5 ms·

What exactly is stopping you from investing $5000 in your friend's startup?

• voxic11 6y ago
  Presumably Rule 506(b) which prevents fundraising from nonaccredited investors. There is an exception for up to 35 non-accredited investors but taking money from even one non-accredited investor greatly increases the disclosure requirements on your startup. So the startup would essential need to do disclosure as though it were a public company. https://www.sec.gov/smallbusiness/exemptofferings/rule506b https://www.sec.gov/smallbusiness/exemptofferings/rule506b
  • JumpCrisscross 6y ago
    > the startup would essential need to do disclosure as though it were a public company Not quite that onerous. But the start-up and investor would each need to spend at least $5,000 on legal diligence. This would likely be true with or without the rule—if you don’t understand the preferred investors’ terms, you aren’t qualified to invest.
  • bpt3 6y ago
    Rule 506(b) doesn't prevent it entirely, and keep in mind that the vast majority of companies aren't venture backed startups, and I believe would be covered under Rule 504. You absolutely don't need to do disclosure like a public company if you have non-accredited investors.
• deleted 6y ago
  [deleted]
• otoburb 6y ago
  To cross all the t's and dot all the i's, you might be able to join a friends-and-family round under Rule 504, but your founder friend should still do the due diligence to ensure the participating friends and family investors reside in states where such an offering is exempt from registration/qualification under state blue-sky laws[1]. IANAL. Hopefully your founder friend will have had a startup attorney to ask about all of this. [1] https://www.law.cornell.edu/wex/blue_sky_law https://www.law.cornell.edu/wex/blue_sky_law
  • bpt3 6y ago
    Any founder who is looking to take funding from anyone should have a startup attorney to ask about this.