6 ms·

Can someone explain to me why you need to make 200k/year or have 1 Million in assets to participate in this when the minimum funding level is only 1k? I want to

Can someone explain to me why you need to make 200k/year or have 1 Million in assets to participate in this when the minimum funding level is only 1k? I want to participate in this, but can't.

greattypo 14y ago
They've limited participation to so-called accredited investors (with minimum income or assets as defined by the SEC). There are non-trivial regulatory requirements that come with accepting money from unaccredited investors, so many (most?) startups do the same.
- jivatmanx 14y ago
  Basically, "Because it's an SEC regulation" OK, then I understand why this company and other start ups follow this rule. But not why the rule is in place in the first place. To me, it sounds extremely discriminatory that any government regulation would have a fixed income or asset level requirement.
  - aaronblohowiak 14y ago
    This regulation exists for consumer protection. Prior to this regulation, people were conned out of their money by investing in companies that may have been a sham. This does imply that rich people are less prone to hucksters than the poor (or that it is more acceptable for them to lose their investments..) Recent legislation changes this so that anyone can invest up to a percentage of their annual income, while rich people are unbounded in the amount they can invest. Editorializing, I think this is a good compromise.
    - 001sky 14y ago
      A liberal paraphrase might boil down to the old adage: Don't make a bet you can't afford to lose Back in the day, people presumably "bet the farm" on XYZ shady investment. Since the farm was all they had, it was a bet they could not afford to lose. But obviously 9/10 startups fail to be great investments. So, as public policy, the Gov't didn't want 9/10 farmers to go bankrupt. a Rich guy will a $$$ minimum assets can still lose a "farm" and have something left (ie, diversification). Becuase the rich guy can (in theory) have scope for more investments (experience) and/or to pay advisors (expertise), they are seperated out. Note that there are lot of unsophisticated rich people and/or investors in certain areas that have varying levels of sophistication (empirically). But with the privelege of wealth come the obligation to realize caveat emptor, vis-a-vis public policy.
patio11 14y ago
The theory behind the law which requires this is that investing is very exceptionally risky and that non-sophisticated investors are likely to get taken advantage of. Therefore, dealing with them comes with a book of regulations which rivals that of major world religions. There is an escape clause for "accredited investors" : basically, if you are a professional money management institution or hit certain income/assets levels the government allows people to assume you know what you're doing. If you'd like to buy equity in a startup, I'd candidly advise against it, but the way forward is through a non-public transaction like the kind that happens in friends and family rounds. After professional money is involved most startups would be instructed to not take your money - the risks involved swamp the value of your marginal $1k.
AznHisoka 14y ago
This is why crowdfunding is such a misleading term. If it is was real crowdfunding, it means regular Joes like you and me can invest in the next Google BEFORE it goes public. Otherwise, there's nothing to get excited about here.
- arbuge 14y ago
  The JOBs act is an attempt to change that - when that goes through crowdfunding will be extended to non-accredited investors. Until then (i.e. until sometime in 2013), accredited only.

Can someone explain to me why you need to make 200k/year or have 1 Million in assets to participate in this when the minimum funding level is only 1k? I want to participate in this, but can't.

greattypo 14y ago

They've limited participation to so-called accredited investors (with minimum income or assets as defined by the SEC). There are non-trivial regulatory requirements that come with accepting money from unaccredited investors, so many (most?) startups do the same.

jivatmanx 14y ago
Basically, "Because it's an SEC regulation" OK, then I understand why this company and other start ups follow this rule. But not why the rule is in place in the first place. To me, it sounds extremely discriminatory that any government regulation would have a fixed income or asset level requirement.
- aaronblohowiak 14y ago
  This regulation exists for consumer protection. Prior to this regulation, people were conned out of their money by investing in companies that may have been a sham. This does imply that rich people are less prone to hucksters than the poor (or that it is more acceptable for them to lose their investments..) Recent legislation changes this so that anyone can invest up to a percentage of their annual income, while rich people are unbounded in the amount they can invest. Editorializing, I think this is a good compromise.
  - 001sky 14y ago
    A liberal paraphrase might boil down to the old adage: Don't make a bet you can't afford to lose Back in the day, people presumably "bet the farm" on XYZ shady investment. Since the farm was all they had, it was a bet they could not afford to lose. But obviously 9/10 startups fail to be great investments. So, as public policy, the Gov't didn't want 9/10 farmers to go bankrupt. a Rich guy will a $$$ minimum assets can still lose a "farm" and have something left (ie, diversification). Becuase the rich guy can (in theory) have scope for more investments (experience) and/or to pay advisors (expertise), they are seperated out. Note that there are lot of unsophisticated rich people and/or investors in certain areas that have varying levels of sophistication (empirically). But with the privelege of wealth come the obligation to realize caveat emptor, vis-a-vis public policy.

patio11 14y ago

The theory behind the law which requires this is that investing is very exceptionally risky and that non-sophisticated investors are likely to get taken advantage of. Therefore, dealing with them comes with a book of regulations which rivals that of major world religions. There is an escape clause for "accredited investors" : basically, if you are a professional money management institution or hit certain income/assets levels the government allows people to assume you know what you're doing. If you'd like to buy equity in a startup, I'd candidly advise against it, but the way forward is through a non-public transaction like the kind that happens in friends and family rounds. After professional money is involved most startups would be instructed to not take your money - the risks involved swamp the value of your marginal $1k.

AznHisoka 14y ago

This is why crowdfunding is such a misleading term. If it is was real crowdfunding, it means regular Joes like you and me can invest in the next Google BEFORE it goes public. Otherwise, there's nothing to get excited about here.

arbuge 14y ago
The JOBs act is an attempt to change that - when that goes through crowdfunding will be extended to non-accredited investors. Until then (i.e. until sometime in 2013), accredited only.