The Evolution of "Accredited Investors"

Since the early 1930s, federal government regulators have found it challenging to protect investors in private offerings and securities while simultaneously sustaining the growth of start-ups and other young companies - companies which many believe are responsible for the majority of job growth in the United States. Balancing this task had been forefront in the mind of the Securities and Exchange Commission (“SEC”) for years. Eventually, the SEC coined the term “accredited investor,” thereby shaping the investment landscape ever since.  This distinction was implemented by the SEC to protect investors who did not have the sophistication nor the resources to obtain disclosures and to evaluate private securities offerings.  By creating this standard, the SEC felt comfortable allowing individuals with the financial means and sophistication to participate in these private securities offerings, without the full protection of federal or state securities laws.

According to Regulation D of the Securities Act of 1933, the term accredited investor refers to any investor who has maintained a certain level of income or net worth and who is able to participate in private placement of securities.  It also allows an investor to participate without being counted toward the maximum number of investors that are otherwise permitted in an offering exempted under Regulation D.  In July of 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which made an important amendment to the definition, in that the value of a primary residence may no longer be included in an individual's net worth. This amendment came in the wake of the rising – and then falling – of real estate prices across the country. This dramatic bubble led to the concern that the value of a personal residence might be based on overoptimistic perceptions, and that the inclusion of that personal residence in the “net worth” criteria of an individual's wealth might be inappropriate.

While it may be most common to think of accredited investors as individuals, this group also includes banks, insurance companies, employee benefit plans, and trusts.  For an individual, though, in order to qualify as an accredited investor, he or she must meet one of the following criteria:

1. Earn an annual income exceeding $200,000 or joint income exceeding $300,000 together with a spouse.
2. Have a net worth exceeding $1 million - excluding one’s primary residence.
3. Be a general partner, executive officer, director or a related combination thereof for the issuer of a security being offered.

The SEC considers these accredited investors to have sufficient amount of wealth, as to not need the protection of federal and state securities laws to the same extent that non-accredited investors do. In other words, they have the ability to fend for themselves.

The question of how the SEC can both protect individual investors while still allowing for growth of startups and other young companies will continue to be a hot topic in the coming years. As the SEC proved when they removed the value of primary residency in the valuation of accredited investors, they are paying close attention. We can expect that the SEC will continue to implement reforms that could limit the number of accredited investors in years to come. Stay tuned.

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How Crowdfunding Increases The Potential Of Your Project

Crowdfunding/hyper funding/crowd financing by its nature and format is an improved funding option that not only earns you money to support business, but also provides a range of aligned values and benefits. It is a practice of securing fund by asking a crowd of people (instead of banks, venture capitalists or angel investors) to unitedly support and donate a specific amount of money for the development of a cause, idea or project.

One of the initial examples of Crowdfunding is that of Australia's Blowfly Beer, which with the help of emails and internet word of mouth, received the support of around 40,000 people to invest in their company. "The investment pitch was pretty simple - give us money and we'll give you equity and beer," via CrowdFund Connect.

So, it is all about finding out targeted people (rather than one governing body) who are mutually eager to invest in an idea for (tangible or subtle) benefit. Besides money, here's how crowdfunding can help you leverage the full potential of your project:

Pre-sells your idea through comprehensive market research targeting the right audience:

This is one of the most beneficial aspects of crowdfunding. Pre-selling your idea or project helps you make an extensive research on the market with insights that evaluate risks and inputs that improves the scope. When a project is publicly accessible, you are likely to get increased exposure of potential audiences whose responses and reactions let you know whether your idea really has takers or does it have a market in general. If people are not buying it, chances are your project doesn't have a market or the contemporary setting is still not ideal to launch your idea. This also means modifying your marketing ideas and increasing its extent to suit customized taste of potential investors so that even if the market is not ready for your project, you can create a scope.

Builds loyal customer bases who return to your business because of value offerings:

With crowdfunding, you are likely to generate people's participation when you offer rewards (equity and beer in the case of Blowfly Beer). Now, if you succeed in providing value offerings to them, they are more likely to buy the products you make to enjoy increased benefits. So, quality rewards opens scope for future sales leads by creating repeat customers who are loyal and pro to your business.

Influences future customers by making today's customers happy:

This is where case studies and testimonials come in play. Going forward, the market is so competitive you need to convince your future customers creatively and authentically to trust you and continue using your product. Crowdfunding also creates the scope because when you deliver products or services to customers you gained through this crowdfunding process, they are likely to give affirmative feedback provided they like it. These testimonials can collectively influence your future clients. There are more reasons for them to trust your service because the feedback and testimonial are authentic and not manipulated. In addition, you can create case studies based on winning solutions to even strengthen your service profile.

Creates scope for word of mouth marketing:

The best form of marketing is the one that goes viral through word of mouth. And, crowdfunding exactly does the same. People interested in your project would share your idea and the opportunities in your project with their friends, neighbours, colleagues and thereby create popularity without having you to directly involving in the whole process. So, without spending any money on the initial marketing, you can gain thousands of people turned investors turned customers.

Besides the above, raising funds through crowdfunding is easier and simpler compared with traditional funding options. It generates increased opportunities of collective development from the very base for any businesses as well as makes product innovation more social and advanced. To conclude, crowdfunding is a trusted social funding process which if played well can earn you results and not just profit and values, not just hard cash.

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