How Getting Rich Just Got Easier image

How Getting Rich Just Got Easier

In a new age of investing, financial education will be key

One of the biggest questions I get from people when I speak around the world is how to raise money for investing in assets or for starting a company, or how to invest in such projects as an individual.

If you have a large investment need, the reality is that it can sometimes be hard to find the right investors for your project because — until recently — the SEC required your investors to be accredited investors. Conversely, if you’re looking to invest in startups and large-scale projects, if you weren’t an accredited investor, the likelihood was small that you’d find a place to put your money.

Accredited investor = already rich

The definition for an accredited investor according to the SEC is:

  • a bank, insurance company, registered investment company, business development company, or small business investment company;
  • an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
  • a charitable organization, corporation, or partnership with assets exceeding $5 million;
  • a director, executive officer, or general partner of the company selling the securities;
  • a business in which all the equity owners are accredited investors;
  • a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
  • a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
  • a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

In short, an accredited investor is someone who is already rich. For many people who want to start investing, this has been discouraging. While it’s still possible to find investors or invest in worthy projects, the accredited investor requirement did make it harder.

Democratizing investing

But things are changing. On April 5th, President Obama signed into law the JOBS Act, which makes it possible for average folks to begin investing in startups and projects through crowd funding. This opens up a huge opportunity for both entrepreneurs and investors.

Under the provisions of the JOBS Act, you no longer have to be an accredited investor to begin investing in startups, and, as an entrepreneur, you don’t have as many obstacles to find funding. It’s a big win for everyone.

That being said, the SEC has a grace period of 270 days after the bill’s signing to review and implement any additional regulations. So, you can’t jump in just yet.

A financial education protects you

In the meantime, I encourage you to continue increasing your financial education.

If you’re a potential investor, begin investigating and researching opportunities you’d like to invest in once the JOBS Act provisions kick in. I also encourage you to do your homework thoroughly, because whenever there’s money involved, there’s a potential for crooks to be involved. The accredited investor provisions were originally in place to protect those who didn’t have money because they were deemed to be financially uneducated and at risk of losing much of their savings.

If you’re an entrepreneur, now’s the time to begin writing your business plan and perfecting your sales skills so that you are able to reach out to this much larger pool of potential investors once they become available.

How are you going to increase your financial education to take advantage of future opportunities? For more information, check out our free, resources here.

Original publish date: April 10, 2012