor.  The companies must verify that each investor is accredited and not a “bad actor.”  That responsibility is on the company and their board.  To get that degree of certainty, our advisors are saying that each issuer must do a background check with a third party, which will cost several thousand dollars per investor.
  4. I most certainly won’t give personal financial records of any type to a startup. Perhaps a third party verification industry of broker/dealers will emerge that will do so, but that will add cost and complexity. Furthermore, that will likely mean I will have to fill out additional myriad forms for each investment, attaching my tax returns, bank accounts, etc. each time. Again, I find myself asking “what problem are you trying to solve?” Public market equities don’t require me to jump through any hoops. Seems simpler.
  5. If you think you are not using general solicitation, but later it is determined that you did (e.g. presented at a public event, did a post on a social network, talked to a reporter, or potentially even told a customer who asked how you could ship your product), the impact is draconian.  You have 30 days to file an amended form D, allow your existing investors to rescind, and potentially face a one-year ban on fundraising. 
  6. Today, if you use Reg D, 506b (quiet), you can file after you raise the money (15 days).  If you do use 506c, then you must file an Advance Form D 15 days BEFORE the first time you generally solicit.  So, that would mean that you will need to file before you speak to your first investor and then file (an amended Form D) when you reach final terms.  And the Form D is posted to a web site that can be reviewed by the State Security Administrators.  We believe that this is the reason for this whole process – they want to do away with Federal preemption of Reg D filings.  They can then require a company to jump through myriad state hoops, as they have done in Alabama.
  7. The SEC is making the Reg D forms much more complex.  You can read that to mean that legal fees will be substantially higher.  This will make smaller deals (which we have been advocating) more problematic.

For a more thorough treatment of these issues, see:

Hope this helps.

They’re at it again!

The SEC just announced some new rules, based largely on the requirements of the JOBS Act. These rules, on their surface, seem really great. They acknowledge the rise in angel investing by allow companies to seek out angels nationally via “general solicitation.” Unlike Crowdfunding, which allows companies to seek investment from the general public, these rules apply ONLY to accredited investors, who are deemed to be sophisticated and able to assume the large risks associated with angel investing.

This is a reasonable thing to do, since the early-stage investment asset class is virtually free of fraud and the investors don’t need protection from themselves.

But the SEC, in granting the permission to do general solicitation for accredited investors, proposed a set of rules that will all but kill angel investing in the US. I am not alone in this opinion. See:

If passed, any company that uses the new provision must file onerous forms with the SEC, will incur substantial legal fees, must investigate all of its investors to ensure that they meet the federal accredited investor standard, and face still sanctions if they don’t do everything correctly.

What problem is the SEC trying to fix? We don’t have fraud. It works now and the JOBS Act was put in place to ensure that more angel investing, not less, would occur, so that more startups would get going, grow, and create lots of the right kind of jobs.

This cannot stand! Write to your representatives in DC, the SEC, and express your outrage.

Angel Syndication – Regulatory and Legal Framework

Frequent readers of my blog know that I am active in public policy on behalf of angels. They also know that I am a nerd and about as far from a lawyer as you can get. So, they should take this post in that spirit.

When angels purchase stock in a startup, they must certify to the issuer that they are an accredited investor (an SEC term; if you want to understand this google it). The issuer must only speak to accredited investors and must not do any public announcement or advertise to the general public. (This is why angel groups may only have accredited investors as members or in the room when companies present.)

But the market has changed.

  • Companies now need much less money to get going because of things like open source software, better tools, Amazon Web Services, etc. Very often, a company can be created for a few $100,000s, where a generation ago it cost $10’s of millions.
  • Angels now fund an amount comparable to VCs – about $20B annually in the US. But this is spread over many more companies.
  • There has been an explosion of angel groups (angels working together in a concerted way), that operate in much more professional and disciplined manner. And these groups have gotten larger, with more members.
  • VCs have moved upstream – to later and later stage deals. A generation ago, this was called mezzanine investing. Angels must fill the gap created and now often put over $1M in companies (over several rounds). Often VCs don’t enter the picture at all.
  • Exits are now primarily via acquisition, rather than IPO. Acquisition exits are more likely to be smaller – in the $10s of millions. Therefore, companies must be much more capital efficient. Rather than take in tens of millions in investment, they must consume only a few million, if they are going to give the entrepreneurs and investors a good return.

As a result, angels often must find much larger sources of capital to fund their companies. On an increasing basis, they turn to other angel groups to work together to form a syndicate to do the funding. This works because angel groups (under the auspices of their trade organization, the Angel Capital Association, use common frameworks that have allowed the different groups to trust each other’s analysis (due diligence) and valuations.

Naturally, these groups use the internet and internet-enabled tools to find each other and share deals. Under the current regulatory framework (Rule 506), this is strictly not legal. The JOBS Act (see previous posts) attempted to change the regulatory framework to allow angels and angel groups to operate in the 21st Century using the Internet; Congress required the SEC to publish new rules to make that so. The ACA and other groups are working with the SEC to ensure that these rules make sense and are operational. To date, it has not been so.

The SEC is of the opinion that, if a company uses “General Solicitation,” then it no longer has “safe harbor” that is granted under current rules. Simply put, today if an investor says he or she is accredited and fills out a simple form during the investment process, then the company cannot later be faulted. Under the new rules proposed by the SEC, the issuer (the startup company selling the shares) is responsible for ensuring that each investor is in fact an accredited investor. This means that even if the investor says they are, fills in a form, or has invested in other startups, the company must verify that they are accredited. If they don’t do so, they risk rescission – at some later time, the whole deal can be unwound. This is incredibly drastic. It would be like selling someone your house, them taking title, and after they’ve lived in it saying that they weren’t a qualified buyer and you had to pay them their money back. Of course, once the startup has spent the money, this means bankruptcy so that the investor loses all of their money.

It is not clear to me what problem the SEC is trying to fix. The angel investment industry is remarkably free of fraud and does a fabulous job policing itself. We tend to co-invest with members of our network and group. And we diligence the companies we invest in to ensure that they are solid prospects. We know many will fail, but that is the risk we knowingly take. We don’t need the SEC to protect us from bad (or good) decisions.

The SEC’s stand is so obviously bad and stupid on so many levels. It will make doing any form of solicitation a non-starter and put the industry back to the early 20th Century when the current securities laws were written.

Comments welcome.

Angel Deal Syndication

As the VC market has (in general) moved upstream to later and later-stage deals, angel investors have filled the breach by not only investing at the seed stage, but also carrying deals through to exit. As a result, an increasing number of angels are joining groups (like the Alliance of Angels). As these groups reach their capital capacity in a deal, the angels are reaching out to other groups with great deals for participation (it is generally called “syndication”). In a companion piece, I will discuss the regulatory framework changes needed to make this easier, but in this post, I want to address the logic and rationale for syndication of angel deals.

I look at the world as follows:

So, what does this mean? In the lower left quadrant, there are groups/geographies that have lots of capital, but very few deals. They want to invest, but find very few local deals that merit that investment. These groups want to syndicate deals to see more good deals. Many areas in the country fit this category. Groups in these geographies often try to stimulate deal flow through either governmental programs or incubators.

Areas and groups in the upper right quadrant have lots of good deals, but not sufficient capital to fund them. They want to syndicate their deals so that their good deals can be fully funded.

The upper right quadrant have high deal flow and lots of capital. This might be typical of Silicon Valley. Groups here generally can fill their rounds, and so might not need to syndicate unless they want some specific expertise from people or groups in other areas.

If you are stuck in the upper left quadrant with low deal flow and low capital, you are probably not in a good situation to form an angel group or do much formal angel investment.

Hope this simple framework is helpful. Comments welcome as always.