(This guest post was written by Barry Hannan, start-up enthusiast)

Senator Dodd’s financial reform bill, which was created to impose heavier regulations on big banks and Wall Street, has now attached language that would bring entrepreneurism, innovation, and angel investing to a screeching halt.

For almost 2 decades Regulation D (Rule 506) has been the most effective and reliable avenue for start-ups to seek and acquire angel financing. The bill that has been presented before legislation will give the SEC power to delay or hold up funding based on their decision (if they get to it) before sending down to the state securities commissions, along with increasing financial expectations on “accredited investors”.

For startups that offer or sell stock Under Rule 506 “private placement”, compliance is easier, faster, and much cheaper if sold to “accredited investors” that are registered with the SEC. There are two benefits to this exemption. First, it overrides State Securities Laws, which means that startups do not have report to securities regulators for compliance purposes (other than Form D). Second, there is no written disclosure requirement if the investor is “accredited”. If one or more investors are not “accredited” with the SEC, Rule 506 may not apply. This opens the start-up to compliance and disclosure obligations that will outweigh any benefit of this exemption.

The most significant changes purposed by Senator Dodd’s bill affect both entrepreneurs and angels.

First, the definition of an “accredited investor” – as it stands now, an “accredited investor” is one (or jointly with spouse) that has a net worth that exceeds $1 million at the time of purchase or income that exceeds $200,000 in each of the two most recent years ($300,000 jointly with spouse). The purposed changes – would increase the net worth to $2.3 million or annual income of $449,000 ($674,000 jointly). In this recession, according to Business Week raising these two critical components would lower “accredited individual investors” by more than 75 percent.

Second, even if all investors are “accredited”, startups relying on Rule 506 will now have to file with the SEC. The SEC will have 120 days to review/approve funding before the transaction can be complete (again, if they get to it). Or if the SEC deems that certain financings are too small in size or scope to warrant a review then it will be sent down to the State Securities Commission for decision, delaying funding even longer.

If passed, there will be fewer and more expensive angel investors, less funding for motivated- self driven entrepreneurs. The American Dream for innovators will be over.

In an economy that has fallen due to “Big Bank” and “Big Corporate America”, can we really afford to apply more red tape around startups and small businesses that ultimately drive the market with the creation of jobs and resources?

You can stop the repeal of Regulation D by signing the petition: http://gopetition.com/online/32354.html or contact your local Senator or Congressmen.