SEC Opens Way for Wider Pool of Investors to Take Stakes in Startups

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Rule will let anyone invest as much as $2,000 or 5% of annual income or net worth, whichever is greater.

The Securities and Exchange Commission on Friday approved rules that pave the way for Main Street investors to take equity stakes in startup businesses raising capital via crowdfunding.

The possibility of ordinary investor participation in equity-based crowdfunding began with the passage of the 2012 Jumpstart Our Business Startups Act, or JOBS Act, which aims to help startups and small businesses to raise capital from a wide range of potential investors.

But under current rules, only “accredited investors”—those whose net worth exceeds $1 million, excluding their primary residence, or who earn more than $200,000 a year—are allowed to participate in crowdfunding.

The SEC’s approval Friday of the Title III portion of the act opens the way for small companies to raise money from a wide range of people who aren’t accredited investors in return for equity.

The new rule would allow anyone to invest as much as $2,000 or 5% of their annual income or net worth, whichever is greater, in small-scale fundraising projects of as much as $1 million in any 12-month period. Investors whose income and net worth are both more than $100,000 can invest as much as 10% of the lesser of their income or net worth.

SEC Opens Way for Wider Pool of Investors to Take Stakes in Startups

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