Thursday, December 29, 2011

New Definition of Accredited Investor

I have found that many people are still unaware that the SEC has ammended the definition of "accredited investor."

Please note that the value of a primary residence now must be excluded when determining the net worth of an individual. Previously, the value of the primary residence could be included in this calculation. This will have the effect of reducing the number of persons meeting this definition.

See the definition here.

A Loan May be a Whole Lot Easier!

Several posts ago, I described the difference between an investor/investment and a lender/loan. In various other posts and in my book Mastering Inventions & Patents; Markets & Money, I have pointed out the significant burden of regulations surrounding solicitation of investments. These burdens apply whether you are accepting money from a complete stranger or from a family member. If the investor is not accredited, then the legal costs of preparing the proper documentation that you are required to give the investor can be very substantial, easily $10,000 or more.

Therefore, if you seek relatively small amounts of capital, especially less than $50,000, it may not make sense to spend the money required to get set up to take investments. Instead it may be much wiser to take a loan. Loans are not subject to any of the regulatory burdens and are far simpler to set up. I do recommend that you have an attorney review any loan documents that you prepare, but the cost will be far less that the cost to prepare investment documentation.

Tuesday, December 13, 2011

Access to Capital Bill Passes US House

The US House has passed HR 2940, the “Access to Capital for Job Creators Act.” It now awaits action in the Senate. As I mentioned in a previous post, this bill would eliminate the prohibition on general advertisement (solicitation) of securities offered under Rule 506 of Regulation D, which is an exemption commonly used by entrepreneurs raising small amounts of capital.

This bill and the crowdfunding bill had broad support in the House, and the Obama administration has voiced its support of the crowdfunding bill, so prospects for final passage may be good.

My opinion is that the "Access to Capital" bill is very positive for entrepreneurs, but the entire crowdfunding concept is fraught with landmines for entrepreneurs. If you do choose this method, be sure you know the potential negative consequences and how to manage them or you may have a lot of very bad days!

Crowdfunding Bill Advances

The US House of Representatives has passed H.R. 2930, the Entrepreneur Access to Capital Act, which I mentioned in my previous post. The bill is now awaiting action in the Senate. It allows entrepreneurs to raise up to $2 million online if they provide potential investors with audited financial statements; $1 million if not.