Up until yesterday, if you wanted to invest in private equity, venture capital, or startups, you basically had to be an accredited investor. An accredited investor is anyone who earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
With these very high thresholds, most investors were excluded from participating hot private deals, especially pre-IPO investments. However, with the implementation of Title III of the JOBS Act (Jumpstart Our Business Startups Act), the rules have changed giving all investors more of a level playing field for investing in private equity offerings.
As an example, if you have a net worth or income less than $100,000, you can invest the lower of either $2,000 or 5% of your annual income or net worth. Yet, there is a $2,000 floor, so you can invest a minimum of $2,000 per year without regard to your annual income or net worth.
This is similar to crowdfunding, yet instead of the contributor getting a product or being invited to a launch party, they receive equity in the company.
It is not just the small and medium size investors who benefit, the small startups will now have a lot of advantages. such as simplified financial disclosures and streamlined filings, as long as the amount raised is less than $1 million.
If you feel so inclined to read the actual Securities and Exchange Commission Summary of Title III, you can read it here.
Some of the top equity crowdfunding platforms include CircleUp, RockThePost, MicroVentures, AngelList, and FoundersClub.