1/ Went into rambo mode last night & wrote about the securities offering law and the accredited investor standard. The main points I made are summarized in this thread, but please make sure you read the full thing to get all of the explanation & charts!
messari.substack.com/p/securities-l…
messari.substack.com/p/securities-l…
2/ Reminder: I’m not barred in any U.S. state and this is most definitely not legal advice (hire your own counsel guys), I hope these ramblings from a huge legal and policy nerd shed more light on a much discussed, but little-understood process.
3/ To begin: A company or private fund may not offer or sell securities unless the transaction has been registered with the SEC OR if an exemption from registration is available.
4/ In 2017, the total amount in the U.S. raised through all private offering channels totaled over $ 3.0 trillion USD. Meanwhile, there has been a steady and significant decrease in the number of public reporting companies in the US, particularly since the dot-com crash + SOX. 
5/ Since the full implementation of the JOBS act, we have seen a number of companies that are choosing to defer their IPOs (relying instead on private financing). Example of high profile pre-IPO private placement include the likes of Pinterest, Uber, Spotify, Palantir, etc.
6/ Thus, more issuers are relying on exemptions to securities registration. The problem is— over 99% of that Regulation D money is raised through Rule 506, which is pretty much the only rule that is the most inflexible when it comes to letting non-accredited investors invest.
7/ Basically, if you cannot meet the accredited investor requirements, then you are excluded from investing into any companies that are raising their money via Rule 506 (c) (or, god forbid you are the 36th person to want to invest in a company relying on Rule 506 (b)!)
7a/ Accredited investor reqs:
- Have a net worth of at least $1 million (excluding value of primary resident),
OR
- Have earned income that exceeds $200,000 in each of the prior two years— and can expect the same for the current year (or, together with a spouse, $300,000)
- Have a net worth of at least $1 million (excluding value of primary resident),
OR
- Have earned income that exceeds $200,000 in each of the prior two years— and can expect the same for the current year (or, together with a spouse, $300,000)
8/ There has been a lot of (very understandable) frustrations, which boils down to this: why should how many money you make/ what your net worth is dictated what you are, or are not, allowed to invest in? Money does not equate to knowledge.
9/ Proposals to expand the accredited investor definition want to include experience, education, etc. But that to me seems to come back to the same question: why should my job/degree dictate my investment freedom and decision? Those also do not always equate to knowledge.
9a/ (Plus, how would you standardized that and test for knowledge?)
10/ BTW: misrepresenting your own investor status means it's most likely the issuer that gets screwed at the end because that then destroys their ability to rely on something like 506 (b) or (c) to fundraise. No one wins.
11/ Token sales have introduced a new form of fundraising— or rather, a new form of crowdfunding. Due to the legal and regulatory considerations, token sales are falling back into the traditional private fundraising model, which has some issue in its framework.
12/ Nothing wrong with the traditional private fundraising model in a legal sense, except that continues to shut out eligibility for the majority of people to be able to particulate in such investments. PLUS, the accredited investor definition has its own set of issues.
13/ So again, the full post flows better (I promise!). Check it out here :)
