

Ask HN: Should we raise money from people who aren't accredited investors? - ncash

We are raising capital ($150k-250k) and have had some offers from various contacts. However, I know that many of them are not accredited investors. Should we completely drop these possible funds? Or is there a certain way to deal with unaccredited investors?<p>We've never raised money before, so we have no idea what pitfalls there are with unaccredited investors who are investing relatively small amounts ($10k-$25k).<p>Thanks in advance for all tips, suggestions, and investment tales.
======
mryall
You definitely want to have a proper shareholder agreement and make sure any
amateur investors understand the terms of it before going ahead.

Some potential problems: investors not understanding what kind of shares they
have (probably non-voting) and expecting a say in where the company goes,
investors expecting to be able to pull their money out or sell the shares when
they feel like it, investors expecting dividends from your company when you
want to retain all the profits. It's mostly about expectations, which can be
managed if you're prepared up front.

------
bdclimber14
I have a friend who raised a small amount from an unaccredited investor. The
investor was a trusted family friend. The startup went nowhere, and the
investor lost all her money. She was irate and demanded all her money back. No
matter how much explanation you give of the risk, some unaccredited investors
will still not understand.

~~~
kovar
I refuse to a) accept money from family or friends and b) insist on extensive
documentation and contracts. 'a' reduces the emotional complexities and 'b'
gives me a leg to stand on should there be differences of opinion.

~~~
bdclimber14
B should always be done. Close family can be a good way to raise money.
Generally, they see it as a gift with a potential upside. It's the friends of
friends or friends of family where it gets really sticky.

------
staunch
IANAL. Try to avoid it. If you really want to do it anyway make sure your
lawyer is really familiar with the proper procedures.

There's more potential that a non-accredited investor will try to cause
trouble or be a pain in the ass later. Make sure it's someone you know well
and can trust.

------
code
My general rule of thumb, don't do it. Not worth the potential problems.
Instead, get a basic letter of intent from them showing proof a few of them
are willing to invest and approach others who are accredited to invest.

