For nearly eight decades, if you wished to invest in pioneering businesses like Apple Inc.in the 1970s, Meta Inc. in 2004, or Airbnb Inc. in 2009, you were required to be an accredited investor.
This notion originated from a 1933 regulation that established the U.S. Securities & Exchange Commission (SEC) to protect against some of the Wall Street excesses that led to the 1929 market crash and the subsequent Great Depression.
The Securities Act also included a clause that prohibited anyone who wasn't a founder or company insider from investing in a pre-IPO firm unless they had a consistent annual income of at least $200,000 or a net worth of $1 million.
In principle, the legislation aimed to safeguard inexperienced investors from being lured into investing in glamorous but ultimately doomed enterprises. Regrettably, it's undeniable that this law dashed the dreams of millions of individuals seeking fortune in pre-IPO opportunities, while Silicon Valley insiders profited handsomely.
Fortunately, that’s all changing thanks to a change in federal law. Now equity crowdfunding platforms like StartEngine and Wefunder allow anyone to invest in startups.
Take Peter Thiel, for instance. The PayPal Holdings Inc. co-founder wasn't a billionaire in 2004, but he was wealthy and well-connected enough in Silicon Valley to receive an offer to invest in Facebook during its early stages. Thiel turned his $500,000 investment into $1.1 billion. Similarly, Elon Musk has only been a billionaire for about a decade. Previously his connections to Silicon Valley tech scene landed him a decent payday through his stake in PayPal. He rolled those earnings forward into SpaceX, Tesla Inc., and a host of other investments and acquisitions giving him the massive sum of money he owns today.
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This rings more true with Uber Technologies Inc than anywhere else. In 2011, Amazon Inc's Jeff Bezos was among a group of tech heavyweights who invested $37 million in Uber's Series B funding round. A few years later, Uber became the world's most valuable startup. In May 2019, Uber went public nearly a decade after billionaires, Wall Street funds, and tech moguls had enjoyed the first opportunity to invest. This meant that ordinary Americans were at the very back of the line – even trailing Saudi Arabia's government, which was permitted to invest $3.5 billion in 2015.
But What Washington Takes Away, Washington Can Give Back
The JOBS Act now enables regular Americans to invest in startups – without being a company insider or millionaire.
Participation in startup financing is now accessible to everyone through equity crowdfunding, which involves thousands of smaller, retail investors pooling their resources to create a wave of seed funding that can reach millions or even tens of millions of dollars.
Investors should proceed with caution when it comes to startups. The majority of tech startups fail, and even some of the most generously funded startups in Silicon Valley don't survive. Thus, for investors new to startup investing, thorough research and due diligence are crucial.
Not Just A Matter Of Having Legal Access
In addition to having these investment opportunities readily available, Thiel and other early investors benefited from a network of venture capitalists and expertise that took years to develop.
For investors who don't have the time or inclination, alternative avenues for startup investing exist. Platforms like StartEngine and Wefunder allow retail investors to invest alongside venture capitalist legends such as Shark Tank's Mr. Wonderful and Howard Marks, the co-founder of Activision in popular names like Apis Cor, Boxabl, Fanbase, and ACME Atronomatic.
See more on startup investing from Benzinga.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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