Venture capital is shrouded in mystery for most of us – something that happens behind closed doors with millions of dollars. But, there’s nothing like a good mystery to peak interest. Not to mention, startups are sexy. We can’t help but to want a peek into this adventurous, rebellious, innovative world. What would it be like to actually live this? To see the future being built before it arrives?
Shows like Silicon Valley and Shark Tank show a version of startup life and startup investing, albeit a dramatic one. We’ve seen the fast rise of consumer apps, products, and services – like Uber and Lyft – that begin as fringe ideas and, before we know it, turn mainstream and enter daily life. The startup scene has a special way of blurring the lines between fantasy and real life. No one could’ve predicted that the mythical unicorn would be reincarnated in a new image: a $1 billion company. And, ‘angel’ takes on new meaning as startups fund their beginnings via angel investing.
As strange as this world sounds, it’s become the biggest creator of jobs, innovation, and social change. There are millions of people already participating and thriving in the entrepreneurial economy. If you think most of the job opportunities come from big corporations, think again (it’s more like 30%). As of 2017, over 400,000 startups created 2.5 million new jobs – funded and made possible by billions of venture capitalist dollars. This world is actually more accessible than we think. So, this begs the question:
Can anyone invest in startups?
The short answer: yes. Yes, if you can prove that you’re a ‘sophisticated’ investor. More on this in a moment – but, first, some context. Because, this certainly wasn’t always the case. As recent as 2016, the answer to this question was flat out: no. While venture capital was founded with a different aim in mind, it quickly became a risky, but lucrative game reserved for the elite. Venture capital falls under the jurisdiction of the SEC (US Securities and Exchange Commission), which is the governing body responsible for protecting investors, maintaining fair, orderly, and functioning markets, and facilitating capital formation. According to the SEC rules, the only way to be able to invest in startups was to meet the criteria of an “accredited investor” – basically, this means making more than $200K (or $300K for a married couple).
But, things are changing. Innovation is disrupting the venture capital space. A good example of this is the emergence of equity crowdfunding, which offers a new take on venture capital that could be the future of investing in startups. It’s crowdfunding approach (as the name suggests) opens up startup investing to more people by allowing lower investment amounts in exchange for equity (the right to shares of a company). The majority of these investment opportunities are still only available to accredited investors. However, access to these opportunities will only increase as more people realize the significance of the SEC’s addition of a new class of investor: the “sophisticated” investor.
What is a ‘sophisticated’ investor?
According to the SEC:
“[A] company may sell its securities to an unlimited number of “accredited investors” and up to 35 other purchasers. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.”
Basically, a ‘sophisticated’ investor is anyone who can show that they’re educated in startup investing. The fact that the SEC now recognizes this new type of investor is a monumental shift in how venture capital works and who can be a startup investor. For the first time, a majority of the US population can invest in startups, if they learn how.
How to learn about investing in startups
Education is the key to empower people to take advantage of the opportunities in this newly-opened world of venture capital. However, if you go looking for resources and guidance from the SEC, you won’t find it. They’ve opened the door and Doriot is here to show the way. We believe that everyone should be able to play the game that the elite have used to multiply their wealth for decades, and we’re here to teach you how.
As much as the sharks would like you to think that they have a sixth sense for golden startup investment opportunities, that’s simply not how it works. Anyone can learn the tricks of the trade to be a successful startup investor. In fact, data shows that diversification always ends up beating selective investing. Plus, the infrastructure is already being built to allow people to invest in startups for as little as $10. Not to mention, the returns from smart startup investing significantly outperform investing in stocks.
Opportunity awaits. If you didn’t know you could learn how to become a venture capitalist and actually invest in startups, you do now. Take this knowledge and run with it. Become a ‘sophisticated’ investor! Sign up for Doriot’s weekly insights email and learn how startup investing works. This is the future of investing. Are you ready?