Investing in privately-held start-ups and growing companies has, historically, been open only to the wealthiest Americans. That was because investors in these opportunities needed to fit within the Securities and Exchange Commission’s narrow definition of an “accredited investor,” which less than two percent of Americans do. An accredited investor is someone who has a net income of $200,000 or greater or a net worth of $1 million or greater.
While being left out of these often lucrative investment opportunities, most Americans could turn only to real estate, publicly traded stocks, treasury bonds and similar investment opportunities. But an onslaught of Wall Street scandals, the infamous mortgage industry collapse and the Great Recession have made those types of investments far less appealing. Where should an investor look for other opportunities?
Through the Invest Georgia Exemption (IGE) and a federal law called the JOBS Act, investing in privately-held start-ups and growing companies has been opened to just about every American, instead of just the wealthy. This means that non-accredited investors, those with a net income under $100,000 or net worth under $1 million, also have the ability to invest in start-ups and companies.
Investing in businesses during their earliest stages can prove to be extremely profitable. If you had invested $500.00 in Google when it first started in 1998, it would be worth $10 million today. A more recent example is social media site Tumblr, which was purchased by Yahoo for $1.1 billion dollars. A $500.00 investment in Tumblr when it first started would be worth about $750,000 today. Hundreds of less well-known privately held companies are bought every year, providing great returns to their early investors.
Venture capitalists and angel investors have made billions of dollars with early stage investments. Equity and debt crowdfunding finally opens these types of investments to just about all Americans, giving them the same opportunities the super-rich have enjoyed for decades. SterlingFunder is the nation’s first equity and debt crowdfunding portal to be doing business for both accredited and non-accredited investors.
Of course, investing in start-up and early stage companies is not without risk. A high percentage of young companies fail or never reach profitability and, in those cases, investors can lose their entire investment. If you do not have a good understanding of the investment or cannot tolerate this risk, you should stay on the sidelines until you are ready. If you follow those guidelines, you can use equity crowdfunding to another way to find good investment opportunities.
You can learn a lot from the investment model of venture capitalists. Venture capitalists do not invest all of their funds in a single opportunity, but instead spread their funds out among several different opportunities. They do this with the expectation that one or two big successes will make up for the failures, plus provide a nice profit. You should consider whether a similar strategy – of spreading your investment funds out instead of putting all into a single opportunity – is right for you. It just might be. You will find many great start-ups and companies to browse on SterlingFunder, as well as informative articles about investing to get you started.