Current Drivers in Crowdfunding

Below is the “Tip of the Week” transcript from the Podcast Episode 26: Evolution of Angels & Groups (Christopher Mirabile):

Today we talked about some of the key drivers in crowdfunding that Angels or interested seed investors should look out for.  Recall that we discussed two major drivers that seem to be on opposite sides of the spectrum.
  1.  The first related to the definition of an accredited investor.  There is the potential that the SEC will change the definition of an accredited investor b/c it is one that hasn’t been updated in quite some time.  The argument is that due to changing times and inflation, the values that determine accreditation are too low.  The proposal that I’ve seen, advocates for doubling the requirements.  So instead of $1M net worth excluding one’s home, it would be $2M net worth, excluding ones home.  And instead of $200k of individual net income in two consecutive years, it could increase to $400k of individual net income in two consecutive years.  There also may be allowances for individuals that don’t meet the monetary requirements to pass a test of sophistication that would grant them accreditation.  Either way, this clearly, this would significantly reduce the pool of “accredited investors” in the U.S. and subsequently significantly contract the amount of money available for seed-stage startups.
  2. The second factor has to do with Title 3 of the JOBS Act that allows for equity crowdfunding by the non-accredited, that is currently not in effect.  Remember from episode three with David S. Rose that this provision, if passed would allow those that don’t meet the definition, to invest. While this will only be enacted under strict guidelines.  But, quite conversely, this would significantly increase the pool of startup investors and the amount of money available for seed-stage startups.
As Christopher mentioned, the jury is still out on both of these counter-acting drivers.  But it is important for those in the angel space or considering entering the space to keep their finger on the pulse of these major drivers and what happens with them in the next year or so.  I will commit to relay information as it happens and bring on those guests that can help keep all of us stay well-apprised of the situation.