Home Entrepreneurship Equity crowdfunding, the accredited investor, and small businesses

Equity crowdfunding, the accredited investor, and small businesses

alphagamma equity crowdfunding, the accredited investor, and small businesses entrepreneurship finance

Almost every country has got a regulated system where investors and businesses can connect to satisfy each other’s needs. How that system is regulated is an entirely different conversation, but

How that system is regulated is an entirely different conversation, but investors invest their money in businesses to earn a return to building their wealth for retirement while businesses seek investments (capital) to start up, maintain, or grow their business.

It’s a match made in Heaven. Almost.

Accredited investor defined

The U.S. Securities and Exchange Commission (SEC) is responsible for enforcing federal securities laws, proposing rules, and regulating the stock and options exchanges, the securities industry, and the electronic securities market in the U.S.

The SEC on the creating the “accredited investor”:

The accredited investor definition attempts to identify those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves render the protections of the Securities Act’s registration process unnecessary

Okay, pretty narrow…but we still don’t know who qualifies as an accredited investor. The basic qualifications for the title include:

  • Earned $200,000 in the last 2 years and expect to this year ($300k if joint, married).
  • Net worth exceed $1,000,000, individually or jointly with spouse, excluding the value of their primary residence.

The SEC limits the type of investments non-accredited investors have access to due to the abnormal level of risk associated with those investments.

The European Union also has strict regulations for investors to be classified as “professional clients”. As defined by Markets in Financial Instruments Directive (MiFID), the European Union, before serving any client, a financial institution must assess the client’s expertise, experience and knowledge and one of the two criteria have to be met:

  • the client has carried out trade transactions, in significant size (at least EUR 50,000), on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
  • the size of the client’s financial instrument portfolio, defined as including cash deposits and financial instruments, exceeds EUR 500,000;
  • the client works or has worked in the financial sector for at least one year in a professional position which requires knowledge of the transactions or services envisaged.


Americans who are worth less than $1 million or make less than $200,000 a year are being “protected” from “unaffordable losses.”

For example, Average Joe makes $50,000/year salary and has saved up $100,000 in his retirement account. The SEC wants to prevent Mr. Joe from losing his retirement in a higher-risk investment because it took him his entire career to save those funds in his retirement account after paying bills. He is therefore being protected from suffering “unaffordable losses.”

For Millennials who are graduating in 2016 with, on average, $37,172 in student loan debt, this accredited investor qualification is a tough achievement.

I mean, just owning a home seems to be a stretch for the generation considering Americans 35 and under who own a house has dropped from 36.8% in 2013 to 36.2% in 2014, the lowest ever in the census’ Housing Vacancy Survey.

Even for anyone over the age of 35, becoming an accredited investor anytime soon is unlikely unless executives in your company are leaving soon and you’re up next!

Given the level of disruption in our economy, from big data to augmented reality, trends are showing meaningful changes.

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It is no question that Millennials are the largest part of the labor force and on our way to becoming the most educated generation. Are we not in a position to have acquired the knowledge necessary to gain “financial sophistication and the ability to fend” for ourselves?

The answer should be yes.

Small business owners raise capital online, easier

JOBS Act connects non-accredited investors. The JOBS Act is revolutionary because:

a) non-accredited investors can invest in companies raising under this exemption

b) it allowed businesses to solicit for their capital acquisition

The drawback to part a), limitations on investor investments.

Two tiers of limitations over a 12-month period:

  1. Investors with income below $100,000 can invest the greater of $2,000 or 5% of the lesser of net worth or salary.
  2. Investors with income/net worth above $100,000 can invest 10% of the lesser of income or net worth.

The JOBS Act implications shook the investing world on May 16th, 2016. Non-accredited investors can now access some of the high-risk/high-return investments not available before this iconic date.

Small businesses don’t typically have the budget, customer base, or infrastructure to grow without reaching out to the non-accredited investors in the U.S. According to the SEC, accredited investors make up 10.1% of households meaning, through history, 89.9% or more of households in the U.S. lacked access to these potentially jackpot-winning investments.

While that may sound grim (it was), it’s actually the best news we small-timers have heard in a very, very long time! Leading to the creation of the equity crowdfunding industry.

Just like your friend’s GoFundMe, Indiegogo, or Kickstarter campaign – small businesses can now raise capital in the same fashion! Instead of just getting a new gadget as an incentive to GIVE your money to a crowdfunding campaign, you can now add it to your investing portfolio for a piece of the company.

In fact, some of the businesses currently raising capital through equity crowdfunding are still incentivizing investors with a free product upon investing in their company! WE now have access to what might be the next Apple, Microsoft, or Google!

Equity crowdfunding – born on May 16th, 2016

How do businesses start an equity crowdfunding raise?

Business owners must register with “Funding Portals which are pretty much the equity crowdfunding form of Kickstarter or Indiegogo. Similarly, business owners will apply to raise funds on the Funding Portal who then qualifies the business based on their own set of qualifications. The most practical crowdfunding campaigns are for businesses:

The most practical crowdfunding campaigns are for businesses:

  • with a proven track record seeking expansion or to keep up in a competitive market; and/or
  • solving a major problem with a proven and scalable solution; and/or
  • with a concrete business plan; and/or
  • owners with high levels of social influence/following

Any combination of the bullet points above makes equity crowdfunding much, much easier. While the feat of a successful crowdfunding campaign is not easy, strategic partnerships accompanied by a multi-media approach can make it happen!

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Stay true to your crowd


truCrowd, one of the 15 FINRA/SEC regulated Funding Portals, is already open and ready to accept investors or business owners seeking capital. With investments starting under $100, truCrowd founders make it easy for business owners to connect with investors and raise capital online.

Social media via multi-media strategy, ability to scale your product or service, providing solutions and differentiated competitive products are all important components to equity crowdfunding success!

Imagine this: if you invested $990 ($22/share at 45 shares) in Apple (AAPL) right after their Initial Public Offering (IPO), you would own 2,500 shares because the stock has split 4 times…this equates to about $257,825 at today’s closing share price of $103.13 multiplied by 2,500 shares!

THIS, sorry, this is why I study finance and have found passion working in the crowdfunding industry.

Do you see the power of these high-risk investments in your portfolio? After working at Wells Fargo for 2 years, I saw too many people with too much debt, unequal access to much-needed funds, and too little financial literacy. I wanted to help my customers LEARN, but heavy sales quotes got in the way.

The equity crowdfunding industry is going to be what closes the wealth disparity gap in America and I’ll be right behind it with you!

Business owners: whether you need $5,000 or $5 million, feel free to connect with me on LinkedIn or send me an email if you’re interested in raising capital.

Investors: likewise, I’ll direct you to resources to help educate you how to begin investing!

You can also check Millennial insight and advice at The Macroscopic Millennial.

For more finance and business tips, check our finance section and subscribe to our weekly newsletters.


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