5 ms·

Oh boy. It really does. If, for example, you've got a pile of non-accredited on your cap-table and then go to the next round, those bigger dogs may (read: likel

by edoceo 5y ago

Oh boy. It really does. If, for example, you've got a pile of non-accredited on your cap-table and then go to the next round, those bigger dogs may (read: likely) won't want the smaller players around. So, they get an exit but your raise is not as large cause some of the money goes to them not your company. Lots of variables in there but "zero bearing" is not correct.

paxys 5y ago
You are conflating small-time investors with non-accredited investors. Yes you will have trouble if you started a company by borrowing a hundred bucks each from all your friends, extended family and random bystanders, but for almost all startups there are exactly zero non-accredited investors on any cap table. Most investors are accredited without even realizing it.
- andreilys 5y ago
  for almost all startups there are exactly zero non-accredited investors on any cap table Why is it unfathomable to imagine someone with a $500K NW writing a $5k-20k cheque? To be accredited you either need $1M NW or sustained $200K income (2+ years). Leaves plenty of room for small-time angels who want to invest 1-4% of their net wroth
  - paxys 5y ago
    It isn't unfathomable, just extremely rare. There simply aren't a lot of people with <$200K/yr total comp who are investing in random pre-seed startups, and even if they exist very few companies will actually take their money.
    - jacquesm 5y ago
      You're both well into anecdata territory. Your 'extremely rare' is my 'pretty common' and I'm sure that there are situations where it isn't.
      - jollybean 5y ago
        It's not anecdotal, even if you have a different experience. People putting out $50K cheques in 'very risky' things for strangers businesses very much likely to fit the criteria for accredited. Maybe your 'Uncle' might do this, but it's generally not a concern that you're going to have that many of them that it's going to force you to go public. Also, you can vet for it by asking the question.
      - astrange 5y ago
        This thread is kind of factually wrong post-JOBS Act anyway. You can accept lots of unaccredited investors under Regulation CF, and you can become accredited by taking an exam without meeting the income requirements.
        Animats 5y ago
        Regulation CF [1] is a kind of mini-IPO. You have to work through a funding platform/broker, file with the SEC, confirm the net worth of investors, and such. The most active funding platform for this is Wefunder.[2] This is sort of like Kickstarter, but with equity. [1] https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051... [2] https://wefunder.com/ https://wefunder.com/
        astrange 5y ago
        The investors self-affirm their net worth through their broker. There were some other rules changes this year that make it easier, though I can't find documentation of what they are atm. I've noticed more use of SPVs which simplifies things for the company. The main problem with this is it's a bad idea for most investors because the investment opportunities are largely bad and take 6+ years to get any return.
- edoceo 5y ago
  I'm not conflating. I'm sure of the realities of deals I've observed/participated in. My point about "zero bearing" stands. I'll repeat the concept differently: be careful if you have any non-accredited investors on your cap-table; there is a greater-than-zero chance it can affect the next deal(s).
Jorge1o1 5y ago
Part of the reason is that having even a single non-accredited investor will require the company to collect and make available a significant amount of financial information -- defeating the whole point of the private placement which is to avoid all that paperwork.
- dweekly 5y ago
  This isn't really true under the friends and family exception. I'd consult counsel if you're unsure who it's okay to take funds from and with what restrictions.

by edoceo 5y ago

paxys 5y ago

You are conflating small-time investors with non-accredited investors. Yes you will have trouble if you started a company by borrowing a hundred bucks each from all your friends, extended family and random bystanders, but for almost all startups there are exactly zero non-accredited investors on any cap table. Most investors are accredited without even realizing it.

andreilys 5y ago
for almost all startups there are exactly zero non-accredited investors on any cap table Why is it unfathomable to imagine someone with a $500K NW writing a $5k-20k cheque? To be accredited you either need $1M NW or sustained $200K income (2+ years). Leaves plenty of room for small-time angels who want to invest 1-4% of their net wroth
- paxys 5y ago
  It isn't unfathomable, just extremely rare. There simply aren't a lot of people with <$200K/yr total comp who are investing in random pre-seed startups, and even if they exist very few companies will actually take their money.
  - jacquesm 5y ago
    You're both well into anecdata territory. Your 'extremely rare' is my 'pretty common' and I'm sure that there are situations where it isn't.
    - jollybean 5y ago
      It's not anecdotal, even if you have a different experience. People putting out $50K cheques in 'very risky' things for strangers businesses very much likely to fit the criteria for accredited. Maybe your 'Uncle' might do this, but it's generally not a concern that you're going to have that many of them that it's going to force you to go public. Also, you can vet for it by asking the question.
    - astrange 5y ago
      This thread is kind of factually wrong post-JOBS Act anyway. You can accept lots of unaccredited investors under Regulation CF, and you can become accredited by taking an exam without meeting the income requirements.
      - Animats 5y ago
        Regulation CF [1] is a kind of mini-IPO. You have to work through a funding platform/broker, file with the SEC, confirm the net worth of investors, and such. The most active funding platform for this is Wefunder.[2] This is sort of like Kickstarter, but with equity. [1] https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051... [2] https://wefunder.com/ https://wefunder.com/
        astrange 5y ago
        The investors self-affirm their net worth through their broker. There were some other rules changes this year that make it easier, though I can't find documentation of what they are atm. I've noticed more use of SPVs which simplifies things for the company. The main problem with this is it's a bad idea for most investors because the investment opportunities are largely bad and take 6+ years to get any return.
edoceo 5y ago
I'm not conflating. I'm sure of the realities of deals I've observed/participated in. My point about "zero bearing" stands. I'll repeat the concept differently: be careful if you have any non-accredited investors on your cap-table; there is a greater-than-zero chance it can affect the next deal(s).

Jorge1o1 5y ago

Part of the reason is that having even a single non-accredited investor will require the company to collect and make available a significant amount of financial information -- defeating the whole point of the private placement which is to avoid all that paperwork.

dweekly 5y ago
This isn't really true under the friends and family exception. I'd consult counsel if you're unsure who it's okay to take funds from and with what restrictions.