Equity crowdfunding alternatives for non-accredited investors

Update on Oct 30th, 2015

Finally, finally (deja vu?!), after months of waiting again, Title III (true startup investing for non-accredited investors) will be voted and approved (likely?!) :
http://www.forbes.com/sites/chancebarnett/2015/10/27/sec-to-vote-on-title-iii-equity-crowdfunding-rulings-october-30th/http://www.forbes.com/sites/chancebarnett/2015/10/27/sec-to-vote-on-title-iii-equity-crowdfunding-rulings-october-30th/

Update on Mar 27th, 2015

Thankfully, finally, after years of waiting, the rest of this article will become nearly obsolete. Title IV rules are finally approved and released by the SEC:

http://www.washingtonpost.com/news/on-small-business/wp/2015/03/25/sec-finalizes-key-jobs-act-rules-for-small-businesses/

http://www.forbes.com/sites/chancebarnett/2015/03/26/infographic-sec-democratizes-equity-crowdfunding-with-jobs-act-title-iv/

http://crowdfundinglegalhub.com/2015/03/26/enter-the-mini-ipo-sec-approves-final-rules-for-title-iv-of-the-jobs-act-regulation-a/

**********************

The SEC continues to stall on legalizing crowdinvesting (a.k.a. equity crowdfunding) for non-accredited investors (essentially, this is what Title III of the JOBS act will accomplish, over and above the progress made with Title II). In the meantime, those eager to unleash their capital in socially impactful ways may wish to consider "friends & family" and/or Direct Public Offerings investments.

Friends & Family

"Friends & family" investment is the premier equity investment alternative for non-accredited investors who wish to invest in startups. What does this really mean? One wonders if there any exploitable ambiguity in the definition of "friends & family"? cofolio allows non-accredited investors to browse and invest in businesses with whom they have a "substantial" and "pre-existing"relationship. The following is quoted verbatim from the landing page that follows a click on any listed offering:

To be "substantial" the relationship should involve a discussion of the prospective investor's financial goals and objectives, and one should examine the nature and quality of the relationship.

To be "pre-existing" a relationship should be in place before the terms of the offering are developed and before the offering commences. 

Due to SEC general solicitation and advertising restrictions, non-accredited investors who do not have a substantial and pre-existing relationship with the business are kindly requested to refrain from viewing the business profile.

Following this, the website requests a self-declaration.

Please provide a brief description of the nature and extent of your relationship to the business

The business owner will also have to verify the relationship by approving the request via their Cofolio account before you will be able to see the business profile.

At the very least, this opens the way for interested parties to seek to engage and build relationships with local small business owners or entrepreneurs who are and will eventually seek to raise start-up or expansionary capital. In and of itself, this is a win!

bolstr is a similar story. It allows businesses to raise money from non-accredited investors in a "private" manner.

Direct Public Offerings

Touted as the original model of equity crowdfunding, DPOs are currently the only legal way to publicly solicit crowdfunding to non-accredited investors -- and, therefore, the main way for most people to invest in local and small businesses. CuttingEdgeX offers a DPO marketplace. The People's Community Market is a well-known success story. A recent article on MarketWired writes about them, saying:

"Unlike private offerings, which are limited to relatively small groups of accredited investors, and unlike popular "crowdfunding" projects, which solicit donations, PCM has created a grassroots investment model that offers preferred shares directly to unaccredited investors in the public and promises to pay them back with a modest return."