I stumbled upon an article the other day that contained a small piece of information I’d never known before. To be an investor, you have to be accredited.
Private companies are currently allowed to solicit only accredited investors - those with a net worth of at least $1 million, excluding the value of their homes, or annual income of more than $200,000.
One million dollars. That seems like a high requirement in today’s world where businesses can literally be started by a couple of students living in a dorm room.
I’ve never invested money into a company and I definitely don’t have enough cash to throw around at a few small startups, but in the early stages companies can get by with very little capital. Just recently in Atlanta, a new fund has been created specifically for students at Georgia Tech. Investments range from $5,000 to $10,000.
That’s still no small sum of money for a recent college graduate like myself, but it’s manageable for someone in my situation. And to be perfectly honest, it’s even an amount I would seriously consider investing if I saw enough potential in the founders and their business.
However, even if the crowdfunding proposal is passed, “unaccredited” investors will be extremely limited in the amount they can legally contribute.
The proposal says that investors with a net worth and income of less than $100,000 can contribute only $2,000 or 5 percent of their net worth or income, whichever is greater.
I wouldn’t be able to provide the experience and knowledge of more seasoned investors, but it’s cash and it diverts attention away from fundraising and towards building a business. It’s cash I’m willing to risk today with the potential for a greater return tomorrow.
All of this leaves one burning question on my mind. Why do investors need to be accredited?