Frequently Asked Questions
Angel investing can be risky. That’s why Neil recommends diversification as one of the core methods to mitigate risk. In other words, try not to put all your eggs in one basket.
It is important to make well-informed investments based on thorough research to minimize your risk. It is also important to speak with a financial advisor to better understand these risks and market terminology. An advisor can help you make better decisions for your long-term portfolio.
To be an accredited investor, one of the two following conditions must be met: 1) You must be married and have earned an income exceeding $200,000-$300,000 over the past two years, or 2) you need to have a net worth greater than $1 million, not including the value of your home.
There is no certification or documentation that names you as an accredited investor. Instead, the company behind the private deal you are trying to engage with will put you through their own screening process to verify your status. Typically, this is just a signed form from your broker or accountant verifying your assets.
An offering through Regulation CF (short for “crowdfunding”) has a maximum fundraising limit of $1,070,000 and must be conducted through a single online funding portal that is registered with the SEC (i.e. crowdfunding websites). Individual investors are limited in the amounts they are allowed to invest by their income and net worth.
Tier 2 offerings under Reg. A+ are more common because they lack the burdensome requirements for state-by-state qualification. They also feature higher maximum fundraising limits ($50 million rather than $20 million).
The downside is that it can only sell to verified “accredited investors” (i.e. individuals or married couples with a net worth in excess of $1 million). That means that most everyday investors won’t be able to participate.
Because businesses at this funding level have already achieved some level of success, 506(c) raises can be great investment opportunities for those who qualify.
For those who don’t, there are still other offerings you can participate in – with just as much potential to make you a millionaire.
Once a raise hits its maximum, the company can open the waitlist. This seems much more common in Reg. CF raises. In the event that a previous investor can’t fund their investment, individuals on the waitlist get a chance to replace them at the cap table. (Please note: Different platforms operate their waitlist differently, so it is important to check the policies for the crowdfunding site in question.) Once a raise reaches its closing date, the waitlist is generally closed as well. All investments are finalized and any waitlisters who did not have the chance to invest have their commitments canceled.
For your direct investments, you will generally have a portfolio on the crowdfunding site used, similar to what you might find on a standard brokerage platform.
We recommend using a digital spreadsheet (Excel, Google docs, etc.) to make note of your personal investments and login credentials for any crowdfunding platform you join. Many members use the notebook provided in the welcome kit for this purpose as well!
That’s correct! Neil and the research team work hard to find the best startups, with the lowest minimums available. Please note that minimums will vary. If a company passes the rigorous vetting process, we are going to pass it on to you regardless of minimum price.
Once the raise closes, investments are finalized. The company follows up on any outstanding investments, and as long as the minimum goal (listed within the offering documents) has been met, the company can disperse the funds from escrow. We recognize that this can be a nerve-wracking process, but it is important to be patient, as this process can take weeks or even months.
If the company has not met its minimum goal, investments are canceled and any funds are returned to investors.
Please note that it is okay to change your mind! Platforms generally offer a short period directly after the investment is made (typically 48 hours) to cancel. After that, you may be locked in for a year before you can sell your stake if you decide that startup is not for you. If you are on the fence, make sure to double-check the policies of the crowdfunding platform before you invest.
The Crowd SAFE (Simple Agreement for Future Equity) is a contract that represents a financial stake in a company, however investors are not automatically stock holders. SAFE investments are converted to equity after triggering events, such as an IPO, a merger or acquisition, or in some cases, later funding rounds.
In the event that you have the opportunity to collect a return from a trigger event, the company will contact your directly with the details.
It can vary. This is mandated by the regional securities commission (the SEC in the U.S.) for the place in which you reside. It is best to check with that governing body to make sure that you are acting within the laws and guidelines in place for your territory.
Investment limits are mandated by the SEC, and are in place to help protect individuals from investing more than they can responsibly afford to risk. Crowdfunding platforms usually will allow you to enter more information about your net worth and income to raise your limit as appropriate.
With Angel Investing, a broker is not required. You will be investing directly with the company through a secure crowdfunding site. A broker will only be necessary once the company goes public and therefore on the active stock market.
If you don’t already have one, don’t worry; modern technology has made it easier than ever to open one.
Some of Neil’s favorites include E*TRADE, Merrill Edge, Charles Schwab, TD Ameritrade, and Fidelity. When you go to their respective websites, you’ll need to click on the “Open an Account” button (which is usually at the top right of the web page). From there, you need to put in some personal information, like your name, birth date, and address, and you’ll be all set. You can transfer money over directly from your bank account by clicking ‘transfer cash’ or any other variant.
Stocks, futures, currencies, commodities, CFDs, options and all types of investment trading can have large potential rewards, however they do come with inherent risks and there can be no guarantee of future profits.. One should never trade with money that one cannot afford to lose, and one must accept that there will be losses, and one must be able to sustain these losses, both from a financial as well as an emotional perspective.