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by DocSavage
3833 days ago
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Doesn't this just apply to those with either sufficient net worth or earned income to qualify as an accredited investor? Or have you heard of startups taking the money of some new graduate making less than $200k/year with insufficient net worth? |
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The SEC allows companies to sell shares privately, using Regulation D. Regulation D has a number of rules that govern it, such as, you cannot generally solicit your offering (for example: take an ad out in the NYT annoucning you are raising money).
You can raise unlimited funds from Accredited investors (see link). You don't need to provide information (via prospectus) to these investors, as it's assumed they have the acumen to obtain and understand the information to understand the investment being made.
Companies can also raise funds from up to 35 non-accredited investors. However, in doing so, must ensure due diligence that those non-accredited investors can bare the economic burden, are made to understand the investment, etc.
By and large, that amount of work is more than enough to turn some founders away from dealing with non accredited investors.
In certain cases, a pre-seed, initial funding round may come from a "friends and family" round.
The SEC recently passed a law allowing selling shares via Crowdfunding, but because it's fairly new, the risk* to future Venture rounds is unknown, and I'd expect founders to be tepid with adopting Crowdfunding as a viable method to raise money.
[1] http://www.ecfr.gov/cgi-bin/retrieveECFR?gp=&SID=8edfd12967d...
* Venture Capitalists (afaik) haven't published an opinion on crowd funding, so founders may inadvertently risk future startup financing rounds if they screw up their capilization table with a crowd funding round.