Equity crowdfunding is allowed for both accredited vs non-accredit investors. Learn the difference
When the JOBS Act was passed back in 2013, a myriad of equity crowdfunding platforms started to show up. As of then, most portals were made to take advantage of the big American market of accredited investors, now estimated in about 8 million people.
However, common people, non-accredited investors, were left out of the party initially, because Titles III and IV of the JOBS Act were not yet regulated and enabled. Still, we could see tens of billions of dollars being raised exclusively from accredited investors, mainly in the real estate market.
Despite all the anticipation for Title III regulation, Title IV ended up being regulated earlier, allowing startups to raise even more funds through crowdfunding. Since June 2015, equity crowdfunding for non-accredited investors has become a reality. Whether it’s worth it, or even cost effective, is a question still unanswered, but entrepreneurs now have this option available.
There are, at this point, two types of equity crowdfunding allowed for non-accredited investors, all of them under updated Regulation A+ offerings (Regulation A exists since 1933 and provides some rules for issuers of securities to sell them to both accredited and non-accredited investors): tier 1 and tier 2.
Regulation A+ Tier 1, provided by the JOBS Act Title IV, allows companies to raise up to $20 million annually in debt, equity or convertible securities from both accredited and non-accredited investors. While subject to specific state reviews under NASAA proceedings, this type of crowdfunding doesn’t require audited annual reports, something that reduces the costs usually associated with capital raising. While it is not necessarily the cheapest way of doing equity crowdfunding, it certainly allows the entrepreneur to deal with less bureaucracy and to focus more on the actual business.
Under Tier 2, the limit is higher, $50 million in debt, equity or convertible securities, from both accredited and non-accredited investors as well. However, a limit applies to non-accredited investors: 10% of their annual income or total assets (largest value prevails).
This type of crowdfunding is more expensive though, as it requires annual audited reports.