For the past 82 years, only wealthy investors have been legally allowed to invest in early-stage, private companies.
These investors are known as “accredited investors.”
According to current SEC regulations, in order to be considered accredited, you need to have a net worth of at least $1 million, or you need to earn at least $200,000 in annual income, or $300,000 if combined with your spouse.
At the moment, only accredited investors are allowed to invest in privately-held companies—in other words, companies that aren’t listed on a stock exchange like the New York Stock Exchange or The NASDAQ.
The history behind these laws goes back to 1933.
You see, after the Great Depression and the accompanying stock market crash, individual investors were routinely being taken advantage of through “get rich quick” schemes—and many of these scams involved unregulated private investments.
So the U.S. Government established the Securities and Exchange Commission, the SEC, and they put it in charge of creating and enforcing securities laws.
One of the SEC’s first actions was to prevent non-accredited investors from investing in private deals…
They created laws so private investing was only accessible to wealthy investors—the type of investor that theoretically, anyway, could afford to take financial risks.
These laws made a lot of sense back in 1933—but the world’s changed quite a bit since then, and the laws are finally starting to catch up
In fact, thanks to a new set of laws known as “The JOBS Act,” all investors will soon be able to invest in private companies—regardless of their income or net worth.
This has a lot of folks very excited:
First of all, these laws will help entrepreneurs get new, innovative businesses off the ground more quickly.
Secondly, since the majority of new jobs in the U.S. come from small businesses, this could be a significant driver of job growth.
And finally, individual investors like you will now have access to one of the most profitable asset classes in history.
But to be clear, with the potential for these higher returns comes higher risk.
If you don’t take the time to prepare yourself—if you don’t educate yourself—well, you could end up losing a lot of money.
So before you decide to dive in, spend some time getting educated not just about the upside of start-up investing, but also about the risks.
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