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Hi, jnovek's co-founder here. RMS below shared a link pointing this out. It warned that "Non-Accredited Investors Trigger a Larger Disclosure of Information"

Hi, jnovek's co-founder here. RMS below shared a link pointing this out. It warned that "Non-Accredited Investors Trigger a Larger Disclosure of Information" . . . do you know much about this or have any experience in using Non-Accredited investors? I'm wondering how much of a legal pain it is.

grellas 17y ago
This may vary somewhat from one jurisdiction to another but, in practical terms, the disclosure issue does not really prove burdensome (I have substantial experience with this in Silicon Valley, having specialized in early-stage startups for many years now). Years ago (back in the 1980s), the conventional practice concerning disclosure was to prepare a private placement memorandum (PPM) in connection with most offerings involving outside investors, even "friends." The PPM was involved and expensive, amounting to a mini-version of the registration statement companies file when they go public. Since at least the mid-1990s, this practice has changed in Silicon Valley to the point where, very often, a "2-pager" (fairly high level executive summary) would be used to meet disclosure requirements, coupled with an invitation to the prospective investors to ask questions, etc. of company management. This revised practice has proved to be fairly easy to comply with for most companies. Of course, this assumes you are dealing with people who are true "friends and family" - that is, people with whom you have existing relationships prior to the offering. If you do, both the legal and practical risks associated with this sort of early-stage offering are so minimal as to be in the "remote" category and the compliance costs/burdens are very small, at least in Silicon Valley (I believe this is true in most other locations as well and this has been consistently confirmed via our "blue-sky" practice, i.e., where we need to make sure that a California-based issuer meets the local securities law requirements of other states in which its investors reside). By the way, later-stage investors usually don't like to see too many unaccredited investors in a company (working rule of thumb: best avoided if possible, no more than 10 if it can't be avoided). See also http://www.grellas.com/faq_business_startup_012.html http://www.grellas.com/faq_business_startup_012.html.

grellas 17y ago

This may vary somewhat from one jurisdiction to another but, in practical terms, the disclosure issue does not really prove burdensome (I have substantial experience with this in Silicon Valley, having specialized in early-stage startups for many years now). Years ago (back in the 1980s), the conventional practice concerning disclosure was to prepare a private placement memorandum (PPM) in connection with most offerings involving outside investors, even "friends." The PPM was involved and expensive, amounting to a mini-version of the registration statement companies file when they go public. Since at least the mid-1990s, this practice has changed in Silicon Valley to the point where, very often, a "2-pager" (fairly high level executive summary) would be used to meet disclosure requirements, coupled with an invitation to the prospective investors to ask questions, etc. of company management. This revised practice has proved to be fairly easy to comply with for most companies. Of course, this assumes you are dealing with people who are true "friends and family" - that is, people with whom you have existing relationships prior to the offering. If you do, both the legal and practical risks associated with this sort of early-stage offering are so minimal as to be in the "remote" category and the compliance costs/burdens are very small, at least in Silicon Valley (I believe this is true in most other locations as well and this has been consistently confirmed via our "blue-sky" practice, i.e., where we need to make sure that a California-based issuer meets the local securities law requirements of other states in which its investors reside). By the way, later-stage investors usually don't like to see too many unaccredited investors in a company (working rule of thumb: best avoided if possible, no more than 10 if it can't be avoided). See also http://www.grellas.com/faq_business_startup_012.html http://www.grellas.com/faq_business_startup_012.html.