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On today’s show, we’ll be talking about how to start a non-accredited fund.
Grant Cardone non accredited fund vs other funds…
The Blog of the Startup Lawyers at Carney Badley Spellman
Why It Is So Difficult to Take Investment From Non-Accredited Investors
The two easiest and cheapest ways to raise money for startups are Rule 506(b) and Rule 506(c) under Reg D.
Under Rule 506(c), non-accredited investors are completely forbidden in the offering. Under Rule 506(b), if you take investment money from only accredited investors, in terms of filings and paperwork, you need only file the Form D. There are no Private Place Memorandums, no additional disclosures, no nothing.
Under Rule 506(b), you can also take investment money from up to 35 non-accredited investors. But here is the problem.
In a Rule 506(b) offering, if you want to take funds from even one non-accredited investor, your disclosure obligations do not scale—they skyrocket. You walk off a legal expense and disclosure obligations cliff. You go from essentially observing the the anti-fraud rules, to public offering (e.g., IPO) level disclosure by taking investment money from even just one non- accredited investor.
Accredited Investor Definition
The Securities and Exchange Commission (SEC) determines how an investor qualifies to be an accredited investor. At least one of the following must be met in order to be considered an accredited investor:
Net Worth: Have individual net worth, or joint net worth with spouse, that exceeds $1 million (excluding the value of primary residence).
Individual Income: Have individual income exceeding $200,000, in each of the past two years and expect to reach the same this year.
Joint Income: Have combined income with spouse exceeding $300,000, in each of the past two years and expect to reach the same this year.
Business: Invest on behalf of a business or investment company with more than $5 million in assets and/or all the equity owners are accredited.
What Is a Non-Accredited Investor?
The next obvious question would be, what is non-accredited? In this section, we’ll go over the definition of a non-accredited investor and if it’s an advantage or a disadvantage.
Non-Accredited Investor Definition
A non-accredited investor is anyone who does not meet the requirements of an accredited investor, as defined by the SEC. Another term used for a non-accredited investor is a retail investor. This includes any investor whose net worth is less than $1 million and has an income under $200,000 individually (or $300,000 with a spouse).
Being a Non-Accredited Investor
Most of the investing population is made up of non-accredited investors. This does not mean, however, that non-accredited individuals don’t have the opportunity to invest in a vast number of different projects. It simply means that you have different opportunities available to you. Options for non-accredited investors include equities,
Real Estate Crowdfunding, Syndications and Accreditation
Next, we’ll break down the different types of real estate investments, including crowdfunding, syndications. Find out when accreditation matters and when it’s not required.
Definition of Crowdfunding
Crowdfunding is basically raising smaller amounts of money for a project or investment from a large number of people, typically through the internet. There are different types of crowdfunding including, equity, real estate and peer-to-peer (P2P) lending. We will go into more detail regarding these types of investments later on in the article.
Definition of Syndication
Often confused with a real estate investment trust (REIT), a real estate syndication is when investors own an actual share of the property itself. With REIT’s, you are simply investing money into a trust that purchases real estate.
This is not an offer; offers will be made only by means of the Regulation D Offering Documents (available at https://invest.cardonecapital.com) or the Regulation A+ Offering Circular (available at https://portal.cardonecapital.com), either of which may be updated or amended from time-to-time with the most recent Offering Circular or Offering Documents. The Regulation D offering under Rule 506(c) is for accredited investors only.
Past performance is not an indication of future results. Investing involves risk and may result in partial or total loss. Prospective investors should consider carefully investment objectives, risks, charges and expenses, and should consult with a tax, legal and/or financial adviser before making any investment decision. For additional information, visit www.cardonecapital.com/disclosures