The SEC has revised the rules for private investors taking equity stakes in start-ups raising capital via crowdfunding. Nearly everyone is now allowed to invest the greatest of $2,000 or 5% of annual income or net worth per year.
On Friday, the Securities and Exchange Commission has approved rules that allow private investors to invest in start-up equity via crowdfunding. Under current rules, only “accredited investors” with a net worth exceeding $1 million or who earn more than $200,000 a year were allowed to participate in crowdfunding. The new rules open the market to nearly everyone.
Everyone willing to invest is now entitled to invest as much as $2,000 or 5 percent of their annual income or net worth, whichever is greater, per year into start-ups via crowdfunding. Investors with an annual net income and net worth of more than $100,000 are allowed to invest as much as 10 percent of the lesser per year.
Firms itself are allowed to raise as much as $1 million in any 12-month period. All transactions covered by the new rules must take place through an SEC-registered broker dealer or a fund portal. Moreover, start-ups raining equity must disclose some information including information about officers, directors and owners holding more than 20 percent, a business descriptions and the use of the raised funding.