0:00:00 - (Mark Friedman): If they indexed it, it would knock out somewhere around 40 to 60% of the current angel investors. Is it really the government's place to say you can't invest in that if you have this level of sophistication because you're not a millionaire? I might have the right to modify our bylaws and be on the committee that does that, but we want to do what the members are looking for. So what's good that's going to help early stage companies be able to get capital and make it so that there's reasons that people want to invest in this class, which is a very risky class to invest in, almost by definition.

0:00:31 - (Andrew Kazlow): Welcome to the Diligent observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators. My guest today is Mark Friedman, co founder of RTP Angel Fund, executive vice president at the Dental Innovation alliance, and board member for the Angel Capital Association.

0:00:53 - (Andrew Kazlow): In this episode, Mark pulls back the curtain on how the ACA supported recent QSBS improvements, walks me through the details on on new legislation that could completely reshape the startup landscape, and shares his firsthand experience on what it's like to sit in the room with SEC commissioners and push for smarter regulation. I hope you enjoy learning from Mark as much as I did.

0:01:23 - (Andrew Kazlow): Mark, thank you for being with me today.

0:01:25 - (Mark Friedman): Glad to be here.

0:01:26 - (Andrew Kazlow): Well, we are live at the annual Angel Capital Association Summit in Westminster, Colorado on day three. So Mark and I are extremely tired because it's been a long week, but it's been a full week and there has been a lot of really thoughtful insights and more than the insights, fun conversations. Mark, tell me what the ACA Summit means to you.

0:01:48 - (Mark Friedman): In a nutshell, I would say it gets us to see people in 3D instead of 2D. And we live in a zoom world now. And there's a lot of people here you see once a year, there's a lot of people you've never actually met, but you've dealt with on different zooms. And it is so different when you have interpersonal relationships. So from, you know, my position as an angel investor and a professional investor and as an ACA board member, member of the executive committee, it's all the same. It's the. It's the networking, it's the people, and, you know, the educational aspects I think are what most people look at as the key to this.

0:02:23 - (Mark Friedman): But from my point of view, I see it as the networking because those are educational for people. Everybody learns from each other. And no matter how many years you've been doing something like this, you still find experiences from other people. It's incredibly advantageous.

0:02:37 - (Andrew Kazlow): So I gotta ask, before we get into the topic, which I'm very excited about, what's a nugget or two that you've taken from the event so far?

0:02:45 - (Mark Friedman): Probably the biggest thing is a better understanding of AI. And I understand AI pretty well. I've been involved in a number of investments that we've looked at for AI. But this last speaker, her X, for instance, the way that she looked at diligencing an AI company or a company that uses AI had so many common sense elements that you want to make sure you build into whatever the diligence is. You go through generational changes. AI is a generational change.

0:03:13 - (Mark Friedman): And you know, a lot of people equate it to the Internet boom. I actually look at it more to the advent of the PC, you know, the early 80s, and you know, a lot of people don't equate it that way because they weren't around for the advent of the PC and they just, you know, PCs have been around forever. But the advent of the PC, you heard the same types of things that these computers are going to come in. Nobody's going to have a job. Kids graduating college are not going to be able to ever find a job again because the computer is going to replace them.

0:03:40 - (Mark Friedman): The parallels are so strong there. And if you think about where the world is today, it wouldn't be where it is today if the PC hadn't come out. Because so many things have been developed that, that are based on having computer technology and computer power that was introduced with that and all the evolution of it. Same thing I think is what's going to happen with AI. Ultimately, we don't know where it's going to go, but it's going to open up all kinds of opportunities that we probably can't even foresee at this point. So it's an interesting time. It's a scary time. And I was on a panel a couple of months ago where one of the topics was what do you do about legislation for artificial intelligence? And it's a huge topic and it's complex because if you put in too many regulations in the United States, other countries may do things and the United States may lose out. But if you don't have guardrails, you're not going to have protections that you may need.

0:04:30 - (Mark Friedman): And the only thing I was able to conclude was that you're at a time where half the world thinks that AI is the next great thing in the future of the world and half the world thinks it's the end of the world. And how do you really come up with legislation that's going to make both sides feel like they're, their needs are being addressed? So time will tell.

0:04:48 - (Andrew Kazlow): Well, and this is not a category of discussion that is new to you. You've been a part of setting regulatory policy around benefits and other other things for a long time. Do you feel like there's parallels here to your experience over the last 30 something years helping in this area or is it just totally in its own world?

0:05:09 - (Mark Friedman): Yeah, it's an interesting question. I think because of the power that AI has, it's probably in its own world and a lot of the other areas that I've been in involved in. And I've never been a regulator, I've never been a legislator, but I've dealt with areas that have to understand where the boundaries are. Those were more specific where AI is going to touch everything. So if you look at early stage investing, there are certain regulations and, and legislation and tax laws that are specific to what's going to happen when you invest in an early stage company or even a later stage company.

0:05:45 - (Mark Friedman): When I was in the retirement world, I used to educate, run a series of conferences on retirement plans. There were all kinds of regulations that govern retirement plans and what you can and can't do. And for the most part those were really sound rules. But just like with investing rules and ultimately AI rules, the employee benefit rules needed to keep evolving. And I think one of the things we always face is that government purposely doesn't move that fast and you have to have groups that are going to be talking to government kind of dispassionately, not where it's just self serving and help them realize where there may be changes that need to be focused on. You know, an example I'll give you.

0:06:26 - (Mark Friedman): Years and years ago when Obamacare was first being discussed, I got invited to a public policy forum up in D.C. and I was shocked at how many different special interest groups only thought about what would be the impact to their group. I'll never forget there was a woman who represented a nurses union that stood up and said, well, we think X, Y and Z are going to really impact the nurses adversely and we're totally against this regulation.

0:06:52 - (Mark Friedman): And somebody else stood up and said, you realize if there's not something that gets put in place, the entire health care system is going to collapse. And that's going to really adversely affect nurses much more than anything that may be put in as a foundational thing.

0:07:05 - (Andrew Kazlow): Well, I think that is as good a dovetail as any into the what I like your wording dispassionate work that the Angel Capital association does to serve the investor ecosystem. Can you say a little bit more about ACA's work in this area? Because I think it's something that is perhaps underappreciated and under talked about in most investment circles.

0:07:26 - (Mark Friedman): Yeah. And if we go off of that last example, if the ACA came in or any group that's representing investors and said we want X, Y and Z because we want to make more money and we think we can get more people to be able to do that, it's a foolish argument. And the public policy efforts that the ACA has been involved in for years and talk about my involvement in that if you'd like, but they're focused really on making sure that leaders in the country understand the engine that drives the economy, which is small business, and the role that having capital provided for those small businesses really play.

0:08:04 - (Mark Friedman): So as as investors, we have as much interest, maybe more, in the companies being able to be built and help those companies and stimulate innovation through those companies as we do for what we can see as benefits for investors. And it has to be that whole ecosystem that you're focused on. So when we look at things, it's entirely focused on what's going to help the early stage environment, the early stage ecosystem, and our part in that is the early stage capital.

0:08:34 - (Mark Friedman): So what's good that's going to help early stage companies be able to get capital and make it so that there's reasons that people want to invest in this class, which is a very risky class to invest in, almost by definition.

0:08:47 - (Andrew Kazlow): Totally. Something you said that I think is interesting and I'm curious about, is that public policymakers need to understand why this matters. Essentially help me understand why they don't today or in many cases fail to understand the impact that this community has on the overall economy. Because sitting in my shoes, you know, I'm swimming in these circles every day and it just seems deeply obvious, right. We're trying to build world impacting businesses that are going to create gazillions of jobs. How could this not be important to policymakers? But it seems like there's other priorities. Help me understand like why it's not.

0:09:24 - (Mark Friedman): Well, I think the biggest issue is the other priorities. And first of all, there needs to be an understanding which I had to learn from my experience with the aca, there are different committees that focus on different areas. So to think that you can go up and talk to 500 something legislators and get them all to agree and to understand a lot of them don't want to understand that little piece of the world. So we'll deal with the Banking, Finance Committee and other areas that are specifically related to the early stage capital needs.

0:09:53 - (Mark Friedman): So one of the issues though, that sits there is that whatever committee you might focus on, you know, say we were an agriculture group and we went and focused on an agriculture group and convinced them of all the great needs that are there. Well, there's other groups that are talking to the Banking and Finance Committee about the needs for the early stage capital. So you've got this natural conflict. There's so many different priorities that are out there that when you try to get something through congressional authorities and then through the President, ultimately it's hard to get as many things there. So you, you have to just focus on your little piece of the world, make sure they understand why that's important and hope that what you, what you need resonates with enough people that they can make that a priority for everybody.

0:10:39 - (Mark Friedman): So there's a group of people that really need to understand the basics of everything you do and the reasons they exist. And then they, they have to be able to convince others that this is the case, because just with, as with everything, there's a lot of different perceptions for things. So you could talk to somebody that's really in the know about early stage investing, for instance, and they could talk to other people that don't know that if they can't relay your message the way you would relay it to that person if you had an opportunity to speak to them, the message gets lost.

0:11:09 - (Mark Friedman): So it's, it's a lot of repetition and doing this over a period of time. So people in authority know what the issues are. And then of course, you have turnover in government also. So you're constantly having new people that you need to bring up to speed.

0:11:23 - (Andrew Kazlow): So tell me a little more about, I mean, just tactically, like over the last several years you've been involved in this community through the aca. What, what are some of the specific efforts and maybe some of the outcomes that you've seen from the work that the ACA has done to advocate for the early stage startup community.

0:11:38 - (Mark Friedman): Yeah, so, okay, so first I'll go back to where I said dispassionate, and I'm not even sure that's the right word. But non, non partisan, I would say so. There was a provision in the one big beautiful bill that we had worked for a long time. We didn't know it was going to be in the one big beautiful bill. So whether I care if the one big beautiful bill is passed on a red side or a blue side or a green side, it doesn't really matter. And how I felt about the rest of the bill doesn't really matter.

0:12:05 - (Mark Friedman): It's what is the part that we would like to see put into law. So in the one big beautiful bill there were provisions for the qualified small business stock credit and qualified small business stock credit is something we focused on a long time. It's something that's really important for early stage companies to be able to raise funds. Because what it is is functionally a way for the government to help mitigate some of the risks that investors are taking to invest in that class.

0:12:30 - (Mark Friedman): So when you think of the early stage class as being the most risky you're going to have, it's just natural. A business starting out, there's no guarantee to success. And if you invest in that business, it's more risky than putting my money into Apple. So there's got to be something that balances the returns and it's not just the returns on capital you might get. It's the added incentives that the government can provide by something a qualified small business stock.

0:12:57 - (Mark Friedman): So if a business was held, an investment was held for five years, you would get to take advantage of all the other criteria were met of a tax advantage from, from that investment. The problem with it was that some business decisions were being made because it had a five year cliff. So what the law previously was was that you had to hold your investment for five years. What we had endorsed was putting in a phase period where you can get a partial credit after a shorter period of time.

0:13:28 - (Mark Friedman): Because the catastrophic thing for a business could be that you have a sale opportunity, an exit opportunity after four years. And it's an attractive exit opportunity. But you have some investors that are saying I don't want to sell because we hold another year, we're going to get advantage of usps. There are all kinds of decisions that were made for tax reasons only. Whether it's with qsbs related or any other walk of life that backfire. It's great to try to save taxes, but it shouldn't be the primary thing that drives a business decision.

0:13:55 - (Mark Friedman): So if somebody is trying to sell a business after four years, they say no, I'm not going to sell it. They hold it for that other year. You have no idea what's going to happen in that last year. That's a totally different decision. If they're looking at it saying our investors are going to get 75% of the credit if we sell now versus 100% if we hold in another year, versus they're going to get 0% now unless we hold it for another year. So it just made for more rational decision making and it was just one of those things that was a technical change in the law, but it's.

0:14:25 - (Mark Friedman): It wouldn't have come about if it weren't for efforts of groups like the aca letting legislators know why this is something that's important.

0:14:33 - (Andrew Kazlow): As you may have noticed, we are recording this conversation live from the Angel Capital association annual summit. Now, if you're not familiar with the aca, this is the world's largest professional organization specifically designed for angel investors. So if you're serious about this ecosystem or just generally interested in Learning more, the ACA's education, resources and community are definitely worth checking out. You can go to angel capital association association.org

0:15:00 - (Andrew Kazlow): and I gotta say, this is our second year live recording in the room and I had an absolute blast. Cannot wait to come back for future years and I hope to see you there.

0:15:10 - (Andrew Kazlow): So this is amazing. I mean, so we've done two separate episodes now specifically on qsbs, and we'll put links in the show notes and in those episodes we talk about how amazing this provision is, how it's changed, and the impact and benefit that that provides to both investors and entrepreneurs. How did that happen? Like you say, okay, the ACA advocated for this. We're messaging this and it just showed up in this bill because whoever you had been messaging to it made it through.

0:15:36 - (Andrew Kazlow): What did that look like mechanically?

0:15:39 - (Mark Friedman): A big part of it was the ACA has been involved with things in D.C. for quite a while, but we were just one organization. We had a group that used to talk periodically about what are the things that really make an impact on early stage companies. And this was one of the things that had been talked about. And we formed an organization that's called the Innovators Coalition that's made up of a number of organizations that people would have heard of. Carta, the National Venture Capital Association, a number of others.

0:16:07 - (Mark Friedman): And even though we all have different constituencies underlying us, you know, NVCA doesn't deal with just early stage companies. We deal with almost all early stage companies. At the aca. We had a common set of goals as to what we think are needed as far as legislative priorities. So when we talk with one voice as a cohesive voice, it really has much more of an impact on the legislators because they see a much broader audience being represented. So I think that's one of the things that's really helped is having this unified voice to be able to talk about priorities.

0:16:41 - (Mark Friedman): So we meet on a monthly basis with all these companies, virtually all these organizations virtually to talk about these things. And we've become very close with these other organizations, so it's been a great entree. Then we have a group that works with us in D.C. a group called called Gray Robinson, who stays on top of the legislative goings on in D.C. and they have relationships with a great number of congresspeople and senators.

0:17:03 - (Mark Friedman): So we'll have a trip up to DC as the ACA once or twice a year to meet with various people to go in there and just talk as regular human beings. This is the world we live in. We want you to know what it's like. We've invited legislators to come to angel groups to go to angel meetings. We've had my local angel group, RTP Angel Fund, we've had a local congressman, came into a meeting, saw what it's like, and they see the commitment that in our case, angel investors have to making sure this early stage ecosystem really flourishes.

0:17:37 - (Mark Friedman): I think one of the challenges we have at the ACA is we're not a marketing organization per se. So we don't go out there and toot our horn saying because of the aca. This provision was in the one big beautiful bill. First of all, it wouldn't be true. It wasn't solely because of us in part, but it's part of the overall package of value that the ACA provides to its members. And you know, it's hard because nobody pays us to do public policy. It's just part of the overall view that we have that this is one of the critical things that our membership needs.

0:18:10 - (Andrew Kazlow): And I think this is one of the most underappreciated things that the Angel Capital Angel Capital association does for the investor community. To your point, it's not well talked about. And that's why I'm so excited to have you on the show today, to help us understand what is happening behind the scenes. Like the ACA does a lot for the investor ecosystem that doesn't really get appreciated and this does. This kind of thing doesn't just show up in a bill by accident. This is the only.

0:18:36 - (Andrew Kazlow): This is only as a result of years of hard work. From a variety of stakeholders, a part of which is supported by the ACA's efforts. I think this is incredible.

0:18:45 - (Mark Friedman): Well, I'll add one other note and thank you for saying that. But I think one of the other real tangible benefits the ACA gets out of these efforts is we've built these relationships with these other organizations. And the ACA is seen as, I don't know if I would say the voice, but at least one of the strongest voices for the early stage community, both for the entrepreneurs and the early stage investors. And that's really strengthened the ACA's role in the ecosystem in total and the reputation the ACA has with other organizations.

0:19:18 - (Mark Friedman): Love it.

0:19:19 - (Andrew Kazlow): So let's talk a little more about what's happening right now. There is a particular bill that is in process or series of bills in process right now that are pretty exciting. And you and I've talked about these a little bit. Could you tell us more about what's happening today that we should be watching?

0:19:34 - (Mark Friedman): Yeah. There's a set of bills called the Invest act. And I forget what the acronym stands for, but everything in dc, inv, E, S, T is something I should have looked it up first.

0:19:45 - (Andrew Kazlow): Alphabet soup.

0:19:45 - (Mark Friedman): Yes, it is Alphabet soup sometimes. But what this is is a set of new laws, laws that help modernize some of the things that early stage investors deal with. And you know, there's certain areas that we're particularly interested in from the aca. One is changes to the accredited investor definition. So the accredited investor definition goes back to 1982, which is a long time ago. So it's actually when I started my career.

0:20:13 - (Andrew Kazlow): 40 plus years, 45 years old and about.

0:20:15 - (Mark Friedman): So yeah, just call me old. Go ahead.

0:20:19 - (Andrew Kazlow): Today mine is so.

0:20:20 - (Mark Friedman): But so, you know, when I see 1982, it's actually a magical date for me because I know exactly. I've been working for a long time now. So they came in to place originally as a guardrail for protection against fraud. And there was a lot of different scams and things going on back then, just as they are today. But fortunately, early stage investing has very little fraud associated with it. However, a lot of people that are regulators or legislators see, you know, the Theranos stories or things like that that are major blow ups. And you know, we just had a presentation on artificial intelligence at the summit, the last keynote that we had where she was talking about some AI companies that really misrepresented what they had done.

0:21:03 - (Mark Friedman): But the advantage of today's investing world in early stage companies versus 1982 is that there's angel groups now. And these groups work as teams to look at what a company might be and to have diligence done. So trying to take a set of rules that were put in place in 1982 and just inflate them to today's standard, go through indexing to come up with what today's number should be was just a mistake because it's apples to oranges. It's not the same world that it was.

0:21:34 - (Mark Friedman): The other part of that is that the rules that were put in place in 1982 were totally arbitrary numbers. They were just numbers that they came up with to set what the standards would be for somebody to be able to invest in this, in this asset class.

0:21:46 - (Andrew Kazlow): Just to be articulate about that, the numbers you're referring to are the 200k a year. Basically it's a, it's a net worth or annual income.

0:21:52 - (Mark Friedman): Correct.

0:21:52 - (Andrew Kazlow): Limit that was set 45 years ago and hasn't been changed.

0:21:55 - (Mark Friedman): Correct. So there's rules that we're requiring the government to look at these and adapt them to today's world. And the easiest thing to do would be just to index it. So we had done a study at the ACA that showed that if they indexed it, it would knock out somewhere around 40 to 60% of the current angel investors. And that knocks out 40 to 60% of the people that might be investing in these early stage companies.

0:22:20 - (Mark Friedman): And it would be catastrophic to the growth of early stage businesses because they're really hurting to be able to raise money. There's a lot of headwinds that are out there right now for investors of all walks of life and concurrently for the companies that are trying to raise money. So that was part of what we started doing a couple of years ago, is talking to people at the sec, talking to legislators to make sure they understood what the unintended consequences of something like that might be.

0:22:47 - (Andrew Kazlow): So just, just to make sure, I'm tracking. You're saying that the, basically the ability to qualify as an accredited investor has become dramatically easier, so to speak, over time as inflation has adjusted. But that line has stayed the same. And so now we have this whole new swath of folks that are able to access these early stage businesses by, by qualifying that if we were to inflation adjust and rebalance, that would just be immediately flushed out of the ecosystem.

0:23:13 - (Mark Friedman): Yep.

0:23:13 - (Andrew Kazlow): And you think that's a bad idea?

0:23:15 - (Mark Friedman): Yeah. And the only thing I would add to that, that's very, a very good summary of it. But the world is different than it was. So even though the the numbers and thresholds are the same. They're relevant today at the levels they are, in my opinion, because you have this whole structure that sits around the people that are making early stage investments. The vast majority of investments in this class are made through angel groups or groups of people that have a level of understanding as to what they're doing.

0:23:43 - (Mark Friedman): So some of the guardrails that are in place from the very beginning because people are doing this individually, are totally different today because of the advent of angel investing, angel groups and other organized funds and things like that. So what we talked to SEC commissioners about and others was that really what's needed is not just a financial qualification for what's required to be able to invest, excuse me, in this class, but also a test.

0:24:13 - (Mark Friedman): So if somebody could say, I'm skilled in investing, I've gone through a series of programs that show me these are the risks, this is what I should be evaluating, this is how I should look at this. So somebody that comes up to you and says, I've got this great product and I'm going to make you 100% return in six months, you don't look at that and say, well, first of all, they shouldn't be saying, I'm going to guarantee you a return.

0:24:36 - (Mark Friedman): Second, it's probably more fluff than reality. So have that level of sophistication and is it really the government's place to say you can't invest in that if you have this level of sophistication because you're not a millionaire? So that really made sense with the legislators and the regulators. So included in this invest act is something that would add in a sophistication test. So people would be able to show by going through a test that probably would be administered by FINRA that I have the knowledge set to be able to invest in this.

0:25:09 - (Andrew Kazlow): So there would be some sort of like a startup investing series blank instead of the series 63 or 65 or 7 or whatever, these financial exams, there would now be a angel investing test.

0:25:23 - (Mark Friedman): Exactly. And, and there's still discussion as to how the angel, how that test. And it wouldn't be just an angel test. It covers a lot of different areas that accredited investors cover. So there's still discussion is how, how is that going to be administered? I think the universal thought now is it probably would be through finra. But other organizations such as the ACA are talking to the regulator saying we could do educational programs that lead up to that testing.

0:25:47 - (Mark Friedman): So it's a great opportunity for organizations like the aca where we already have a very strong educational component. I'm an instructor in the ACA Educational series and they're great education for people to know. If you go through the ACA educational series, whatever the test is, you're probably going to be able to pass it. And if you go through those and you choose after going through that education that this is something you want to invest in, you know, again, in my opinion, you should be able to, regardless of what your net worth might be, because you're going to learn.

0:26:15 - (Mark Friedman): If you have a net worth of $100,000, don't invest $100,000 in a risky early stage company because you think you might be a millionaire after investing in that, because there's a very good chance you would have $0, not $1,000,000 afterwards. Understand that and you make your own choice.

0:26:31 - (Andrew Kazlow): So tell me more. What else is in this provision? I mean, you said it's a series and I know there's a number of components.

0:26:36 - (Mark Friedman): There's a whole host of different things. I think there's 26 bills altogether that were put together to be this one act. And I'll give you an update of where it stands. It passed through the House a bipartisan basis. It's now sitting in the Senate. So we had some meetings with senators a few weeks ago to talk about where it stands. And there's really very broad support on the Senate and it's believed that it would pass through the President as well.

0:27:01 - (Mark Friedman): But there are a few things going on in D.C. right now that are making anything difficult to get through.

0:27:07 - (Andrew Kazlow): Just a timestamp. We are recording this on April 23, 2026. So whoever's listening to this, so that's where we sit.

0:27:14 - (Mark Friedman): And as you get closer to the midterm elections, things get more difficult to get through, even if it's bipartisan. So we're hoping it gets through and doesn't have to wait till the next Congress to be able to do that. It's to me, one of the more frustrating things when you have very, very broad support for what this overall set of new rules entails, that because of whatever it might be, you can't get it through.

0:27:42 - (Mark Friedman): And it's, it's a reality in, in government. And part of that is by design, you don't want things just going through really quickly without thought. But there's so much going on that and you know, going back to one of the very first things we talked about, how do you make things feel and seem important to somebody? Well, as much as I care about these rules and figuring out what we're doing in a war is more important.

0:28:07 - (Mark Friedman): There's a. There's a cryptocurrency bill that's sitting out there that there's a lot of mixed feelings on. We don't have anything to do with that one, but that's one that's getting a lot of attention because there's really strong feelings on both sides one way or the other about that. So there were other bills that sit there. There's a lot that the government has to do and to be able to pipe it all through when there's elections coming up and there's so much animosity, at least what you see on tv, to get things done.

0:28:33 - (Mark Friedman): It's a challenging time, but we're very hopeful it's going to get through.

0:28:38 - (Andrew Kazlow): A quick note before we continue the conversation Alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to serve Angel Networks. My team handles things like initial screening, social media, newsletter prep, platform management, and

0:28:53 - (Andrew Kazlow): a whole lot more.

0:28:55 - (Andrew Kazlow): The kinds of things that either aren't getting done or shouldn't be done by busy community leaders. If that sounds interesting to you, send me a note. Now back to it.

0:29:04 - (Andrew Kazlow): So what's the I'm curious what the thinking is. You mentioned this is a whole act, right? There's 26 things. It feels like, okay, this is pretty comprehensive to me. You know, the more is in a thing, the more difficult the thing is to pass because there's obviously more reasons to take issue with it. What's Talk me through the logic of, like, how do you form and structure these And I'm not, you know, I know you're not in. Yeah, in a policymaker seat. But like, as an advocate, how do we prioritize, like, what to put in these things and how to focus it? I'm just super curious.

0:29:34 - (Mark Friedman): It's funny, I asked that exact same question when we were up in D.C. and the basic thought of it was that these were all things that are related. There's different pieces of it. And the congressional leaders thought this was better to bundle as a bill that would pass in total. Now it might end up getting broken up into 26 different things that have to go through. But my understanding, not being a legislator, is that when you have all of these different things to go through, everyone has to be considered, everyone has to be debated, everyone has to go through all the processes. And when they combined it, it just makes it go through as one set of bills and they go through all the Things, they comment on it, then it goes over to the Senate, they get a chance to comment on it, and it goes to reconciliation and all the other things that I really.

0:30:17 - (Mark Friedman): I know the words, but I've never been part of the actual process. That's why we have the folks in D.C. that help us understand this. But you. You asked about some of the other things that are in there. So I'm, in addition to an angel investor, I'm also a professional investor with a fund focused on dental technology. And one of the things we had to deal with was that there's a fund limitation right now of 99 investors.

0:30:38 - (Mark Friedman): So if you're under a certain size fund, I think it's. It was originally 10 million. I think it's $12 million, you can have 250 investors, but if you're over that number, you can only have 99 investors. So we thought we might end up having more than 99 investors as we were going and raising this fund. So we had to set up an entire structure that costs us a lot of money to be able to just get over this artificial threshold that's been there for years, years and years.

0:31:04 - (Mark Friedman): So one of the things that's in the bill is that it's going to change that threshold to be a $50 million fund can have up to 250 investors. So that's another thing that's really advantageous. And there's a number of angel groups that have funds where they have more than $12 million and want to be able to have more than 99 investors. So that's another really advantageous thing that's in that bill, which would also make

0:31:24 - (Andrew Kazlow): these quality funds available to more investors, because oftentimes this. This leads to higher minimums which rule out many investors. For example, if I've only got room for 99 folks, I've got to set my minimum such that it's higher than what a lot can afford. It's 250k instead of 25k, which is

0:31:41 - (Mark Friedman): more approachable for a lot of 100%. Right? That is exactly the logic behind trying to get that change. And, hon, I have no idea how these rules came in place. You would think that it would be that the higher number of investors would be for larger. The larger funds, but it's. The smaller funds could have the larger number of investors. So it's just going to hopefully correct that. Another thing that's in the bill is something that enhances how you could do pitch competitions and have people view pitches.

0:32:09 - (Mark Friedman): Right now, the rules are that you're supposed to be an accredited investor. If you're going to see a pitch competition, well, one of the things we say to early stage companies is go see how other companies pitch. They have all kinds of issues. When you're running a pitch competition, who's allowed in, who's not.

0:32:22 - (Andrew Kazlow): It's super messy. I've been to so many pitch competitions and I think that is one of the most difficult rules to apply in practice because it's so gray. Oftentimes it's like easy to put it on paper, but then in practice because people just don't know and understand those rules. In many cases, yeah.

0:32:39 - (Mark Friedman): So one of the things that I've been really happy about and surprised, very honestly surprised, is that there's really a move to make things more straightforward. So I was invited to be on an SEC Small Business Policy forum a few weeks ago. Great honor to be part of that. So I went up, it was at the SEC headquarters and I had a chance to meet with Chairman Atkins, who's actually from North Carolina, where I'm from. So we talked about that as well.

0:33:03 - (Mark Friedman): And it was clear that the sec, among all the things they do to go after people that are violating things, which they should do if you cheat, go against the laws and go get it. But there's also all this complexity that sits there from early stage investing. Not knowing is, is this sec, you have to talk to finra, irs, you know, xyz, so make it more clear for early stage investors where they should go. One of the things that I realized is that the SEC has a lot of information that's available to people. It's plainly written that they don't do a particularly good job letting know is available.

0:33:44 - (Mark Friedman): So they're trying to get out there and let people know what are the resources that these government entities actually have. That's part of what we're trying to do at the ACA is make sure our members know that. Also because it's great, we don't have to recreate the wheel and tell people what these are if it already exists and the government has it out there. So it's, it was very clear, speaking to them and being part of this forum that they want to go through and look at what the regulations are.

0:34:08 - (Mark Friedman): There's been a lot of discussion about, you know, just randomly getting rid of regulations. And in our world that would be really scary because you need regulations, you need to be able to protect people, but you need to look at what was passed at some point that may not be applicable anymore. And Fix it. And the impression I got from the folks there is that's really what they're trying to do with the sec, with finra, with all the other organizations that are there. So hopefully will be able to see that. And that's being done on a nonpartisan basis, which is great.

0:34:38 - (Andrew Kazlow): So when you're sitting in these SEC small business rooms, just because I'm this, this is a topic we've discussed at length in recent months. It's called Small Business Forum or something similar. Do you feel that regulators, legislators have a good understanding of the distinction between a small business and a venture backed startup? Or is this something that is as confusing to them as it is to the average individual in the startup ecosystem?

0:35:03 - (Mark Friedman): It's a great question. I think that they're trying to make sure they have an understanding of that. And you know, SEC is a large organization, so they've got a lot of different areas and a lot of the SEC is focused on public companies, very large public companies. So the way this forum was set up, they had three panels. I was on the Early Stage capital panel, then they had a growth panel for companies that have done their early stage investing and are now in growth rounds. And then they had a recent IPO panel and one of the real focuses was what can we do to reopen the IPO markets? Because they've functionally been frozen for a long time. The number of IPOs.

0:35:39 - (Mark Friedman): You just don't see many IPOs, unless

0:35:41 - (Andrew Kazlow): it's SpaceX, which we've talked about ad nauseam this week. I mean, it's.

0:35:44 - (Mark Friedman): So they're really trying to understand what it is that is going on. So I've got a friend of mine who's the chairman of the board of Very Early Stage Company that's about to go public. So I've connected him with some folks that are representatives for the sec, so they could talk about it and say, all right, as you're now going through this process, what is it that really kept you from wanting to do this to start with? What are the obstacles you've faced as you've gone through it?

0:36:09 - (Mark Friedman): So I know firsthand that they're really trying to explore this now. What ultimately ends up happening. You know, I, I don't have a crystal ball that could say what's going to happen with the government. The best we can do is make people try to understand as much as they can what it's like in real life to go through different things and how frustrating it could be when you can't know where to turn and you hear different answers, whether it's, you know, it might be that SEC has a different answer than the IRS might have, and they conflict in some ways. Where are those things that they need to address and unify and make common sense of it all? So I'm very optimistic that that's really happening.

0:36:45 - (Andrew Kazlow): Mark, what else is the ACA thinking about working on as we look ahead that our listeners should know about?

0:36:52 - (Mark Friedman): Well, I would tell you probably in two weeks, it would be a better time to ask that.

0:36:55 - (Andrew Kazlow): Okay.

0:36:55 - (Mark Friedman): Because all the board members have been actively trying to talk to the people that come to this conference and say, what is it? The sec, the SEC slip there. What is it the ACA can do for you? You know, where in this evolving world can the ACA make sure it stays relevant and meets the needs of our members? You know, at the end of the day, we're a member driven organization. Doesn't matter that I'm on the board. I might have the right to modify our bylaws and be on the committee that does that.

0:37:21 - (Mark Friedman): But we want to do what the members are looking for. And one of the main things something like this summit does is give us a chance to talk to a lot of the members and we have a lot of other members that aren't here. So we're trying to reach out and make sure we understand where do we need to go. You know, we think we meet a lot of the needs that people have. But as with every organization, maybe in particular not for profit organizations, evolving is not an easy thing.

0:37:44 - (Mark Friedman): And we want to evolve. We want to make sure we stay as relevant as possible to meet the needs. So every year when it comes time to am I going to stay an ACA member? That becomes a no brainer for the groups. So I know for my group it's been a no brainer for a long time. A lot of it is because of the two components, the networking and the education. So we've done a lot of education with the aca. The ACA has a great set of educational programs that help.

0:38:12 - (Mark Friedman): If you think of angel groups, you generally have two different kinds of people that are going to be in an angel group. One are people that have heard about the angel group. I think it's a great way to invest. And I want to put some money in there because I think I might be able to make some nice returns on it. But I don't want to be actively involved. I'm still working. I don't have a lot of time. I trust you guys to go give me the opportunities to do this, the other people that get in and really enjoy the craft and want to learn more about it.

0:38:37 - (Mark Friedman): That's what coming to an ACA summit is like. That's what a lot of angel groups also do, is have educational classes, many of them through the aca, that help their members that want to know more about what they should look at. How do I do diligence? How do we screen companies appropriately? What's a diversified portfolio? All of those different things. And that's where the ACA can really help. So you've got this centralized organization where you could build these partnerships and the trust between different organizations.

0:39:07 - (Mark Friedman): RTP Capital. We invest locally because a lot of angels want to support their local community. So our members, we know, want to be investing in the local community. But we also have provisions in our investment thesis that will work with trusted partners. The trusted partners are all groups that we've met from the ACA over the years that we've worked with before, and we really trust them. And if it weren't for a group like the aca, we would never know these folks. You know, Gulf Coast Angels out of New Orleans, we've done a number of deals with them. I would never met those folks if it weren't for being part of the aca. So it's.

0:39:44 - (Mark Friedman): It's one of those magical things that just happens and you just have to make sure that stays as vibrant and people want to be part of it as you can.

0:39:53 - (Andrew Kazlow): Well, Mark, I think that is a fantastic place to end. Thank you so much for making a few minutes today and for all of your work to serve the angel community more widely.

0:40:00 - (Mark Friedman): Thank you. Glad to be able to talk to you.

0:40:06 - (Andrew Kazlow): Thanks for listening to this this episode of the Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals and more straight to your inbox so you never miss a thing. Subscribe today@thediligentobserver.com.