Comments on: Are You Accredited?

By: Jack Doueck, Stillwater Asset Backed Strategies

Jack Doueck, Stillwater Asset Backed Strategies — Fri, 04 Aug 2006 22:37:50 +0000

For some strange reason the
government is under the impression that just because someone has money, it means that they must be able to understand and analyze investment choices!
There should clearly be an updating of the current rules and regulations
that more realistically reflects the true definition of a “sophisticated
investor” and takes into account knowledge, intelligence and education.

Jack Doueck
Stillwater Asset Backed Lending Division

By: Bruce Boston

Bruce Boston — Mon, 27 Mar 2006 17:10:54 +0000

If anyone is interested, I’ve started a project that will make this less of an issue for everyone that would like to be invested in or invest.

Why is it that we have figured out just about everything else ‘collaborative’ but we have failed to figure out collaborative investing until now?

-Bruce Boston
QuidStreet.net

By: Venture Voice

Venture Voice — Sat, 25 Mar 2006 06:19:26 +0000

Tracking Venture Voice Alumni

Soon after stating this blog, I realized I had no consistent and reliable way to track the latest news about our past guests. What have I gotten myself into? Only a few of them have PR people who send me…

By: Damon

Damon — Thu, 23 Mar 2006 14:57:55 +0000

If a startup has given stock or options as compensation to a consultant or employee who is non-accredited, are there similar issues to worry about?

By: Jeff Clavier's Software Only

Jeff Clavier's Software Only — Thu, 23 Mar 2006 13:51:28 +0000

Why startups must only take financing from accredited investors

Seed stage investing is getting verybusy these days, and overthe past quarterI havestarted hearing about companies taking money in small amounts from a large number of friends and family investors. Whilst it is great to get that kind of support from yo…

By: Jeff Clavier's Software Only

Jeff Clavier's Software Only — Thu, 23 Mar 2006 13:51:28 +0000

Why startups must only take financing from accredited investors

By: Diary of a Startup

Diary of a Startup — Wed, 22 Mar 2006 20:58:06 +0000

Seeding the Startup

I’m in the middle of doing a roadmap and seed round financial forecast so I don’t yet know if I’m going to bootstrap the company with my own funds or seek angel investment but I’ve been doing some research on

By: Eddie Walker

Eddie Walker — Wed, 22 Mar 2006 16:46:47 +0000

Saying that doing an equity financing to nonaccredited investors means you need to jump through more hoops is vastly understating it. The accredited investor concept is used in connection with offerings under the SEC’s Reg D exemption. That provides that you can offer an unlimited number of accredited investors, but only 35 non-accredited to fit within the common Rule 506 exemption (which preepmts the need to comply with anythine more than a token filing requirement at the state level — don’t forget states have myriad securities laws as well). But the numbers limitation aside, the real kicker is that if you offer to nonaccredited investors you need to provide them disclosure of a massive amount of information information that, for the most part, amounts to what a registration statement for an IPO includes — including audited financials and MD&A on the financials. No startup company can afford that hassle, nor frankly should they try. It’s not worth the short term cost cost to a thinly capitalized company. Brad accurately points out later complications of having nonaccredited investors on your stock ledger as well — the money they invest means more to them and therefore they are more likely to sue or hijack a sale if things go poorly. The simple answer is dont take their money, EVER.

To answer PRoales, a private placement memo, or PPM, would have to include the Reg D required information if the offerees are nonaccredited — which as I mentioned is pretty much impractical for a startup company to do. Most PPM’s don’t include that info. But PPM’s have another important function — they also serve an important risk-management and disclosure function, which is making sure that your prospective investors understand the terms, your business and, most importantly of all, the dozens of major risks that an investment in your company is subject to. A properly prepared PPM is therefore a pretty dismal document to read as it lists the many reasons the business could fail and the investor could lose her entire investment — but unless you’re doing a VC financing (in which PPM’s are rarely done), a PPM is a very helpful (and a good lawyer would say critical) risk management and disclosure device that can help reduce the likelihood of success of a later investor claim that you misled them about your business when you sold them their shares, while at the same time forcing you to focus on producing a good business plan and risk assessment — which can’t be a bad thing.

By: PRoales

PRoales — Wed, 22 Mar 2006 05:48:41 +0000

“First, have you done a proper private placement?”

Is it correct to assume that the bulk of this is accomplished through the writing of a Private Placement Memorandum?