11 ms·

> "While the investors listed above can take care of themselves, unfortunately, invitations to invest were also extended to small-time individual angel investor

by pavlov 5y ago

> "While the investors listed above can take care of themselves, unfortunately, invitations to invest were also extended to small-time individual angel investors. Thousands of AngelList members were invited to invest personal checks ranging from $2,000 to $20,000+ via the mailing lists of multiple syndicates." It's worth noting that any US person investing this way is required to be an accredited investor, which is another way of saying they've proven they can afford to lose that $20k (or whatever they're putting in). The accredited investor rules in USA seem draconian, but if it weren't for them, we'd be absolutely drowning in fake tech companies taking money from retail investors. (Today those fakes are in crypto, where you can pretend your investment offering is a utility token or maybe a donation to a revolutionary DAO that just happens to issue tradeable crypto-tokens in return, and hide behind pseudonyms to make it harder for SEC to find you eventually.)

cure 5y ago
> The accredited investor rules in USA seem draconian I don't know about that - it hardly seems draconian, it's a trust-based system, entirely reliant on self reporting. Most of the time you just have to check a box that says you are an "accredited investor". Sometimes they want you to upload a few bank statements.
- djbusby 5y ago
  If you check that box, then others run diligence and discover you've lied it's called fraud. Attitude like yours is why many early companies are obligating their investors to prove net-worth. So many people want to be investors they'd lie to get there - number one sign you're a bad investors. Don't cheat!
  - blowski 5y ago
    I didn't see the OP saying you should lie, only that the system relies on self-reporting. If anything, I'd guess they agree that the system is open to abuse, but they're not saying people should therefore abuse it.
    - djbusby 5y ago
      Perhaps I'm just bitter I've been part of a non-zero amount of deals where there was one, or more, parties who've made that false claim. In an open group I participate in there are some early Angels and want-to-be investors. I've observed folks attempting this shortcut. And every time it's fucked over multiple people. So, yea, it's trust based - and truth will out.
      - cure 5y ago
        Sorry to hear that, that sucks!
      - Drdrdrq 5y ago
        For the uninitiated, what happens in this scenario? Does the deal fall through, do the other investors need to cover for the missing party,...?
        djbusby 5y ago
        Mostly the deal falls apart, the company seeking investment can't get it (timely) - and may have to start all over (6mo process). Another outcome was that the folk buying in had to buy out the non-RegD parties - and crushed them on the price so those investors got a better price, the fraudulent actors didn't see the gains they thought, the company now has more % owned by new investor group than originally thought (which changes the control balance) and the founders are grumpy and distracted and mad at folk they thought were cool (and all that has a down-pressure on productivity while everyone involved gossips for a few weeks) Edit: of you're getting your FFF round, it's all private, that group can be unqualified and you mark the deal as a Loan, so when you raise your Angel round you'll pay them back, or start the payback - and let the Angels know that's happening. Part of the investment to service debt.
  - catlifeonmars 5y ago
    OP was saying the system is flawed, not that they are exploiting the flaws in the system. Those aren’t the same thing.
  - cure 5y ago
    > Attitude like yours is why many early companies are obligating their investors to prove net-worth. I didn't express any attitude about the current rules around "accredited investors", I merely expressed what the current status quo appears to be, i.e. the system is largely based on self reporting. Obviously, there are all sorts of problems with that. For what it's worth, I don't particularly like the current rules around "accredited investors", they seem pretty arbitrary, and at the same time too lax (self reporting) and too restrictive (obviously, these rules give rich people access to a lot of opportunities not available to others).
- benatkin 5y ago
  From what I can see, check stubs would work as well, you could have no money in the bank... https://news.bloomberglaw.com/securities-law/startups-and-crowdfunding-limits-sec-rule-changes-explained https://news.bloomberglaw.com/securities-law/startups-and-cr...
benatkin 5y ago
I'm not sure, it seems that many who make good money but are in debt can invest: > Individual investors with an annual income or net worth less than $107,000 can contribute either $2,200 or 5% of their annual income or net worth, whichever is greater. The old rules limited them to the lesser of those two numbers. > Investors with annual incomes or net worth greater than $107,000 can contribute up to 10% of the highest number. https://news.bloomberglaw.com/securities-law/startups-and-crowdfunding-limits-sec-rule-changes-explained https://news.bloomberglaw.com/securities-law/startups-and-cr...
- djbusby 5y ago
  That's RegCF, accredited is under RegD. See also RegA and RegB based investment. There are numerous options.
agency 5y ago
As an alternative there's always Matt Levine's "Certificate of Dumb Investment" proposal: https://www.bloomberg.com/opinion/articles/2018-09-24/earning-the-right-to-get-swindled https://www.bloomberg.com/opinion/articles/2018-09-24/earnin... 1. Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.). 2. Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.) 3. To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.” 4. Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate. 5. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling. 6. If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison.
- cm2012 5y ago
  This is the funniest thing I've read this year
  - loeg 5y ago
    Subscribe to Money Stuff! It's free and full of similar gems. https://twitter.com/matt_levine/status/994296126055608320 https://twitter.com/matt_levine/status/994296126055608320
- dwohnitmok 5y ago
  I enjoy Matt Levine's pieces and I understand this is meant to be humorous and far from serious, but it's also instructive to think about how such a scheme could go wrong, because it illustrates how hard incentive problems are. I think the big problem would be if the "Certificate of Dumb Investment" by happenstance didn't seem so dumb anymore (a couple of lucky, high-profile investments really take off and are in the news for weeks) and then say a million people (< 1% of the U.S. adult population!) pile in to the next dumb investment and get all their money stolen. No matter what they've signed, that's still a million people who've gotten their money stolen and they'll be out for blood, communicating on forums, in-person, etc. Beyond the brute fact that a million people have had money stolen, which is bad, there's the secondary problem that if just another 1% of that million still complains to newspapers, there's no way that the government could arrest 10,000 people at once without major public backlash, especially if those people play their cards well and can spin a media story of "victims of financial fraud further being punished by the government." If you've got 10,000 examples to choose from, there are bound to be sympathetic stories which capture the public attention. And then at that point, if the government chooses not to prosecute those cases, the floodgates are loose and the "Certificate of Dumb Investment" has lost most of its power and purpose.
scsilver 5y ago
I'm glad they expanded accreditation to licensed professionals who don't have 2 million. Before it was too much gatekeeping just on money alone.
pg_bot 5y ago
It always seemed a bit nonsensical to me that you can't invest in companies (in the USA) when you can spend your money freely in nearly every other respect. You can waste thousands on gambling, food, clothing, elective surgery, penny stocks, and all sorts of other activities without anyone batting an eyelid. If the goal is to stop idiots from pissing their money away, regulators have seriously underestimated the creativity of fools.
- robotresearcher 5y ago
  You can't enter the gambling, surgery and stock markets with naught but a Keynote deck.
  - pg_bot 5y ago
    I wasn't talking about starting a casino or surgery center. I was talking about playing roulette or turning yourself into a human cat hybrid.
    - robotresearcher 5y ago
      I understand. But there are strong feedback mechanisms in place so that a casino will actually pay your (unlikely) winnings and a surgeon will actually cat your face, which have to do with scrutiny, penalties for bad behavior, and the cost of entering a highly regulated market requiring lots of customers to recoup. They provide the service they claim. The story is about companies whose business model is simply to take investment money. They do not try to provide the service they claim.
      - ksdale 5y ago
        That's what the story about, but non-accredited investors aren't only prevented from investing in those particular companies. They're prevented from investing in the good ones, too. You say that the casino will pay your unlikely winnings, but the thing about casinos is that unless you actually have an edge, the more you gamble, the more you lose. The vast majority of games have odds that result in the house making a profit over time. And yet we're allowed to spend our money freely in casinos. There are all sorts of penalties for bad behavior on behalf of companies. Of course, that doesn't guarantee they'll make money, but I think it's a very valid point that we're allowed to waste our money on all sorts of dumb bullshit, but not on something like investing in startups, which at least has a possibility, however remote, of resulting in some sort of return.
gonehome 5y ago
I get that they exist to protect people from getting scammed, but it also locks people out of some of the best ways to create wealth unless they’re already rich. Crypto is an example of both. More people get scammed, more regular people accumulated wealth. Outside of that look at startups, regular people are locked out of early stage investment (including many of us in the industry). I understand the trade off but find it frustrating I’m constrained for my own good. It feels like being held down to the level of the (uncharitably stated) dumbest person.
- kryogen1c 5y ago
  > locks people out of some of the best ways to create wealth unless they’re already rich im sorry what? investing in startups is one of the best way to create wealth? you have a source that talks about average and median returns on investments across all startups?
  - gonehome 5y ago
    I don't care about the average or median case and 'some of the best' is suitably subjective, I just want the freedom to make my own choices. The entire bet with startups if you're not rich enough to fund via an incubator is picking a team or company you think is good and kicking in some smallish amount of cash (~10k), angel list basically. If you're in the industry you may be better positioned to do this than a random person. We can do this by going and working for a startup and dumping money in to exercise options (arguably even riskier since now your job is also tied to its success), but not by just kicking in some cash unless you hit the accredited investor threshold. I should be able to choose to do this if I want to. Instead I can only put money in after the company is public and a lot of the early return has already been taken by people rich enough to be allowed to buy in earlier. Meanwhile I could go and gamble at a casino on slots without any proof that I'm rich enough to waste money that way.
    - jonas21 5y ago
      If you've been in the industry for a while, you may already qualify as an accredited investor. The income threshold is $200K/year, which according to levels.fyi would easily be met by someone with a few years experience at a FAANG, for example. If not, you can also qualify by passing the Series 65 exam, which is a 3-hour multiple-choice test that anyone can take. You'll probably find that the biggest barrier is finding good startups who will take your money. The ones interested in taking a small amount of cash from some random person are also the least likely to succeed.
lkrubner 5y ago
"The accredited investor rules in USA seem draconian" Think carefully about what the word "draconian" means. There is no organization that is responsible for tracking or allowing membership in the club of "accredited investors." This article suggests 1 in 10 USA households meets the definition: https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/ Look around on Google and you will find many different estimates. Since there is no central organization that actually tracks this number, it is impossible to point to an official number. If an unaccredited investor invests in a small startup, there is no penalty for the investor. Because of that, I would not use the word "draconian."
- deleted 5y ago
  [deleted]
sjtindell 5y ago
Where is the line of personal responsibility? Fraud should be prosecuted. Isn’t that the protection? These are laws that ensure only the rich can get richer. Terrible. Literally a law that says “you’re too stupid, we’re protecting you”.
- thethimble 5y ago
  The fact that laws prevent people from doing things that would cause them harm is a feature, not a bug. The accreditation requirements are not absurdly stringent (eg $200k annual income). I think there’s a clear argument that people who do not meet those requirements can neither accurately judge the risk of their prospective investments nor afford to lose their investment (high likelihood). The current crypto markets are perfectly bearing this line of thinking out. Retail investors are free to invest in public companies where there are significantly more fraud protections in place.
  - thethimble 5y ago
    Also note that the SEC has recently (2016) relaxed rules on equity crowdfunding to allow retail investors more access to such deals while also mitigating some components of risk or fraud: https://www.sec.gov/smallbusiness/exemptofferings/regcrowdfunding https://www.sec.gov/smallbusiness/exemptofferings/regcrowdfu...
  - fleddr 5y ago
    You're only repeating the law without addressing the point. Rich people, whom are already in a situation of privilege, have unique access to the number one way to exponentially increase their wealth: an early seat at the table. The basis for this distinction is that they're rich. It's kind of insane to award rich people with extra perks. The other basis for the distinction is that they're smart, and we're stupid. Whether you're stupid or smart apparently is based on the random number of 200K. Below it you're obviously not very smart. Preventing self harm is quite an arbitrary point. I'd say the greatest self harm one can inflict is regarding your health. Death seems worse than losing money. Yet there's basically no protection at all against this self harm, hence we have an obesity crisis, diabetes crisis, inactivity crisis, sleep crisis, mental health crisis, public health is in a terrible state. This is all fine though, just don't lose money.
trentnix 5y ago
But the same people excluded by the government from investing in early stage tech companies are encouraged by the same government to buy lottery tickets and visit casinos.
- tryitnow 5y ago
  That's not a fair comparison. Lotteries and casinos are recognized as a form of entertainment - gambling - people may not behave rationally and they may end up ruining their lives, but there is a certain folk wisdom that gambling just loses money and you shouldn't do it (except for fun). Investing has different norms and expectations. Few people think that financial analysis is "fun" in the same way that going to a casino or buying lottery tickets is fun - so the "entertainment" value isn't there in the same way. But many financially unqualified people will be bamboozled by con-artists who take advantage of the apparent "respectability" of investing.
  - trentnix 5y ago
    Casinos will take your grandmothers last dollar and throw her out on the street when her credit runs out. Somehow the regular people are smart enough to know the lottery is entertainment but they aren’t smart enough for investment wizardry. It’s just incidental, I guess that the government profits significantly from the lottery. Listen, I’ve heard and understand the arguments “why” investors must be accredited. But I can’t help but find myself hearing these arguments and thinking “this is the government codifying the wealth gap”. When Slick Rick scams someone, it’s the worst thing ever. But when the government scams us all, it’s just the way the world works. But hey, Powerball is just entertainment! Right?
  - pessimizer 5y ago
    > Lotteries and casinos are recognized as a form of entertainment - gambling - people may not behave rationally and they may end up ruining their lives, but there is a certain folk wisdom that gambling just loses money and you shouldn't do it (except for fun). This is a pretense. They're recognized as things that generate huge sums of money for nothing for the owners of lotteries and casinos. They refer to them as "entertainment" to abandon responsibility for serious consequences. Cigarette companies would be happy to sell "smoking entertainment." edit: to be fair, nutritional supplements have basically lobbied their way into the same thing.
mancerayder 5y ago
That's one side. The other side is that gains to the upside (private equity, other alternatives only available to accredited investors and QP's) aren't available to the masses, which further feeds the gap. Didn't they change the rules so you don't need 200K salary / 1M in non-house assets to be an accredited investor, but you need to pass one of the financial services exams (Series 7, etc.)?
- c_o_n_v_e_x 5y ago
  As of December 2020, if you have a series 7, 63, or 82, you now qualify as accredited. https://www.sec.gov/corpfin/amendments-accredited-investor-definition-secg https://www.sec.gov/corpfin/amendments-accredited-investor-d...
trhway 5y ago
>Thousands of AngelList members were invited to invest personal checks ranging from $2,000 to $20,000+ via the mailing lists of multiple syndicates." That doesn't happen on good opportunities which the well connected keep to themselves until it is the time to finally hand the bag over...

by pavlov 5y ago

cure 5y ago

> The accredited investor rules in USA seem draconian I don't know about that - it hardly seems draconian, it's a trust-based system, entirely reliant on self reporting. Most of the time you just have to check a box that says you are an "accredited investor". Sometimes they want you to upload a few bank statements.

djbusby 5y ago
If you check that box, then others run diligence and discover you've lied it's called fraud. Attitude like yours is why many early companies are obligating their investors to prove net-worth. So many people want to be investors they'd lie to get there - number one sign you're a bad investors. Don't cheat!
- blowski 5y ago
  I didn't see the OP saying you should lie, only that the system relies on self-reporting. If anything, I'd guess they agree that the system is open to abuse, but they're not saying people should therefore abuse it.
  - djbusby 5y ago
    Perhaps I'm just bitter I've been part of a non-zero amount of deals where there was one, or more, parties who've made that false claim. In an open group I participate in there are some early Angels and want-to-be investors. I've observed folks attempting this shortcut. And every time it's fucked over multiple people. So, yea, it's trust based - and truth will out.
    - cure 5y ago
      Sorry to hear that, that sucks!
    - Drdrdrq 5y ago
      For the uninitiated, what happens in this scenario? Does the deal fall through, do the other investors need to cover for the missing party,...?
      - djbusby 5y ago
        Mostly the deal falls apart, the company seeking investment can't get it (timely) - and may have to start all over (6mo process). Another outcome was that the folk buying in had to buy out the non-RegD parties - and crushed them on the price so those investors got a better price, the fraudulent actors didn't see the gains they thought, the company now has more % owned by new investor group than originally thought (which changes the control balance) and the founders are grumpy and distracted and mad at folk they thought were cool (and all that has a down-pressure on productivity while everyone involved gossips for a few weeks) Edit: of you're getting your FFF round, it's all private, that group can be unqualified and you mark the deal as a Loan, so when you raise your Angel round you'll pay them back, or start the payback - and let the Angels know that's happening. Part of the investment to service debt.
- catlifeonmars 5y ago
  OP was saying the system is flawed, not that they are exploiting the flaws in the system. Those aren’t the same thing.
- cure 5y ago
  > Attitude like yours is why many early companies are obligating their investors to prove net-worth. I didn't express any attitude about the current rules around "accredited investors", I merely expressed what the current status quo appears to be, i.e. the system is largely based on self reporting. Obviously, there are all sorts of problems with that. For what it's worth, I don't particularly like the current rules around "accredited investors", they seem pretty arbitrary, and at the same time too lax (self reporting) and too restrictive (obviously, these rules give rich people access to a lot of opportunities not available to others).
benatkin 5y ago
From what I can see, check stubs would work as well, you could have no money in the bank... https://news.bloomberglaw.com/securities-law/startups-and-crowdfunding-limits-sec-rule-changes-explained https://news.bloomberglaw.com/securities-law/startups-and-cr...

benatkin 5y ago

I'm not sure, it seems that many who make good money but are in debt can invest: > Individual investors with an annual income or net worth less than $107,000 can contribute either $2,200 or 5% of their annual income or net worth, whichever is greater. The old rules limited them to the lesser of those two numbers. > Investors with annual incomes or net worth greater than $107,000 can contribute up to 10% of the highest number. https://news.bloomberglaw.com/securities-law/startups-and-crowdfunding-limits-sec-rule-changes-explained https://news.bloomberglaw.com/securities-law/startups-and-cr...

djbusby 5y ago
That's RegCF, accredited is under RegD. See also RegA and RegB based investment. There are numerous options.

agency 5y ago

As an alternative there's always Matt Levine's "Certificate of Dumb Investment" proposal: https://www.bloomberg.com/opinion/articles/2018-09-24/earning-the-right-to-get-swindled https://www.bloomberg.com/opinion/articles/2018-09-24/earnin... 1. Anyone can invest all they want in a diversified portfolio of approved investments (non-penny-stock public companies, mutual funds and exchange-traded funds with modest fees, insured bank accounts, etc.). 2. Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.) 3. To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.” 4. Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate. 5. Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling. 6. If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison.

cm2012 5y ago
This is the funniest thing I've read this year
- loeg 5y ago
  Subscribe to Money Stuff! It's free and full of similar gems. https://twitter.com/matt_levine/status/994296126055608320 https://twitter.com/matt_levine/status/994296126055608320
dwohnitmok 5y ago
I enjoy Matt Levine's pieces and I understand this is meant to be humorous and far from serious, but it's also instructive to think about how such a scheme could go wrong, because it illustrates how hard incentive problems are. I think the big problem would be if the "Certificate of Dumb Investment" by happenstance didn't seem so dumb anymore (a couple of lucky, high-profile investments really take off and are in the news for weeks) and then say a million people (< 1% of the U.S. adult population!) pile in to the next dumb investment and get all their money stolen. No matter what they've signed, that's still a million people who've gotten their money stolen and they'll be out for blood, communicating on forums, in-person, etc. Beyond the brute fact that a million people have had money stolen, which is bad, there's the secondary problem that if just another 1% of that million still complains to newspapers, there's no way that the government could arrest 10,000 people at once without major public backlash, especially if those people play their cards well and can spin a media story of "victims of financial fraud further being punished by the government." If you've got 10,000 examples to choose from, there are bound to be sympathetic stories which capture the public attention. And then at that point, if the government chooses not to prosecute those cases, the floodgates are loose and the "Certificate of Dumb Investment" has lost most of its power and purpose.

scsilver 5y ago

I'm glad they expanded accreditation to licensed professionals who don't have 2 million. Before it was too much gatekeeping just on money alone.

pg_bot 5y ago

It always seemed a bit nonsensical to me that you can't invest in companies (in the USA) when you can spend your money freely in nearly every other respect. You can waste thousands on gambling, food, clothing, elective surgery, penny stocks, and all sorts of other activities without anyone batting an eyelid. If the goal is to stop idiots from pissing their money away, regulators have seriously underestimated the creativity of fools.

robotresearcher 5y ago
You can't enter the gambling, surgery and stock markets with naught but a Keynote deck.
- pg_bot 5y ago
  I wasn't talking about starting a casino or surgery center. I was talking about playing roulette or turning yourself into a human cat hybrid.
  - robotresearcher 5y ago
    I understand. But there are strong feedback mechanisms in place so that a casino will actually pay your (unlikely) winnings and a surgeon will actually cat your face, which have to do with scrutiny, penalties for bad behavior, and the cost of entering a highly regulated market requiring lots of customers to recoup. They provide the service they claim. The story is about companies whose business model is simply to take investment money. They do not try to provide the service they claim.
    - ksdale 5y ago
      That's what the story about, but non-accredited investors aren't only prevented from investing in those particular companies. They're prevented from investing in the good ones, too. You say that the casino will pay your unlikely winnings, but the thing about casinos is that unless you actually have an edge, the more you gamble, the more you lose. The vast majority of games have odds that result in the house making a profit over time. And yet we're allowed to spend our money freely in casinos. There are all sorts of penalties for bad behavior on behalf of companies. Of course, that doesn't guarantee they'll make money, but I think it's a very valid point that we're allowed to waste our money on all sorts of dumb bullshit, but not on something like investing in startups, which at least has a possibility, however remote, of resulting in some sort of return.

gonehome 5y ago

I get that they exist to protect people from getting scammed, but it also locks people out of some of the best ways to create wealth unless they’re already rich. Crypto is an example of both. More people get scammed, more regular people accumulated wealth. Outside of that look at startups, regular people are locked out of early stage investment (including many of us in the industry). I understand the trade off but find it frustrating I’m constrained for my own good. It feels like being held down to the level of the (uncharitably stated) dumbest person.

kryogen1c 5y ago
> locks people out of some of the best ways to create wealth unless they’re already rich im sorry what? investing in startups is one of the best way to create wealth? you have a source that talks about average and median returns on investments across all startups?
- gonehome 5y ago
  I don't care about the average or median case and 'some of the best' is suitably subjective, I just want the freedom to make my own choices. The entire bet with startups if you're not rich enough to fund via an incubator is picking a team or company you think is good and kicking in some smallish amount of cash (~10k), angel list basically. If you're in the industry you may be better positioned to do this than a random person. We can do this by going and working for a startup and dumping money in to exercise options (arguably even riskier since now your job is also tied to its success), but not by just kicking in some cash unless you hit the accredited investor threshold. I should be able to choose to do this if I want to. Instead I can only put money in after the company is public and a lot of the early return has already been taken by people rich enough to be allowed to buy in earlier. Meanwhile I could go and gamble at a casino on slots without any proof that I'm rich enough to waste money that way.
  - jonas21 5y ago
    If you've been in the industry for a while, you may already qualify as an accredited investor. The income threshold is $200K/year, which according to levels.fyi would easily be met by someone with a few years experience at a FAANG, for example. If not, you can also qualify by passing the Series 65 exam, which is a 3-hour multiple-choice test that anyone can take. You'll probably find that the biggest barrier is finding good startups who will take your money. The ones interested in taking a small amount of cash from some random person are also the least likely to succeed.

lkrubner 5y ago

"The accredited investor rules in USA seem draconian" Think carefully about what the word "draconian" means. There is no organization that is responsible for tracking or allowing membership in the club of "accredited investors." This article suggests 1 in 10 USA households meets the definition: https://dqydj.com/accredited-investors-in-america/ https://dqydj.com/accredited-investors-in-america/ Look around on Google and you will find many different estimates. Since there is no central organization that actually tracks this number, it is impossible to point to an official number. If an unaccredited investor invests in a small startup, there is no penalty for the investor. Because of that, I would not use the word "draconian."

deleted 5y ago
[deleted]

sjtindell 5y ago

Where is the line of personal responsibility? Fraud should be prosecuted. Isn’t that the protection? These are laws that ensure only the rich can get richer. Terrible. Literally a law that says “you’re too stupid, we’re protecting you”.

thethimble 5y ago
The fact that laws prevent people from doing things that would cause them harm is a feature, not a bug. The accreditation requirements are not absurdly stringent (eg $200k annual income). I think there’s a clear argument that people who do not meet those requirements can neither accurately judge the risk of their prospective investments nor afford to lose their investment (high likelihood). The current crypto markets are perfectly bearing this line of thinking out. Retail investors are free to invest in public companies where there are significantly more fraud protections in place.
- thethimble 5y ago
  Also note that the SEC has recently (2016) relaxed rules on equity crowdfunding to allow retail investors more access to such deals while also mitigating some components of risk or fraud: https://www.sec.gov/smallbusiness/exemptofferings/regcrowdfunding https://www.sec.gov/smallbusiness/exemptofferings/regcrowdfu...
- fleddr 5y ago
  You're only repeating the law without addressing the point. Rich people, whom are already in a situation of privilege, have unique access to the number one way to exponentially increase their wealth: an early seat at the table. The basis for this distinction is that they're rich. It's kind of insane to award rich people with extra perks. The other basis for the distinction is that they're smart, and we're stupid. Whether you're stupid or smart apparently is based on the random number of 200K. Below it you're obviously not very smart. Preventing self harm is quite an arbitrary point. I'd say the greatest self harm one can inflict is regarding your health. Death seems worse than losing money. Yet there's basically no protection at all against this self harm, hence we have an obesity crisis, diabetes crisis, inactivity crisis, sleep crisis, mental health crisis, public health is in a terrible state. This is all fine though, just don't lose money.

trentnix 5y ago

But the same people excluded by the government from investing in early stage tech companies are encouraged by the same government to buy lottery tickets and visit casinos.

tryitnow 5y ago
That's not a fair comparison. Lotteries and casinos are recognized as a form of entertainment - gambling - people may not behave rationally and they may end up ruining their lives, but there is a certain folk wisdom that gambling just loses money and you shouldn't do it (except for fun). Investing has different norms and expectations. Few people think that financial analysis is "fun" in the same way that going to a casino or buying lottery tickets is fun - so the "entertainment" value isn't there in the same way. But many financially unqualified people will be bamboozled by con-artists who take advantage of the apparent "respectability" of investing.
- trentnix 5y ago
  Casinos will take your grandmothers last dollar and throw her out on the street when her credit runs out. Somehow the regular people are smart enough to know the lottery is entertainment but they aren’t smart enough for investment wizardry. It’s just incidental, I guess that the government profits significantly from the lottery. Listen, I’ve heard and understand the arguments “why” investors must be accredited. But I can’t help but find myself hearing these arguments and thinking “this is the government codifying the wealth gap”. When Slick Rick scams someone, it’s the worst thing ever. But when the government scams us all, it’s just the way the world works. But hey, Powerball is just entertainment! Right?
- pessimizer 5y ago
  > Lotteries and casinos are recognized as a form of entertainment - gambling - people may not behave rationally and they may end up ruining their lives, but there is a certain folk wisdom that gambling just loses money and you shouldn't do it (except for fun). This is a pretense. They're recognized as things that generate huge sums of money for nothing for the owners of lotteries and casinos. They refer to them as "entertainment" to abandon responsibility for serious consequences. Cigarette companies would be happy to sell "smoking entertainment." edit: to be fair, nutritional supplements have basically lobbied their way into the same thing.

mancerayder 5y ago

That's one side. The other side is that gains to the upside (private equity, other alternatives only available to accredited investors and QP's) aren't available to the masses, which further feeds the gap. Didn't they change the rules so you don't need 200K salary / 1M in non-house assets to be an accredited investor, but you need to pass one of the financial services exams (Series 7, etc.)?

c_o_n_v_e_x 5y ago
As of December 2020, if you have a series 7, 63, or 82, you now qualify as accredited. https://www.sec.gov/corpfin/amendments-accredited-investor-definition-secg https://www.sec.gov/corpfin/amendments-accredited-investor-d...

trhway 5y ago

>Thousands of AngelList members were invited to invest personal checks ranging from $2,000 to $20,000+ via the mailing lists of multiple syndicates." That doesn't happen on good opportunities which the well connected keep to themselves until it is the time to finally hand the bag over...