On February 16th, the U.S. Securities and Exchange Commission (the “SEC”) issued an investor bulletin explaining their recently issued guidelines for allowing individuals to invest in “early-stage and start-up” businesses that offer securities via a crowdfunding intermediary.
In the bulletin, the SEC defines crowdfunding as “a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people.”
In the bulletin, the SEC acknowledges that making investments via a crowdfunding site can be risky. Therefore, they have established criteria limiting the amount that an individual investor can invest via a crowdfunding intermediary. Those guidelines are based on a potential investor’s net worth and annual income.
For example, according to the bulletin, under the new guidelines, if a potential investor’s “annual income [or their] net worth is less than $100,000, then during any 12-month period, [s/he] can invest up to the greater of either $2,000 or 5% of the lesser of [their] annual income or net worth.”
Additionally, if a potential investor’s “annual income or net worth are equal to or more than $100,000, then during any 12-month period, [s/he] can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000.”
The bulletin then provides numerous helpful examples explaining the application of its guidelines and describing the risks associated with making these early stage investments.