Early Stage Investors, Long Term Wealth Building

Posted by Nadia C. Vanderhall in InvestingNovember 22, 2021(Last Updated July 5, 2022)6 min read
Key Takeaways
  • Accredited investors often see more wealth from IPOs than retail investors.
  • Early investors are also aligning with an alternative investment route called crowdfunding investing.
  • Crowdfunding investments are a form of investing that can build wealth, knowledge, and network.
Are you ready to make some real money moves?

More people are getting into investing through the stock market. However, the Culture is unlocking other layers of the Thanos glove of wealth. Even with us being in a pandemic, unlocking new ways for new income streams beyond the 9-5 has moved beyond a trending topic to real-life money moves. 


For example, statistics may show that 19 percent of Black families (3.5 Million families) have negative net worth due to debt, compared to 8 percent of white families, while more of us are moving past this alarming statistic to increase their stacks. This great resignation aligned with reset has put investing into perspective and showcased how many of us can move deeper into investing than just investing in the stock market. 


Some other investing areas are also being discussed even more, which is why more context is critical to help the currency flow even more. The multi-talented artist Rick Ross once said, “You don’t have to move fast; you have to move correctly.”


Recommended Read: 5 Celebrities Who Chose Equity Over Cash


Investing Beyond Retail Stock


With headlines filled with countless Initial Public Offerings (IPOs) and deals, many are thinking of how to get in front of the IPO to help align the wealth before the market opens up. There are various ways to be an early-stage investor. Those routes can include being an accredited investor, angel investors (groups), crowdfunding investments, to venture capital. 


Like investing in stocks or real estate, the aspect of this type of investing is to know what pathway works best for you. So before we talk through what each of them looks like, let’s unlock what an early-stage investor would look like.


An early-stage investor funds (invests) in projects or start-up businesses while they are within the development or seed (Pre-IPO) stages. This is because they often see the business idea or start-up as one that would hold tremendous value in the near and long term future. 


While there is no wrong path that an early-stage investor can take, the goal is to leverage the company to build wealth. The leverage can be anything from learning about an industry to networking within. Flexibility is the best thing about this type of investing. 


Another Level Of Investing


One of the most popular paths of entry into early-stage investing is to become an accredited investor. They are allowed to buy or invest in unregistered securities, which in this case would be companies/start-ups. There are requirements that come with this title. 


Within the United States (U.S.), an accredited investor must comply with the rules of the SEC (The U.S. Securities and Exchange Commission) Rule 501 of Regulation D. For a person to be considered an accredited investor, they must: 


  • Have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years (with the expectation of earning the same or a higher the current year). Those with joint income, earned income above the standard thresholds either alone or with a spouse over the last two years. Yet, the income requirement can’t be satisfied by only showing one year of an individual's income and the next two years of joint income with a spouse. 


  • Another requirement comes with an individual net worth or joint net worth. They have to exceed $1,000,000, excluding the investor’s primary residence.


Some other options could be through licenses and legal designations. For example, if you are employed at a fund or wire-house that distributes private investments or hold (in good standing) a Series 7, 65, or 82 License, you could still qualify. Also, suppose your LLCs have at least $5 Million in assets and family offices with at least $5 Million in assets under management (along with their family clients). In that case, they can be placed under consideration as well.


Inside Track


The verification process can be done through a registered broker-dealer, registered investment advisor, attorney, or certified public accountant. While all are good options, the investment advisor and broker-dealer will be good for the back-end with investments after the accreditation is secured.  


Accreditation is important due to risk protection for the investor (and their funds) and the company they are investing in. The funds and the investor are vetted due to meeting those requirements. As you can imagine, the finances are confirmed via financial documents such as credit reports, tax returns, and financial statements. This information is needed to help verify the requirements that are set for accreditation. 


You might see Jay-Z, Kevin Durant, Nas, or 2 Chainz making deals that make headlines; what you might not know is that they are within the venture capital space. They can start as just a venture capitalist who then partners with a private equity venture capital firm or chooses to start one themselves with others. 


Each of the celebrities mentioned above has established or partnered with venture capital firms to help facilitate those deals you read about. For example, Marcy Venture Partners, which is a venture capital and private equity firm, was co-founded by Jay-Z. 


These investors are different from accredited investors because this group is more formalized under limited partnerships (LP). They are a collective pool of investors vs. individuals, which can help balance out the risk. 


Also, they are slower to invest in a start-up and usually ask for various rounds of information before a “seed” or investment is provided. Remember the mention of the network when it comes to investing? Many accredited investors move into venture capital due to their network. One can act as a stair-step into the other. 


Alternative, Still Aligned


There is another option that could also be beneficial which is crowdfunding. While the notion of crowdfunding isn’t new, it has truly been taking off even more during the pandemic. 


Platforms like StartEngine, Republic, WeFunder, Kickstarter, and Indiegogo allow businesses to seek investors to gain equity within their company and for investors to learn more about the companies that could yield their wealth in the future. For example, entrepreneur Dawn Dickson-Akpoghene has used crowdfunding to raise capital for her business, PopCom. 


The requirements for these types of investments are more for the businesses than the investors. With these types of investments, crowdfunding falls under Regulation CF (Equity Crowdfunding or Title III Crowdfunding):


  • This calls for the start-up/business to be incorporated within the U.S. and primarily do business in the US or Canada. 


  • May increase to $5 Million annually through both accredited and non-accredited investors.
  • CF offerings must be made available online either through an SEC-registered funding portal or broker-dealer.


There is also Regulation A+ for crowdfunding for those companies that raise beyond the $5 million cap, allowing companies to increase to $75 million. Additionally, some platforms allow more businesses to use this option due to the capital raised during investment rounds that have exceeded the $ 5 million threshold. 


For businesses, the thing to determine is the goals for the funds you are raising the capital for and what platform aligns with helping you position that precisely. For investors, there aren't any requirements for crowdfunding beyond how much the start-up/business is asking for interested investors to invest.


Business Capital Insights


Something to keep in mind, not all start-ups/businesses that are accredited investors, venture capitalists, or even crowdfunding campaigns automatically draw big bucks. Similar to the stock market, due diligence and research are key to investing in the lane. 


Asking the tough questions before the check is written will help you determine which business is worth investing in. Even this, many investors are still years down the road from seeing the investment back.


And for the businesses thinking about jumping into securing the bag, just know that another level of sharing comes with this. One of the things that are shared between you and the investor(s) is the risk. 


The uncertainty is shared along with the intel of the makings of your company; this isn’t Shark Tank. Yet, the questions move beyond the couple minutes the show displays; it is a relationship developed beyond the finances. 


Wealth Compounded


One of the things that The Great Reset has presented to people is an insight into what others are doing to gain knowledge and wealth. For example, accredited investors and venture capitalists often see the windfall of wealth when companies go public on the stock market. 


Now, they are on the trek to building the requirements to become those types of investors to still see wealth when those companies eventually either go Public or get acquired. Investors not only build wealth, but they also get to build their insights on industries while building connections - wealth compounded.


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