In my mind, it's the whole requirement of being an "accredited investor" that is the real hurdle. I ran into this a few years ago when a friend of mine opened a brewery. He was taking investments, but since it was a private company you had to be an accredited investor (which I wasn't). In the end I ended up being able to give him some money for potential returns but we had to jump through some legal loopholes.
This might be a dumb question, but why does the law require that an investor is "accredited"? Why does their income and net worth matter? If someone only made a measly $100k last year and wants to invest in my company, why wouldn't they be allowed to?
I believe it's to prevent lower net worth individuals from losing their life savings. The inability to make a big bet on a single company. Paternalism basically.
"permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors"
This is huge.
From TFA: "When Title III of the JOBS Act takes effect – likely in 2014 – this number will multiply as any individual will be able to invest in private offerings."
And the problem with the "new rules" is that they require the "accredited investor" to provide all sorts of documentation to the startup, to certify that they are, indeed, an "accredited investor". We're talking tax returns, or a certified document from their accountant, etc.
This is going to add extra friction to the process and may negate a lot of the purported benefits of this whole mechanism, given that investors were previously allowed to simply "self certify" their status as an "accredited investor".
can't they do that by proxy? i go to my bank, i show them evidence that i have made $200k or more in the last 2 years, or that i have a million+ net worth. i get the document notarized, i give the company the notarized document by the bank as evidence. my paperwork stays private.
