After May 16 equity crowdfunding will no longer be reserved for the ultra-wealthy. Thanks to the new Securities and Exchange Commission passage, anyone can participate in equity crowdfunding instead of accredited investors with a net worth of more than $1 million or annual income of more than $200,000. However, equity crowdfunding could be dangerous for investors and entrepreneurs. Tanya Prive writes on Fortune: “Many people simply don’t understand how startup investing works. Venture investments are highly illiquid — when you make an investment in a startup, you don’t have the option to pull your cash out on demand. In fact, you typically make the investment and then wait anywhere between three to 10 years before there is a liquidity event, which can come in the form of a merger, acquisition, initial public offering or secondary market transaction. It’s important that new startup investors understand this asset class characteristic and are able to stick it out for the long-run.” With the mandated investment limit on equity crowdfunding, investors are left vulnerable to non-diversified portfolios. It’s best for individual investors to put their money in index mutual funds. (fortune.com)
Leave a Comment