The SEC could change the requirements for investing in startups, and that’s not good | TechCrunch

As strange as it may seem, only a small percentage of Americans can legally invest in most startups today. Under long-standing rules governing who qualifies as a so-called “accredited investor,” only quite wealthy individuals (those make at least $200,000 in annual income or have $1 million in assets, excluding their home) can buy shares in a fast-growing, privately held company. This “accredited investor” definition is extremely important for the startup ecosystem, since the most common legal arrangement that startups use to raise funds limits participation almost exclusively to accredited investors. Granted, the landscape of investor participation in funding startups may be changing thanks to the JOBS Act. What’s being referred to as “regulation crowdfunding” is set to go live in May, allowing startups to accept not just monetary donations, but securities-backed investments, from online supporters, regardless of their income. Nonetheless, as many industry experts have argued, the regulatory requirements for both issuers and investors participating in this new form of crowdfunding may limit its full potential. Because regulation crowdfunding will be costly and restrictive for most issuers, many entrepreneurs may opt to instead rely on traditional accredited investors to raise capital, whether in the form of venture capital or angel investments.

Source: The SEC could change the requirements for investing in startups, and that’s not good | TechCrunch

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