4 ms·

Dump your life savings into a crypto exchange based in the Bahamas, sure. But god forbid you invest $20k in a startup without being an “accredited investor”

acjohnson55 4y ago
I'm not sure what your point is. You can invest in whatever you want in the Bahamas without being accredited (as far as I know). If anything, the blowup of FTX seems to justify why investments in unregistered securities in US-based companies aren't allowed to be marketed to unaccredited investors. Are you saying we should allow companies with the level of oversight FTX had more free reign to operate and market their equity in the US?
- jliptzin 4y ago
  I am saying the whole “accredited investor” thing should be abolished
  - PaulDavisThe1st 4y ago
    So, USA makes some effort to stop ripoffs of unwitting "unaccredited" investors within the USA. Because this cannot stop ripoffs outside the USA, you propose ditching the within-borders effort?
    - tedmiston 4y ago
      > So, USA makes some effort to stop ripoffs of unwitting "unaccredited" investors within the USA. The problem is that it's a dubious premise to begin with to assume that someone's knowledge or competence is tied to their salary or net worth. It's just baseless gatekeeping.
      - Arainach 4y ago
        It's not baseless. Those who are least able to tolerate loss and have the least time to do due diligence are precisely those most attracted to get rich quick schemes and most susceptible to deceptive practices.
        tedmiston 4y ago
        There is nothing in the premise correlated to the amount of the investment. Suppose I have a net worth of $900k and want to invest $10k each into friends and family rounds of 5–10 startups. The Accredited Investor law in the U.S. makes that impossible today. What if my net worth was $1M before the pandemic and is now ~30% below that threshold? Suddenly, I'm no longer accredited?! That makes no sense. The boundaries chosen are indeed arbitrary and baseless, designed to restrict access to opportunities for those in the case I describe. Salary is also an arbitrary rule. One could make $200k/year, spend it all, and still qualify. But if someone makes $175k, lives minimally, and saves 50%+ of that, they are "unaccredited" and are blocked from accessing such opportunities. This also makes no sense. Irrespective of my salary or net worth, I have enough experience in the tech industry to evaluate and do due diligence on small deals like that. But technicalities like this in the Accredited Investor rule block me from being able to access them. Risk assessment is a personal choice. The Accredited Investor rule does more harm than good in this country today with its arbitrary pegs blocking access to good opportunities for those that are capable of vetting them. Guardrails are for highways and bowling alleys. One can go blow their entire net worth on shitcoins and penny stocks and the Accredited Investor rule could care less. There are good and bad investment opportunities everywhere, but this rule is blatantly random and asymmetric.
        Arainach 4y ago
        Perfect is the enemy of good. Just because we can't block all ways to take advantage of people doesn't mean that we shouldn't block any.
        jliptzin 4y ago
        Yes, it does. Instead of a startup getting its first investment (from a non-accredited investor) which might have gone on to do amazing things, that extra $$ is instead dumped into highly leveraged options, or penny stocks, or shitcoins, or collapsing crypto exchanges, etc. Money goes down the path of least resistance. I would be okay with it if you could also become accredited by taking an exam testing your knowledge of risk tolerance, money management, etc. Otherwise it is just gate keeping. I say this as an accredited investor with several startup investments, by the way.
      - ehzy 4y ago
        It's also about their ability to withstand losses.
  - acjohnson55 4y ago
    I disagree. It would be one thing if we could say that a person's decision to get into an ultrarisky investment only affected themselves, but that's not true. When investors get scammed or a high risk venture simply fails, there's a blast radius. People getting ruined strains families, social groups, and organizations. Then the government has to step in in all sorts of ways to help clean up the mess. The most experienced firms in the world got sucked into FTX. That's going to happen from time to time, and they're built to absorb the losses with limited social fallout. Now, I do think that the rules as they are right now aren't great. They should be focused more on containing risk (we do this with systematically important financial institutions) and evaluating preparedness from a knowledge perspective. The other thing you could do is try to increase access to registered security status from the venture side, with frameworks for disclosure, reporting, and accountability that don't require hiring millions of dollars worth of professional banking, accounting, and legal services. [1] https://en.wikipedia.org/wiki/Systemically_important_financial_institution https://en.wikipedia.org/wiki/Systemically_important_financi...
threeseed 4y ago
If there's one thing that recent events have shown is that we need more regulation, not less.
adam_arthur 4y ago
Yeah, let the sophisticated retail investors that were buying growth and meme stocks at 100x sales go wild
jiggawatts 4y ago
Rules like this exist only to maintain old wealth at the expense of the young. Just like with Ponzi, you need new idiots to come along and dump their money into a pot so that the early investors can cash out. The early investors need to be early! You can't have young idiots coming in at the beginning, they might cash out before you. So a two-phase investment system is required: the old money that can invest early, and the new money that can be exploited by them. Conveniently, the old money controls politics and gets to write the laws, which is why there is a law restricting only "accredited investors" as eligible for being in the first round.. the only profitable round. A friend of mine sold a startup and spent months talking to the uber rich, people with net worths north of 500M. His eyes were opened when he realised that the entire system favours these people and the preservation and expansion of their wealth. It's not an accident. They buy these laws!
autotune 4y ago
I just got into an argument with someone else on here because they think a crypto scam "audited in Gibraltar" somehow doesn't make it any less legitimate. People didn't make sound financial decisions before this collapse and the cycle will likely repeat in some other form, if not the exact same with a different name, after.
dehrmann 4y ago
Any idiot over 21 can also put their life savings on black, but yes, the accredited investor thing is a bit weird. Maybe it's that a lot of those investments are risky, but not obviously risky in the same way as roulette or crypto.

acjohnson55 4y ago

I'm not sure what your point is. You can invest in whatever you want in the Bahamas without being accredited (as far as I know). If anything, the blowup of FTX seems to justify why investments in unregistered securities in US-based companies aren't allowed to be marketed to unaccredited investors. Are you saying we should allow companies with the level of oversight FTX had more free reign to operate and market their equity in the US?

jliptzin 4y ago
I am saying the whole “accredited investor” thing should be abolished
- PaulDavisThe1st 4y ago
  So, USA makes some effort to stop ripoffs of unwitting "unaccredited" investors within the USA. Because this cannot stop ripoffs outside the USA, you propose ditching the within-borders effort?
  - tedmiston 4y ago
    > So, USA makes some effort to stop ripoffs of unwitting "unaccredited" investors within the USA. The problem is that it's a dubious premise to begin with to assume that someone's knowledge or competence is tied to their salary or net worth. It's just baseless gatekeeping.
    - Arainach 4y ago
      It's not baseless. Those who are least able to tolerate loss and have the least time to do due diligence are precisely those most attracted to get rich quick schemes and most susceptible to deceptive practices.
      - tedmiston 4y ago
        There is nothing in the premise correlated to the amount of the investment. Suppose I have a net worth of $900k and want to invest $10k each into friends and family rounds of 5–10 startups. The Accredited Investor law in the U.S. makes that impossible today. What if my net worth was $1M before the pandemic and is now ~30% below that threshold? Suddenly, I'm no longer accredited?! That makes no sense. The boundaries chosen are indeed arbitrary and baseless, designed to restrict access to opportunities for those in the case I describe. Salary is also an arbitrary rule. One could make $200k/year, spend it all, and still qualify. But if someone makes $175k, lives minimally, and saves 50%+ of that, they are "unaccredited" and are blocked from accessing such opportunities. This also makes no sense. Irrespective of my salary or net worth, I have enough experience in the tech industry to evaluate and do due diligence on small deals like that. But technicalities like this in the Accredited Investor rule block me from being able to access them. Risk assessment is a personal choice. The Accredited Investor rule does more harm than good in this country today with its arbitrary pegs blocking access to good opportunities for those that are capable of vetting them. Guardrails are for highways and bowling alleys. One can go blow their entire net worth on shitcoins and penny stocks and the Accredited Investor rule could care less. There are good and bad investment opportunities everywhere, but this rule is blatantly random and asymmetric.
        Arainach 4y ago
        Perfect is the enemy of good. Just because we can't block all ways to take advantage of people doesn't mean that we shouldn't block any.
        jliptzin 4y ago
        Yes, it does. Instead of a startup getting its first investment (from a non-accredited investor) which might have gone on to do amazing things, that extra $$ is instead dumped into highly leveraged options, or penny stocks, or shitcoins, or collapsing crypto exchanges, etc. Money goes down the path of least resistance. I would be okay with it if you could also become accredited by taking an exam testing your knowledge of risk tolerance, money management, etc. Otherwise it is just gate keeping. I say this as an accredited investor with several startup investments, by the way.
    - ehzy 4y ago
      It's also about their ability to withstand losses.
- acjohnson55 4y ago
  I disagree. It would be one thing if we could say that a person's decision to get into an ultrarisky investment only affected themselves, but that's not true. When investors get scammed or a high risk venture simply fails, there's a blast radius. People getting ruined strains families, social groups, and organizations. Then the government has to step in in all sorts of ways to help clean up the mess. The most experienced firms in the world got sucked into FTX. That's going to happen from time to time, and they're built to absorb the losses with limited social fallout. Now, I do think that the rules as they are right now aren't great. They should be focused more on containing risk (we do this with systematically important financial institutions) and evaluating preparedness from a knowledge perspective. The other thing you could do is try to increase access to registered security status from the venture side, with frameworks for disclosure, reporting, and accountability that don't require hiring millions of dollars worth of professional banking, accounting, and legal services. [1] https://en.wikipedia.org/wiki/Systemically_important_financial_institution https://en.wikipedia.org/wiki/Systemically_important_financi...

threeseed 4y ago

If there's one thing that recent events have shown is that we need more regulation, not less.

adam_arthur 4y ago

Yeah, let the sophisticated retail investors that were buying growth and meme stocks at 100x sales go wild

jiggawatts 4y ago

Rules like this exist only to maintain old wealth at the expense of the young. Just like with Ponzi, you need new idiots to come along and dump their money into a pot so that the early investors can cash out. The early investors need to be early! You can't have young idiots coming in at the beginning, they might cash out before you. So a two-phase investment system is required: the old money that can invest early, and the new money that can be exploited by them. Conveniently, the old money controls politics and gets to write the laws, which is why there is a law restricting only "accredited investors" as eligible for being in the first round.. the only profitable round. A friend of mine sold a startup and spent months talking to the uber rich, people with net worths north of 500M. His eyes were opened when he realised that the entire system favours these people and the preservation and expansion of their wealth. It's not an accident. They buy these laws!

autotune 4y ago

I just got into an argument with someone else on here because they think a crypto scam "audited in Gibraltar" somehow doesn't make it any less legitimate. People didn't make sound financial decisions before this collapse and the cycle will likely repeat in some other form, if not the exact same with a different name, after.

dehrmann 4y ago

Any idiot over 21 can also put their life savings on black, but yes, the accredited investor thing is a bit weird. Maybe it's that a lot of those investments are risky, but not obviously risky in the same way as roulette or crypto.