So you want to invest in private companies but you aren’t an accredited investor quite yet? Title III of the JOBS Act, passed in 2012, created an opportunity for the average investor to invest in private companies. Regulation crowdfunding allows startups to raise up to $1,070,000 per year from both individual investors and accredited investors through registered funding portals.
There are still some limitations such as how much a person can invest in a 12 month period. These investment limits are inflation-adjusted.
- If your annual income OR your net worth is less than $107,000, you can only invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth
- If both your annual income AND net worth are equal to or more than $107,000 then you can invest up to 10% of your annual income or net worth, whichever is less, but not to exceed $107,000
If your annual income is $150,000 and your net worth is $200,000, the JOBS Act crowdfunding rules will let you invest up to $15,000 over a 12-month period. It is $15,000 and not $20,000 because your annual income is less than your net worth.
Generally there is a feeling that the limitations and regulations most companies still restrict investments from non-accredited investors, and the JOBS Act hasn’t had the impact intended. Mainly, companies don’t want to pay the associated costs and file all of the mandated disclosures when they can raise capital under Regulation D which is both easier and cheaper. However, there are some bright spots. Crowdfund Capital Investors wrote a report and found that while the market is still young, it is growing at a rapid pace and found a high success rate for offerings.
You can find all of the registered funding portals on the FINRA website here. FINRA also provides an overview of Crowdfunding and what Investors should know here.
Has anyone invested in private companies through these funding portals? What was your experience?