The SEC (Securities and Exchange Commission) just made an announcement that could be the biggest update the Angel Investing world has seen since the signing of the JOBS Act.
Don’t get me wrong, the JOBS Act was a huge deal.
It opened the doors to angel investing like never before –– allowing everyday people to invest in private, early stage companies (startups, like this one), through crowdfunding platforms.
We’ve taken it a step further…pulling back the curtains on our latest investment…
And letting members in on why we made the investment, the risks we’ve identified, and ultimately giving them the information they need to invest in the startup themselves.
Before I share the SEC news, I suggest you strongly consider checking out our latest startup investment, Guac (a revolutionary money-saving app) while you still can.
Now, onto this news from the SEC:
You’ve probably heard of the term, Accredited Investor.
It’s a historically restrictive label that placed limits on the types of investments a person could make, based on their income and net worth.
The SEC’s latest announcement changes the definition and opens even more doors to those who qualify.
Breaking News in the Angel Investing World
The Securities and Exchange Commission (SEC) is changing the requirements for “accredited investor” status.
For those of you that don’t know, the SEC is an independent government agency that regulates and oversees the US securities market. The SEC makes the rules that govern stock trading, venture capital, and angel investing.
Up until now, to be an “accredited investor” you needed an annual income of more than $200,000 (or $300,000 for joint income). Alternatively, if you didn’t meet the income requirement, you could become accredited if your net worth was over $1 million.
This is a restrictive definition. Thousands of would-be investors were kept out of our country’s diverse and lively private capital markets.
Now, there are new ways to become accredited. Potentially anyone, regardless of their net worth and income can do it.
I’m going to tell you everything you need to know about these huge changes.
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New Definition of “Accredited Investor”
The SEC is modernizing the “accredited investor” definition.
Numerous amendments have been made to, “simplify, harmonize, and improve the exempt offering framework, thereby expanding investment opportunities while maintaining appropriate investor protections and promoting capital formation.”
Now, rather than simply basing accreditation on finances, investors can qualify based on defined measures of professional knowledge, experience, or certifications.
Here is the official terminology:
“[The amendments] add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order.”
Essentially, experience and knowledgeable investors will be able to qualify for accreditation regardless of their net worth and income.
The SEC is prepared to accept new methods for gaining accreditation as they pop up. Members of the public can propose additional certifications, designations, or credentials.
Additionally, several changes have been made towards the accreditation of organizations. For example, LLCs with $5 million in assets can become accredited investors. Also, Indian Tribes, government bodies, funds, and entities organized under the laws of foreign countries that own investments over $5 million can become accredited investors.
Why This Matters Even For Regulation Crowdfunding
You may be thinking, “I don’t need to be accredited, I only invest on Reg CF platforms.”
While it’s true that with the JOBS Act, anyone can partake in equity crowdfunding, there are still limits in place that restrict the amount of money you can invest. Your limit is based on your net worth and income.
Non-accredited investors fall into one of two brackets:
- If your yearly income or total net worth is less than $107,000, you can invest up to either the greater of $2,200 orthe lesser of 5% of your income or net worth.
- If your yearly income or total net worth is greater than $107,000, you can invest up to 10% of your income or net worth, whichever is less, up to a total limit of $107,000.
So, if you make $150,000 per year and your net worth is, let’s say, $80,000, you can invest the greater of $2,200 or five percent of $80,000 ($4,000) during a 12-month period.
With these figures, the maximum you can invest is $4,000 per year.
That’s not bad, but what if you wanted to go further?
The SEC makes these limitations to protect investors. The idea is that most people of average means don’t have the skills or knowledge to invest large portions of their income. This keeps people from being bamboozled into bankruptcy and prevents irresponsible investment.
However, I know many people who don’t make a fortune but are shrewd investors. Surely they should be able to invest more?
If you are non-accredited, that’s what you are stuck with. Accredited investors, however, have no investment limits.
Here’s the good news, now you can become accredited even if you can’t meet the income and net worth requirements. The rules have been changed to allow knowledgeable, certified, or experienced investors to gain accreditation.
What This Means For You
It’s difficult to predict what it will take to meet these new standards. This is breaking news, as more information presents itself we will keep you updated.
With what we know now, there will likely be a variety of tests, courses, and programs that you can take to prove your investing knowledge and become accredited, regardless of your net worth and income.
Not only will you be able to invest more on Regulation Crowdfunding platforms, but you will also be able to partake in traditional angel investing.
Angel investing is one of the most powerful wealth-creation tools available, and now the SEC has made it more accessible.
This takes the JOBS Act a step further, creating even more investment freedom for Americans. Now, with your knowledge and experience alone, you can invest as much as you would like — no restrictions.
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