[SarahKay]

I'm reasonably new to the world of startups, so I'm hoping someone can answer this question for me:

Are there really that many people who wanted to invest pre-JOBS and couldn't? It seems I've heard dozens of stories about how some suburban family invested in their neighbor or brother-in-law or drinking buddy. I don't think I've ever heard or read someone complaining that they wanted to give money to an entrepreneur and just weren't allowed to. What am I missing?

[muhfuhkuh]

I'd love to fund a startup without going completely broke (something like $1-2000 or something). It's just nice to have even minuscule fraction-of-a-fraction ownership in something that might be the Next Somethingorother. Kickstarter isn't really an angel investment vehicle, and Prosper is mostly for people who are trying to repair their credit or buy a car/house, not really as sexy as funding a startup.

What are the options?

[runako]

A securities offering doesn't have to be registered until it crosses a threshold, which is set by law:

http://www.sec.gov/info/smallbus/qasbsec.htm#eod6

Reg D, Rule 504: "Rule 504 provides an exemption for the offer and sale of up to $1,000,000 of securities in a 12-month period."

So your colleague's business can likely sell you shares now. However, unless they register, they can't market the shares for sale.

Crowdfunding will expand this and allow you to market your securities for sale.

[clavalle]

People are currently not allowed to solicit investment unless they are public.

On top of that, if you get so many non-accredited investors, you have to go public. A very, very expensive process so most entrepreneurs avoid small investors like the plague.

You don't hear about people wanting to invest in an entrepreneur and not being able to because of the vacuum of information created by these two factors.

[runako]

>> On top of that, if you get so many non-accredited investors, you have to go public.

No, you have to release financial information like publicly-traded firms. You can keep the shares from trading publicly, you just have to share data on your financials. SAS analytics and UPS are examples of large firms that were private with lots of shareholders (UPS has since gone public). This rule isn't just to be restrictive, it's to ensure that a company with more shareholders than can sit down at a dinner table informs all of them about the company's financials. I'd guess it was designed because prior to its existence, managements could mislead investors in private firms to help raise money, to liquidate their own shares, etc. If it's not illegal to not disclose material information to retail shareholders, you can be sure that managements will use that loophole to screw their retail investors.

"But the market will route around shady firms." Yes, the global financial crash was how the market routed around shady behavior in some markets. Suboptimal.

>> A very, very expensive process so most entrepreneurs avoid small investors like the plague.

Citation needed. Since we're talking about companies bumping against the 500 shareholder limit, let's say they've received $1m in capital and are about to get one more investor. NASDAQ listing fees (https://listingcenter.nasdaqomx.com/assets/nasdaq_listing_re...) start at $35k. Other exchanges are cheaper: https://en.wikipedia.org/wiki/List_of_stock_exchanges#United...

Going public on one of the two flagship US exchanges, with a top-tier investment bank leading, is expensive. But if you're raising money in $1k blocks, you probably aren't on that path anyway and so an appropriate public listing would cost a fraction of what Facebook will pay.