Illegal for 79 years, this loophole allows ordinary Americans to invest alongside Silicon Valley insiders

For 79 years, if you wanted the right to invest in start-ups like Apple in the 1970s, Facebook in 2004, or Airbnb in 2009, you had to be an “accredited investor.”

The concept came from a 1933 law that created the United States Securities & Exchange Commission (SEC) to guard against some of the Wall Street excesses that had led to the crash of 1929 and the ensuing Great Depression. .

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The Securities Act also contained a provision prohibiting any non-founder or other insider of the company from investing in a pre-IPO company unless they had a consistent income of at least $200,000 per year. or a net worth of $1 million.

In theory, the law was intended to protect the financially unsophisticated from the incentives to invest in flashy but ultimately doomed businesses. Sadly, there’s no denying that the law has closed the door on millions’ hopes of striking gold on pre-IPO opportunities – while Silicon Valley insiders have posed as bandits.

Consider Peter Thiel. The PayPal co-founder wasn’t a billionaire in 2004, but he was wealthy and well-connected enough in Silicon Valley to be offered a chance to invest in Facebook in the company’s early days. Thiel was able to turn the $500,000 he invested into $1.1 billion.

Or take Uber. In 2011, Amazon’s Jeff Bezos was among a coterie of tech titans investing $37 million in Series B funding for Uber. A few years later, Uber became the most valuable startup in the world.

In May 2019, Uber finally went public nearly a decade after billionaires, Wall Street funds and tech moguls had their first bite of the apple. That meant ordinary Americans were at their wit’s end — even behind the Saudi government, which was allowed to invest $3.5 billion in 2015.

But what Washington takes away, Washington can give back

The JOBS Act now allows ordinary Americans to invest in startups – without being a company insider or a millionaire.

Participating in seed funding is now legal for everyone thanks to equity crowdfunding, or the practice of thousands of small retail investors banding together for a seed funding wave of up to millions or tens of millions of dollars. dollars.

With startups, investors should exercise caution. Most tech startups fail, and even many of Silicon Valley’s most generously funded startups don’t succeed. So, for investors new to seed investing, research and due diligence are essential.
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Not just a matter of lawful access

In addition to having these investment opportunities at their fingertips, Thiel and all the other early investors benefited from a network of venture capitalists and expertise that took years to build.

For investors who don’t have that time or inclination, other seed investment vehicles exist. For example, platforms like StartEngine allow retail investors to invest alongside venture capital legends like Shark Tank’s Mr. Wonderful and Activision co-founder Howard Marks.
See more on start-up investment of Benzinga.

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