NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, November 4, 2013

The SEC voted unanimously in October to advance rules that would permit startup businesses to cast a wider net in raising capital through online crowdfunding portals — setting the stage for what could look like a tempting new investment opportunity.

The proposed rules would let startups raise up to $1 million in a 12-month period from unaccredited investors, though levels of contribution would be capped by their income or net worth. Under current law, the sale of securities to individuals is limited to accredited investors with a net worth of more than $1 million (excluding their home) or those who earn $200,000 or more per year.

While the proposal is far from finalized, some advisors worry that the new rules could inspire an irrational enthusiasm among clients who envision getting in on the ground floor of the next Facebook or Twitter.