The SEC Opens Up Startup Investing For All

01.09.20 12:38 AM Comment(s)

Investing in startups can be risky, but can also be a hugely rewarding endeavor. The examples of Facebook equity holders who became rich overnight rattles around between the ears of many investors, where massive returns are earned by investing small amounts with a high risk profile. The trouble is identifying these diamonds in the rough. As recently as 2010, 150 of the 165 investors were offered an opportunity to invest in the seed round of a small startup with an interesting idea: Uber. It has been estimated that the 15 people smart (or lucky) enough to invest would have received a 3600 times return on their investment, catapulting them into the 1%.

Who Qualifies?

Not just anyone has the opportunity to become a startup investor, however. Even if you've identified the next Uber, you still need to be an "accredited investor" to take advantage of your insight. This means that you have an income that exceeds $200,000 annually or own at least $1 million in assets - a lofty level of prerequisites for just about anyone. The definition completely disregards a person's knowledge and sophistication in financial matters, instead emphasizing their current financial status. That is, until last Wednesday. On August 26, 2020, the SEC amended the definition of what it means to be an accredited investor, and, hint hint, you can become one too.

Seed startup investing for (almost) all

While also expanding the prerequisites for governments, funds, and tribal entities to be included as accredited investors, the SEC has decided to open up the opportunity to invest in startups to people who can prove and demonstrate the sophistication of their financial knowledge via "certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution" . This allows the SEC to designate specific avenues of accreditation that prove your financial knowledge enough to open up investment opportunities formerly only available to a small portion of the population.

How do I get started?

Pull the reigns a bit, because your dreams of tapping into one of the most lucrative (and risky) investment avenues aren't coming true just yet. While the SEC has amended their definition of an accredited investor, this amendment doesn't become effective until 60 days after it's publication in the Federal Register. Now is the time to do as much research as you can, prepare yourself, and look into other avenues where you can hone your eye for startup investing. One of the best places to get started is through equity crowdfunding, which allows you to become a part of a single investment into any number of startups for as little as a couple hundred dollars. To see more information on how this can work for you, head over to Title3 Funds. Make sure you take a look on September 4, we heard there will be a company that's looking to solve the student debt crisis through their revolutionary ISA! 😉