Startup News Digest 10/02/26
The Big Story: Agency advances effort to expand who can invest in startups
Expanding who can qualify to invest in startups could broaden the pool of early-stage capital founders can access, particularly in regions where fewer people meet today’s wealth-based thresholds. The securities laws limit who can participate in certain private offerings—like those often used by startups to raise capital—but on Wednesday, the Securities and Exchange Commission (SEC) proposed adding ways an individual can qualify as an accredited investor. The proposals include expanding the list of qualifying professional credentials and a new, to-be-created exam that would allow people to demonstrate financial sophistication without meeting income or net-worth requirements. Broadening the pool of eligible investors is important to help more founders access the capital they need to get off the ground, and the effort comes as similar proposals have stalled in the Senate.
The agency’s proposals this week to expand who qualifies as an accredited investor build on a 2020 change that allowed holders of certain securities licenses to qualify. Most notably, the SEC is proposing a new exam to qualify for accredited investor status. The contemplated exam would be developed and administered by the Financial Industry Regulatory Authority (FINRA), open to anyone 18 or older, expected to cost about $100, and confer accredited investor status for 10 years upon passage. The proposal would also consider certified public accountants, chartered financial analysts, certified financial planners, and holders of certain investment banking and research analyst licenses as sophisticated for purposes of qualifying as an accredited investor. The agency’s effort echoes provisions of the House-passed Incentivizing New Ventures and Economic Strength Through Capital Formation (INVEST) Act. Unfortunately that package has been stalled in the Senate since last December and is unlikely to make it to the president’s desk.
For startups, expanding accredited investor eligibility could broaden the networks founders can tap for early-stage capital, especially outside traditional startup hubs. Fewer than 19 percent of households meet the current financial thresholds, meaning the proposed changes could help more would-be investors qualify, especially in lower cost of living and rural areas, where salaries and net worth may be lower. The proposals will be open for public comment before likely being implemented sometime next year.
Policy Roundup:
Appeals court points to transformativeness of AI as key to fair use. A federal appeals court sought to distinguish other AI litigation from its ruling this week against ROSS Intelligence’s use of Westlaw headnotes to build a competing legal research tool. The court noted that ROSS operates differently from generative AI models, distinguishing the case from others where courts have noted the “quintessentially transformative” nature of generative AI supported a finding of fair use. Despite these attempted distinctions, the case is already being cited in litigation against generative AI model developers.
Trump signs “Super Intelligence” order, gathers industry leaders. Amid heightened attention to AI safety, six leading AI companies signed a voluntary agreement at the White House this week committing to additional safeguards for frontier AI models, including internal monitoring, independent evaluations, and board-level oversight. Also this week, Trump signed an order that has garnered most attention for renaming AI to “Super Intelligence” or “SI,” but beyond a mere renaming exercise, the order also directs a review and potential recommended updates of the existing statutory definition of AI. Nearly all federal AI policy is referential to that definition, and any changes to it could be important for what is in scope for the purposes of, e.g., regulation.
Amid U.S. trade war, Canada looks to trade agreement, digital deal with EU. This week, U.S. Trade Representative Jamieson Greer downplayed the importance of reaching a deal with Canada to end the ongoing trade conflict, calling it “not urgent.” Greer’s comments come as Canada and the EU are poised to deepen their trade partnership, including through a deal aimed at reducing digital trade barriers. The episode underscores how the administration’s trade agenda is bringing other economies together in ways that could preference their startups at the expense of U.S. startups’ competitiveness in those jurisdictions.
Senate leaves town without AI action. The Senate broke for recess this week without passing any AI related legislation amid heightened public focus on guardrails for the technology. An effort to pass the Ratepayer Protection Act, an AI-related bill meant to prevent infrastructure costs from being passed on to consumers, was derailed as Democrats united in opposition to it. That bill had earlier passed the House by a near-unanimous vote.
Small business agency head ducks Hill appearance. This week, Small Business Administrator Kelly Loeffler canceled her appearance at a Senate oversight hearing originally scheduled for Wednesday. The cancellation comes after the agency has made drastic changes to the availability and provision of small business resources and amid an effort to dramatically expand the criteria for qualifying as a small business.
Startup Roundup:
#StartupsEverywhere: Santa Clara, California. Santa Clara-based startup Xscape Photonics is revolutionizing AI data center connectivity by developing multicolor silicon photonic lasers that drastically improve data center transmission efficiency. The company uses multicolor lasers to increase the speed of data transfer between chips and utilize the full capacity of existing chips, ultimately making data centers and other networked servers more efficient. We sat down with co-founder and CEO Vivek Raghunathan to discuss innovation coming out of the academic and research world, turning that innovation into a product for the market, how the government can support deep-tech startups, and his experience fundraising.