Investing in startups goes mainstream

Recent changes to financial regulations have helped to bring private company startup investing to the masses.

According to Time Magazine, only accredited investors — those with annual incomes of at least $200,000 or a net worth of $1 million — have been allowed the chance to buy pieces of equity in most private companies.

That started to change when President Obama signed the JOBS (Jump-Start Our Business Start-Ups) Act back in 2012. Unfortunately, the vision outlined in that bill did not materialize until May of 2016 when the details were finalized. Now the floodgates are open for crowdfunding startups.

According to the Wall Street Journal, the Oculus Rift VR headset raised $2.5 million on the crowdfunding site Kickstarter back in 2012 before these new rules were in place. At the time, this was one of the only ways for believers to get behind a new company or product. This capital allowed the company to get off the ground with product development, hiring, and growth.

Two years later, Facebook purchased this company for $2 billion dollars, but all of those early contributors merely got free products or access to perks rather than a piece of the company for their contribution. Had they been able to buy-in to the company, they would have walked away with a huge return on their investment.

Buyer Beware
This area of investing requires a large dose of caution. Manny Fernandez, the co-founder of crowdfunding portal DreamFunded, warns that despite analytical vetting of prospective startup companies, the investor is still more likely to lose money than to get rich.
Still, with the ability to invest in a private company for as little as $10, investors that like to gamble might have a new way to get their money on the table.