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What Is Reg A+ And Why It Matters To You
In 2015, Regulation A+, or Reg A+, became part of the Jobs Act.
For private companies, it cut out much of the red tape around raising money. Long story short, it made it easier for companies to accept investments from the general public. It effectively kickstarted (no pun intended) equity crowdfunding.
In the old days – like when you actually paid commissions to trade stocks – only accredited investors could invest in the private market.
An accredited investor, according to the Securities and Exchange Commission (SEC), is an individual who made $200,000 or more in each of the last two years, and expects to do so in the present year. When including a spouse, that number is $300,000.
Alternatively, the government considers you an accredited investor, if you have a net worth (excluding your private dwelling) of more than $1 million as an individual or in conjunction with a spouse. You also qualify, in certain instances, if you’re a financial professional and hold a Series 7, Series 65, or Series 82 license.
Regulation A+ opened the world of private equity investing up to non-accredited investors, aka, the rest of us.
In a second, The Juice illustrates ways you can participate, but first consider the limits, as laid out by the SEC:
Here it is, in writing, from the Commission:
If either your annual income or your net worth is less than $107,000, then during any 12-month period, you can invest up to the greater of either $2,200 or 5% of the greater of your annual income or net worth.
If both your annual income and your net worth are equal to or more than $107,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is greater, but not to exceed $107,000.
Now, the fun part.
How to access private equity markets as a non-accredited investor.
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Private Markets Investing
Wanna Be A Venture Capitalist?
Your buddy Dino has always dreamt of opening his own bar. He has a business plan that illustrates his vision of an elevated neighborhood dive bar. All the fun without that scary old dude, slumped over on a stool, making love to his tonic and gin.
Dino needs investors.
Reluctantly, you write Dino a check for $1,000.
Years later, at Dino’s sentencing, you learn you’ll probably never recoup your $1,000.
Enter Private Equity Investing For Non-Accredited Investors
Source: Death & Co
One of New York City’s top craft cocktail bars, Death & Co, recently expanded to Denver and Los Angeles. It plans to expand its footprint, and probably has a better chance at doing so than Dino.
Death & Co just closed a private funding round using a platform called SeedInvest. In the company’s summary of how well they did, you see they refer to Reg CF and Reg D rounds.
We won’t get too bogged down in the differences, however, in the shell of a nut, companies can offer shares to private investors under different designations based on their needs and stages of development.
Generally speaking, companies that are further along utilize Reg A, which functions much like an IPO with fewer federal reporting requirements. Reg A limits the amount a company can raise to $75 million. Reg D includes less stringent reporting requirements, but includes specific guidelines under SEC rules 504 and 506. Regulation CF (crowdfunding) tends to be best for early stage companies with lower valuations, given its maximum offering of $5 million.
Expanding Your Investing World
When the government opened the doors to private markets investing for everyday investors, it effectively broadened your access to a wide array of opportunities that go beyond investing in companies.
Consider one of the top platforms that facilitates private market investing for individual investors, StartEngine.
On StartEngine, you an invest in a variety of startups, including, interestingly, StartEngine itself –
Backed by paid spokesperson and SharkTank star, Kevin O’Leary, StartEngine also allows you to invest in collectibles, such as wine, art, sports cards, and NFTs –
So, here again, gone are the days when you only had access to these types of opportunities through a friend’s rich friend’s cousin’s brother-in-law. Actually, those days might not be gone. You just don’t have to rely on them to participate in private market investing.
The Bottom Line: As with any investment, you must conduct your due diligence when going the private route. While companies that raise money under variations of Reg A, Reg D, and Reg CF must report to the government, it doesn’t mean they’ll survive, let alone be successful.
That said, you can use this route to diversify your portfolio. With that in mind, consider today an introduction. In the coming weeks and months, The Juice will dig deeper into the ins and outs of private market investing and detail additional platforms and opportunities you might be interested in.
So, tell a friend to subscribe to The Juice and you can explore the possibilities together. Maybe over a drink at that neighborhood bar.
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