Disclosures

  • SeedInvest’s due diligence process is no guarantee of success or future results. All investors should carefully review each investment opportunity and cancel their subscription within the allotted time-frame if they do not feel comfortable making any specific investment based on their own DD. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  • SeedInvest’s selection criteria does not suggest higher quality investment opportunities nor does it imply that investors will generate positive returns in investment opportunities on SeedInvest. Learn more about due diligence on the SeedInvest Blog (https://www.seedinvest.com/blog/angel-investing/how-to-assess-an-investment) and our vetting process in our FAQs (https://intercom.help/seedinvest/en/).

  • Diversification is only across multiple early-stage investment opportunities within the asset class. There is no guarantee that this program will lead to a well-balanced portfolio of companies across industry types or stages across the asset class. In addition, enrolling in this program will not lead to diversification across your entire investment portfolio. In order to achieve diversification, we do not recommend you allocate more than 10% of your entire investment portfolio to alternative assets.

  • Testimonials may not be representative of the experience of others and are no guarantee of future performance or success. No individuals were compensated in exchange for their testimonials.

Accredited Investor: Criteria & Information

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Under today’s federal securities laws, only individuals and entities that qualify as an accredited investor can legally take advantage of startup investing opportunities under minimal limitations. Because of accredited investors’ presumed wealth, they are deemed more able to bear the high financial risk of investments in private companies.

As a result of recent changes to securities laws, companies may now decide whether to raise from everyone or just from accredited investors. Under recent developments such as Title III and Title IV of the JOBS Act, non-accredited investors are allowed to legally invest alongside accredited investors under certain guidelines. Title III and Title IV of the JOBS Act permit what is known as “equity crowdfunding”, whereby companies can openly advertise their offerings and accept investments from non-accredited investors – the 98% of Americans who do not meet the definition of an accredited investor.

In this guide, we will discuss how one can confirm their status as an accredited investor and the requirements needed to take part in investing in this asset class.

Accredited Investor

In order for an individual to be an accredited investor, he or she must meet at least one of the following criteria:

  • Individual income exceeding $200K for each of the past two years with a reasonable expectation that the $200K threshold will be reached in the current year.
  • Joint income with spouse exceeding $300K for each of the past two years with a reasonable expectation that the $300K threshold will be reached in the current year.
  • Lastly, an individual is an accredited investor if his or her net worth (excluding the value of a primary residence) exceeds $1M.

An entity that is not a natural person (e.g., Fund, Corporation) generally qualifies as an accredited investor if it has at least $5M in assets or if all of the owners of that entity are themselves accredited investors.

Suitability

In addition to meeting the requirements as an accredited investor, investors must be made aware of and acknowledge the high financial risks of startup investing when investing through some intermediaries. When investing, investors should keep in mind that the majority of startups fail and those that do provide a return to their investors may take five to seven years (or more) to do so. Therefore, investors who would like to invest in startups should take the following precautions:

  • Do not allocate more than 5-10% of your overall portfolio into alternative assets, including startup investment opportunities.
  • Build a diversified portfolio of at least 10-15 startup investments.
  • Do not invest any capital which you are not comfortable having locked up for at least 5-7 years.

On SeedInvest

Investors on SeedInvest should also consider the general risk factors set out at: https://www.seedinvest.com/general-risk-factors

The SeedInvest platform collects accredited investor information and facilitates the verifications required to make a startup investment online. During the signup process the SeedInvest platform also guides users through a series of questions about their current investment portfolio and asset allocation to help investors think through the most appropriate investment strategy for approaching early-stage investments. The SeedInvest team are also available to investors on the phone, email or through online chat to discuss any questions regarding the risks inherent in the asset class.

This post was written by SeedInvest on October 11, 2016

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