Guide to Crowdfunding for Non-Accredited Investors

Non Accredited Investor

As of May 16, 2016, anyone β€” not only certified investors β€” can invest on crowdfunding platforms. This means that average people, technically, have the potential to invest in start-up firms that were available to angel and VC investors only. Naturally, limitations exist and there is a significantly higher level of risk – and future reward – with early-stage businesses.


  • Crowdfunding equity is a way for start-ups to raise capital by selling shares to a large number of individual investors.
  • In the same way, individuals can invest in real estate or engage in direct P2P lending.
  • As of 2016, the JOBS Act encourages average people to engage in equity investing, opening up early-round investment to more than just angel investors and venture capitalists.
  • Limits still apply, and the risks associated with crowdfunding may be somewhat greater than investing in more mature companies on regulated exchanges.

Equity Crowdfunding and the JOBS Act

Here’s the gist: The 2012 Jumpstart Our Business Startups (JOBS) Acts was passed to make it easier for small businesses to raise capital and, in turn, to stimulate economic growth through job creation. Title III of the Act specifically deals with crowdfunding. In October 2015, the U.S. Securities and Exchange Commission (SEC) finalized certain key provisions to allow non-accredited investors to participate in this type of investment.

Most types of equity investments are available only to accredited investors. These include banks, insurance companies, employee benefit plans and trusts, plus some individuals considered affluent and financially sophisticated enough to have a reduced need for certain protections. In order to qualify as an accredited investor, an individual must earn more than $200,000 per year, have a net value of more than $1 million, or be a general partner, executive officer or director of the security issuer.

Investing through crowdfunding platforms is an uncharted territory for non-accredited investors, but understanding how the various types of crowdfunded investment work can make navigating the waters easier.

Crowdfunding of Equity

Crowdfunding equity is the type of crowdfunding with which Title III of the JOBS Act is primarily concerned. With this type of investment, multiple investors are pooling money into a specific start-up in exchange for equity shares. This form of crowdfunding is most often used by early-stage companies to collect seed funding.

Equity investments can, for a few reasons, be appealing to non-accredited investors. First, there’s a chance for a solid return if the company you’re investing in has a successful IPO. Once the company becomes public, you can then sell your equity shares and repay your initial investment, along with any profits. When you happen to be smart enough to invest in a startup that winds up being the next Google’s, the payout might be massive.

Apart from that, crowdfunding equity doesn’t require a substantial amount of money to get started. Depending on the size of the funding round that a startup is looking for, you may be able to invest as little as $1,000. This effectively aligns the playing field between accredited and non-accredited investors.

The two biggest drawbacks associated with equity investments are the inherent risk and timeframe. There is no certainty that a new venture would thrive, because if the business fails, the stock will be worthless. If the company does, it may be years before you can sell your shares. Data from CrunchBase has shown that the average time to go public is 8.25 years, which is something you need to take into account in your exit strategy.

Real Estate Crowdfunding

Real estate can be a great way to add diversification to your portfolio, and crowdfunding is an attractive alternative to real estate investment trusts (REITs) or direct ownership. For real estate crowdfunding, you have basically two options for investing: debt or equity investments.

When you invest in debt, you invest in a mortgage note secured by a commercial property. Once the debt is repaid, you will obtain a share of the interest. This type of investment is considered to be a lower risk than equity, but there is a drawback because the returns are limited by the interest rate on the note. On the other hand, direct ownership is preferable because you are not responsible for managing the property.

Investing in equity means that you have a shareholding in the property. In this case, the returns are calculated as a percentage of the net income that the property produces. If the property is sold, you will also receive a portion of any proceeds from the sale. As far as productivity is concerned, equity investments will lead to better returns, but you are taking on more risk if the rental income takes a drastic nosedive.

Unlike crowdfunding stock, the main advantage of crowdfunding real estate to non-accredited creditors is that it has such a small entry price. Many of the top sites set a minimum investment of $5,000, which is far more affordable than hundreds of thousands of dollars that are frequently required to obtain access to private real estate deals.

Peer-to – Peer Loans – This type of lending may be an attractive option for non-accredited investors who would rather invest in individuals than in companies or real estate. Peer-to-peer lending platforms allow consumers to start fundraising campaigns for personal loans. Each borrower is given a risk rating based on his or her credit history. Investors can then choose the loans they want to invest in on the basis of the amount of risk involved.

That’s a good thing if you want some control over how much risk you’re taking. At the same time, it also helps you to gauge what kind of profits you’re going to see on the project. Generally, the higher the risk level of the borrower, the higher the interest rate on the loan, which means more money in your pocket.

Again, it doesn’t take a huge bankroll to get going with this kind of crowdfunded project. If you have an additional $25.00, you can start funding loans through Lending Club or Prosper, both of which open their doors to non-accredited borrowers.

Investment Limits for Non-Accredited Investors

While the revised Title III Regulations allow non-accredited investors to participate in crowdfunded projects, it is not free-for-all. The SEC has chosen to place restrictions on how much non-accredited investors can invest over a 12-month period. Your total limit is based on your net income and interest. Accredited investors do not have any other limitations.

If you earn less than $107,000 per year or if your net worth is less than that, you can either spend up to $2,200 or less than 5% of your net income or interest. If your annual income and net worth exceed $107,000, you can invest up to 10% or less of your net income, up to a total limit of $107,000.

The SEC says it has a reason for this cap. The aim is to reduce the risk of non-accredited investors who may not be as informed about crowdfunding or investing in general. By limiting how much you can invest, the SEC also limits how much you can lose if a particular investment falls flat.

In Conclusion

One thing to keep in mind for non-accredited investors is that even though Title III allows universal participation, not every crowdfunding platform is likely to jump on board. This may limit the types of investment that you can take part in. And as you compare different investment opportunities, pay close attention to the fees charged by each platform, as they can affect your returns over the long term.