Founders & Startup Employees: You are likely ‘Accredited’, and can invest in other startups. Here’s how.

Founders & Startup Employees: You are likely ‘Accredited’, and can invest in other startups. Here’s how.

At Stonks, we believe everyone should be able to invest in startups.

Current SEC regulations state that only Accredited Investors may invest in Startups under Regulation D.

Most founders and startup employees hear this and think — oh no, I’m not rich. I must not be accredited. I can’t invest 🤷‍♂️

However there is a little-known caveat under which most startup founders and early employees would qualify as accredited investors, and gain wide access to the startup asset class.

It relates to how net worth is calculated under current accounting rules.

Generally, the Net Worth requirement to be an accredited investor is:
Net worth over $1 million, excluding primary residence (individually or with spouse or partner).”

Your startup equity can count towards this net worth requirement if these conditions are met:

  • The startup has had a priced equity round, where the value of the shares has been priced by VC or similar third-party investors.
  • Your shares or options are vested. Only the vested portion, net of debt, can qualify towards your net worth.

Example — Sam 💁

Let’s look at Sam, an early developer at a fast-growing startup NoCode. Sam joined early before the pre-seed, when NoCode raised $1M on a YC SAFE at a valuation cap of $10M. Sam was offered 3% of the company in options, vested over 4 years.

At that stage, this would not have qualified to be counted towards Sam’s net worth. A SAFE (Simple Agreement for Future Equity) is not a priced equity round (despite a cap). A share price has not been established yet. Sam’s shares have also not meaningfully vested.

2 years later, NoCode has found some customers and traction, and raised a $12m Series A at a $100m post-. Ignoring dilution for simplicity, Sam now owns 3% of a $100m business, half of which has vested (1.5%), worth $1.5M on paper.

This $1.5M can count towards Sam’s net worth. Any qualified attorney, CPA or RIA can also make that attestation for Sam on his behalf.

Supporting Evidence

This direct question has been asked to the SEC, and here’s what they said:

So, it’s doable 😎 Yes!

Most founders and early startup employees can invest in startups, and gain exposure to this asset class that they are helping build themselves.

Check out our free accreditation tool here to get started.

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