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SocentVC

Where Social Entrepreneurship and Venture Capital Meet

Crowdfunding and Accredited Investor Restrictions

April 16th, 2012 · 1 Comment · Personal, VC, tech

Many of you have probably heard of the JOBS Act of 2012 or about “crowdfunding legislation” that was in the works for awhile now and was just signed into law earlier this month. One of the main provisions of the bill is the “crowdfunding” provision, which essentially enables regular Joes to invest in private companies, not just “accredited investors,” which are investment entities or people with a high net worth or level of income. Fred Wilson, who wrote a great blog post on the subject, explains the thinking behind this provision:

“I am a huge fan of allowing every person, not the just super wealthy and institutions, to participate in the funding of startups. Frankly its a shame that the average Facebook user has not been able to own shares in Facebook during its increase in value from zero to $100bn. The same kind of thing can be said about Twitter and many other of our portfolio companies. The changes to securities regulations in the JOBS bill are fundamental and important and very much needed.

So if the “accredited investor” requirement was so unfair, why was it even implemented in the first place?  The general idea was to protect the public (who aren’t necessarily sophisticated investors) from being taken advantage of. As it currently stands, though, the JOBS Act has incorporated protections “to help insure that equity crowdfunding of startups doesn’t become a fraud infested sector of the capital markets.”

Now, “regular folks” like you and me can invest in startups, even if we don’t make $200,000+ a year or have over 1 million dollars in assets. Traditionally, startup investors would have to fill out an “Accredited Investor Questionnaire” like the one below, which is an excerpt of the type that my fund fills out for investments I work on. Scroll down to bullets (e) and (f) to see what the restrictions were like for individual investors. Scary, right? Aren’t you glad that the JOBS Act was passed?

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  • mattacurtis

    I hope there is a regulated, central platform that allows me to manage all my investments – sort of like a secondary stock market.