

Ask HN: Why do investors need to be accredited? - atom-morgan

I recently read an article[1] which stated that companies are only allowed to solicit investments from accredited investors. What&#x27;s the reasoning behind this? Why can&#x27;t anyone, including myself[2], who is willing to risk their own money invest in a startup?<p>[1] http:&#x2F;&#x2F;www.businessinsider.com&#x2F;sec-announces-crowdfunding-rule-to-allow-startups-to-raise-1-million-from-unaccredited-investors-2013-10#ixzz2iaskUpYm<p>[2] http:&#x2F;&#x2F;blog.atommorgan.com&#x2F;investors-need-to-be-accredited
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zaroth
The bar for accreditation is extremely low - investor signs a piece of paper
making a claim about their net income or personal wealth, but no actual
validation must occur.

SEC wants to strengthen the validation requirements, which would increase
compliance costs a lot, and so generally business world is against this.

The more striking limitations are around solicitation - how you actually find
your investors. "General solicitation" is vaguely defined (here's looking at
you, angel.co). But basically, it's like the first rule of Fight Club, no one
ever talks about it, yet somehow more people keep showing up!

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wmf
In the Great Depression of the 1930s many people lost a lot of money by
investing in unregulated securities. So now anyone can invest in highly-
regulated securities and only rich people can invest in sketchy stuff.

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atom-morgan
So the law is attempting to protect people from themselves?

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logn
I'd like to think, protecting the middle class and poor from thieves.

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atom-morgan
In that case, the link in joelgrus' comment raises an interesting point. If
protecting people is the end goal, why are we allowing people to file their
own taxes when they could face jail time as a result?

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wmf
Yeah, in more civilized countries the government calculates it for you.

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joewallin
If you generally solicit, under Section 201 of the JOBS Act, all of your
investors have to be accredited.

If you don't generally solicit, theoretically, under Rule 506(b), you can have
up to 35 non-accredited investors. BUT, if you even take one you have to
provide IPO level disclosure. Ridiculously expensive. See this blog post:
[http://www.startuplawblog.com/2013/01/14/cant-i-let-non-
accr...](http://www.startuplawblog.com/2013/01/14/cant-i-let-non-accredited-
investors-in-my-round/)

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cmac2992
Its to prevent "Grandma Sally" from investing her retirement savings in high
risk start-up because she isn't "financially sophisticated" to understand the
risks.

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joelgrus
Here's an argument that it's protectionism for the wealthy:

[http://undergroundeconomist.com/post/22847068021](http://undergroundeconomist.com/post/22847068021)

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gumballhead
To foster a two-tiered market

