Good news! The startup scene is about to have a lot more angels.
The SEC just changed their rules around who can be an “accredited investor,” someone allowed to invest in private markets like startups. Before these changes, only individuals and entities of a certain wealth could qualify, based on the idea that they were the only ones “sophisticated” enough to go through due diligence to know if an investment is safe enough to take on. While investing is inherently somewhat risky business, the SEC has now decided that there are people other than just the wealthy who can make these decisions, like people with certain professional qualifications. And this means starting soon, there will be plenty more potential angel investors for your startup.
So how do you know if someone can now be an accredited angel investor in your startup? We’ll walk you through what to look for in a potential investor under the new set of rules.
These are the qualifications that have always been around. Any individual with a networth of 5 million or over $200,000 salary for two years has always been considered by the SEC an accredited investor, and they’re not taking that away.
Now what the hell are these certifications, you may be asking yourself. Well, we’re here with answers. These certifications are essentially tests that professionals can take to prove their competence in General Securities, Uniform Investment, and Private Securities. This change makes a tone of sense in that it is allowing anyone with a certification that essentially proves they have the know how to evaluate deals to do just that. And, the SEC mentioned that they will be approving more certifications as accredited investors in the future.
Now, anyone who works at a venture fund, and therefore knows the inner workings of private equity, is allowed to be an investor themselves. Start hitting up those venture contacts!
Now, startups can invest in other startups! This really opens up a world of possibilities for cooperation and shared growth in the startup scene.
Again, 5 million is now the cutoff for small businesses to make these private investments.
Kudos to you if you’ve managed to swing a foreign government as your angel investor, because that’s now possible! Any entity can now invest in private capital if they again, meet that 5 million mark.
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