Inside Investment + Finance
Crowdfunding for Accredited and Non-accredited Investors
What’s the difference, and why does it matter?
investors, and how does raising funds
from accredited investors differ from
raising money from unaccredited
It’s always easier to raise money from
accredited investors. That’s not only
because accredited investors have
more money, but also because the law
assumes that accredited investors —
individuals with an annual income of
at least $200,000 ($300,000 with a
spouse) or a net worth of at least $1
million (excluding primary residence)
— are smart and sophisticated
enough to protect themselves, while
CROWDFUNDING IS giving commercial real estate developers access to
trillions of dollars of capital that was
previously unavailable, while allowing
individual investors to participate in
institutional-quality transactions for
the first time. It’s a very big deal for
the real estate industry.
The term “crowdfunding” can mean
several different things. The most
useful definition is also the broad-est: raising money via the Internet.
How can a real estate developer or
crowdfunding platform raise money
from accredited and non-accredited
non-accredited investors need the
paternalistic arm of the government.
With non-accredited investors come
additional legal rules and requirements.
There are three kinds of crowdfunding
• Offerings under Securities and
Exchange Commission (SEC) Rule
• Offerings under SEC Rule 506(c).
• Offerings under SEC Regulation A.
Rule 506(b) Offerings
Rule 506(b) offerings are simply old-fashioned private placements. This
is how developers have been raising
money for the last 30 years. But now
you can conduct a Rule 506(b) offering online.
Using Rule 506(b), a developer
can raise an unlimited amount of
money from an unlimited number of
accredited investors and up to 35
non-accredited investors. If an offering includes only accredited investors,
the issuer is not required to provide
any particular information, although
issuers typically provide at least basic
information, including a list of the
risks of investing, to avoid being sued
for fraud. If even a single non-accredited investor participates, the
issuer must provide a great deal of
information, including financial statements and an opinion of counsel.
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