Why Investors Should Be (Dare We Say It?) Optimistic About Regulations
The stock market is the great equalizer.
Anybody can get in (often with just a few bucks) and invest right alongside the millionaires and billionaires. When the poor single mom buys a share or two of Apple, her stock rises and falls just like Tim Cook’s.
When he gets richer… so does she.
The ability to own a slice of a company – and its profit stream – is one of the greatest equality generators out there.
Why is it, then, that the government wants to restrict investing?
The same reason the government wants to restrict a lot of things…
It doesn’t trust you.
As we gear up for my next big pick in the equity crowdfunding space (I’m onto a very hot deal), you’ll hear me talk a lot about the various types of deals.
How a company registers its capital raise – the process it goes through to raise money – opens or closes doors for certain investors.
There are effectively three types of offerings.
- Regulation D – open only to accredited investors
- Regulation A – open to all investors, but nonaccredited investors are limited to just 10% of their income/net worth per year
- Regulation CF – open to all, but there are strict limits on how much a company can raise
Typically, the biggest deals come in the form of a Regulation D offering. The average offering size is $58 million, versus just $200,000 for a Regulation CF offering.
But most investors can’t get into Regulation D deals.
In fact, less than 10% of all Americans qualify as an accredited investor – one with an annual income of more than $200,000 or a net worth of more than $1 million.
That’s no good.
The folks who could benefit the most from these sorts of deals are being kept out of them.
There’s a good chance, though, that things could get better.
Hope From D.C.?
As I write, the folks at the SEC are opening their ears to the voices of investors. They’re trying to determine whether any changes are needed to the current regulations.
There are plenty of folks who believe Gary Gensler – the head of the SEC, who has been notoriously pro-regulation and who has called for increased “investor protection” – will aim to push for even tighter rules.
But there is hope of loosening the noose.
For example, an SEC advisory panel recently recommended moving away from focusing on only strict income or net worth criteria.
It’d be a smart move.
We’ve all met plenty of dumb rich people… and even more smart poor people.
If the panel’s recommendation is accepted, the SEC would allow folks with certain professional degrees or leadership or investing experience – as well as folks who are part of a larger group of investors – to get into off-market deals.
It’d be a wise change.
Missing Out
Right now, private, VPO-style deals are getting the bulk of investor attention… yet most folks can’t get in on them.
Each year, nearly $3 trillion is pouring into the private offering market… far more than the $1 trillion or so that’s going into public offerings.
It’s backward that the fewest folks can get into the sector of the economy with the most money… and the most opportunity.
But there is hope of, dare I say it, smart – or at least less stupid – regulation coming from Washington.
The deals my team and I are studying are some of the best out there. The chances of making life-changing gains in the private market are very real – higher than in any other sector.
Hardworking Americans must be invited into these opportunities with open arms… not with a fat regulation book.
We must continue to push to open these deals to more folks.
There is no better equalizer.
Note: As I mentioned above, right now I’m finalizing my next quarterly VPO pick. I’ll reveal all the need-to-know details in the coming weeks. So STAY TUNED. Because as a Venture Fortunes subscriber, YOU will be among the first to get the specifics. Get excited.