Reg CF Investor Limit Q&A
I get a lot of Q&A about Reg CF limits for non-accredited investors, so I wanted to provide some answers to some recently asked questions below.
As a reminder, check out our Reg CF investor limit calculator page to quickly calculate your own Reg CF 12-month limit.
Q1: Does the limit on the amount that a non-accredited investor can invest in startups only apply to Reg CF? Or does it apply across other investments?
- Yes – the Reg CF investor limits are only applicable to investments made during Reg CF offerings over a rolling 12-month period. For example, if you reach your 12-month Reg CF limit (see calculator here), you could then still invest in Reg A+ offerings (which are subject to separate per deal limits), as well as other offerings.
- Note that until (and if) the SEC updates the Regulations, the Reg CF investor limits also apply to accredited investors.
Q2: How would the limit work for startups that are Reg A+, Reg D or 506 (C)?
- Typically, non-accredited investors cannot invest in Reg D 506(b) or 506(c) offerings; thus, there are no limits imposed on accredited investors in those deals.
- Reg A+ has different investor limits on a per deal basis. Reg A+ Tier 2 (up to $50M): instead of a 12-month limit, Reg A+ only allows non-accredited investors to invest up to 10% of their net worth (excluding primary residence) or 10% of their annual income per company. Thus, while it wouldn’t be advisable, one could theoretically invest 10% of one’s net worth in one Reg A+ startup, then immediately invest another 10% of one’s net worth into a second or third startup. There are no limits for accredited investors in Reg A+ offerings. There are also no limits, even for accredited investors, for Reg A+ Tier 1 (up to $20M) offerings, but those are much less common for crowdfunding companies.
Q3: How does the limit work when I am investing in various startups that are either Reg CF, Reg A+, Reg D or 506 (C) or combination thereof? Does the limit apply to my total investments in startups ?
- No – again, Reg D deals do not have any limits. Reg A+ Tier 2 deals have separate limits. Only your Reg CF investments are limited over any 12-month period.
Q4: While stating my Net Worth, can I include my worth (in USD) as part of a family owned business?
- While you should always consult with an attorney or other professional, the only thing that Net Worth explicitly excludes is your primary residence. There is no requirement in terms of the liquidity of your Net Worth. Thus, if you calculate your personal stake of equity in the business at the current valuation, that can likely be included in your personal Net Worth. Remember that calculating the business’ net worth is very similar, so assets minus liabilities gives you net worth (or value of the equity).
- Note that for Reg CF, you don’t need to officially submit paperwork anywhere to validate your Net Worth. Depending on the type of Reg D deal (such as 506(c)), there may be additional verification required to verify your accredited status.
Q5: What happens if I invest more than allowed as a non-accredited investor?
According to the SEC, the 12-month Reg CF limit applies to both accredited and non-accredited investors right now (although this might change if the SEC moves forward with its proposed changes).
The 12-month Reg CF investment limits are put in place to protect the individual investors. Practically speaking, I can’t imagine any negative consequences for accidentally exceeding this limit, other than putting your own investment portfolio at risk due to the high failure rates, illiquidity, and other risks of Reg CF.
How is this limit enforced? Today, it really isn’t, other than most funding portals asking you to input some basic info to try and help you keep track of this limit across all funding portals. Think of what it would take to enforce this. First, someone would have to verify that you had somehow exceeded your limit, which would be nearly impossible (in the future) to go back several years and do so, especially for hundreds or thousands of investors, and at no real benefit to anyone. Second, as previously mentioned, the limit is really intended to protect the investors, so I’m struggling to think of a situation where there would be any negative outcome for an investor (other than the additional risk they are taking and potential of losing all that money).
That being said, this is not suggesting that investing above your limit is OK or without potential consequences; all investors should follow the current regulations and only invest up to their Reg CF limit.
I hope this helps!