AdministratorJune 21, 2020 at 10:27 am
Yes – while the minimum size of the investment is one difference (accredited investors, especially on platforms such as AngelList, FundersClub, The Syndicate, and others) will typically have much higher minimum investment amounts ($5,000, $10,000, etc.), while investing under Reg CF, even as an accredited investor, is typically in the minimum range of $100-$1,000 per deal.
Here are some other differences between accredited vs. non-accredited investors in Regulation Crowdfunding:
- Minimum investment amounts – typically, investing as an accredited investor on platforms such as AngeList, FundersClub, etc. will have a higher minimum investment amount (e.g. $5,000+), whereas investing in a Reg CF deal is typically as low as $100 per deal.
- Deal Terms – while Reg CF deal terms are still evolving and may change once the SEC releases its latest proposed changes, Reg CF typically won’t come with voting rights, pro-rata, or other terms that are more common in accredited investor deals. Note: Wefunder’s new lead investor structure will be similar to an AngelList syndicate and may bring more of these rights back within the control of smaller crowdfunding investors.
- Secondary Trading restrictions – non-accredited investors cannot sell their Reg CF shares to other non-accredited investors if they acquired those shares less than a year ago in a primary crowdfunding offering. However, they can sell those shares to an accredited investor without the 12-month restriction. This is a potential benefit for accredited investors to be able to purchase shares that other Reg CF investors cannot, especially once secondary platforms (like StartEngine) are launched and become more popular.
- Due diligence – since Reg CF investors are typically investing smaller amounts and are not behind a syndicate lead (one exception: see above link for Wefunder’s new lead investor proposal), due diligence will typically have to be performed purely online, via the public Q&A forum, and through other means. You will not be able to get face-to-face time with the founder as you would if you were investing larger amounts as an accredited investor.
- Deal flow – a potential benefit of Reg CF over more traditional accredited deals (especially under Reg D Rule 506(b)), is that all deals are publicly available for anyone to invest in. This means that it isn’t as dependent on your network and who you know to get into a deal. Data is transparent and available to everyone – including competitors – which we believe is an overall positive thing for the venture industry.
- Types of companies – one of the biggest potential differences right now may be in the types of companies that you see doing a Reg CF vs. a private placement offering under Reg D. There was definitely some aversion to using crowdfunding and a previous fear that companies who raise money from the crowd would be “second rate” companies who couldn’t raise capital from traditional angels or VCs. This perception is starting to shift. As the SEC has proposed various changes that would solve issues that kept certain higher-quality companies away (such as the 12(g) cap table issue and increasing the current $1.07M cap to $5M), the hope is that more companies of high quality will see some of the additional pros of raising capital from the crowd. As such, one could argue that the disparity between the deal quality is being reduced as time goes on and the industry matures, and once the new SEC rules are adopted, will be lessened even more.
- Reg CF allows more diverse portfolios for the same amount of capital – another potential benefit of investing under Reg CF vs. investing as a traditional angel is that investors are able to build more passive and diversified portfolios of many smaller bets rather than placing a few large bets. Obviously, if you want to be involved and have more control over your investment via an advisor role or board seat, this can be a con. However, especially for angels who are just starting out, being able to place many smaller bets to gain experience can be a huge pro. And not all angels want to be actively involved with their investments.
One important thing to note: if you still plan to write a large check (e.g. $25,000 or more), you will still likely get voting, pro-rata, and other rights, even if you invest through the Reg CF portals. They typically will do what’s called a “side by side” offering of a Reg CF and a Reg D to allow accredited investors to be able to get these major shareholder rights.
Hope this helps!
FYI – some more information is in our blog post here – 5 differences between Angel Investing vs. Crowdfund Investing.