In a recent meeting in Nashville, Tennessee there were discussions about tech start-ups and private real estate investment trusts as examples of private placements. Chairman of the US Securities and Exchange Commission did speak at this event and as part of it, there were outlines of plans the would make it easier for individuals to invest in private companies that have not gone public. Of course, the risk factors are high, one could get rich or give up life savings.
Under current regulations, only a select few of well-to-do individuals, known as accredited investors are able to tap into the so-called private placements – a vehicle that different from a public offering. The individuals must, for these vehicles, must have income exceeding $200,000 in each of the last two years ($300,000 if married) and they must expect the same for the next year. The investors must also have a net worth of $1,000,000.
There are a lot of people weighing in on the discussion of the possibility of changing the rules. Sure, casting a wider net into the cash-rich community who do not meet the expectations stated above – 200,000 and 1,000,000 dollars -is risky as there are some who will lose everything and suffer the rest of their lives as they could be on the street. Of course, the sophistication of the investor is important, not only his or her bank account. Regulators will be weighing the pros and cons – this could be a hot topic in the coming months as it indicates a new investor base.
One thing is clear, such a change in rules will give the start-up industry a fresh investment – in massive size.