A national investor group on Tuesday warned that federal regulators may adopt rules that would disqualify about 60 percent of current angel investors from funding startups.

The Angel Capital Association called on investors, economic development organizations and entrepreneurs to ask regulators to keep the current definition of a qualified angel investor in place.

The Securities & Exchange Commission is considering a proposal to raise the current financial requirements on angels and peg them to the rate of inflation.

An individual accredited investor is now defined as someone with $1 million in net worth, excluding the value of a primary residence, or with annual income of $200,000.

Some investor protection advocates say higher net worth requirements would keep people from losing more than they can afford. The SEC and General Accounting Office say that in order to accomplish the advocates' goal, the new net worth requirement would be about $2.5 million and the annual income requirement would rise to $450,000.

The angel group said that would cut the number of qualified investors by about 60 percent.

A survey of ACA members in January found that more than a quarter of its 12,000 plus members would lose accredited investor status. More than a third of its members outside of California, Boston and New York City said they would be affected.

The SEC has indicated it may be open to alternative criteria, based on factors including membership in an angel group, employment history, relevant investment experience, total liquid assets, or by limiting the percentage of net worth that could be invested in any one offering.

"We appreciate the importance of regulation to protect investors from fraud, however regulations need to be focused in areas with a proven need for added oversight," Marianne Hudson, the angel group's executive director, said in a press release.

Author: Cromwell Schubarth Publisher: bizjournals.com URL: http://www.bizjournals.com/sanjose/news/2014/05/20/more-than-half-of-angel-investors-could-be-barred.html