It seems like the rise of crowdfunding and ICOs may be having an affect on how US regulators perceive the investing landscape.
Recently, the SEC announced that they were exploring how to make it easier for individuals to invest in private companies, including some of the world’s hottest startups.
The initiative is being led by SEC chairman Jay Clayton, who is looking to boost access to the next Uber, Facebook and Airbnb while they’re still private. These companies all took private funding rounds up until their IPOs. Although IPOs offer the public access to companies’ shares, it is usually at a very high price relative to what early private investors paid for them, which means the returns are likely to be smaller.
The difference between those who get to invest in early stage private companies and everyone else usually comes down to their status as ‘accredited investors’.
As an investor, to be ‘accredited’ is to have special status under financial regulation laws. This special status grants you access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.
In the United States, accredited investor rules dictate that you must have a net worth of at least $1,000,000, or earn an income of at least $200,000 each year for the last two years. The assumption of this status is that only people with large amounts of money should be afforded the privilege of investing in risky companies where their entire investment could drop to zero.
Although the goal is supposed to be to protect regular investors, this is actually the opposite case. During an extensive interview, Ethereum inventor Vitalik Buterin shared his honest thoughts on accredited investors:
“I personally am willing to publicly say that I find current accredited investor rules of many countries, which allow only millionaires to invest in securities, very unfair and plutocratic, and in some cases they can make things actually worse because they mean regular people can only buy in at higher prices and thus more easily become victims.”