There is currently a bill weaving its way through Congress that will go a long way in addressing the regulatory negligence known as the definition of an accredited investor. The SEC staff has proposed new rules, which the Commission may consider, that have the potential to right this wrong. But if a picture is worth a thousand words the graph below explains why the current definition has disenfranchised so many smaller investors while enriching the few.
Taken from a presentation delivered by Andreessen Horowitz, the chart shows that almost all equity returns are captured in the private markets. This means by the time a successful company becomes a publicly traded entity – most all of the returns have been hoovered up by VCs, Angels and other fortunate types. As for smaller investors – please, just move along.
Over the years, policy-makers have stacked regulation upon rule for companies seeking a listing on a public exchange. Of course early stage companies react as one would expect: they remain private for as long as possible avoiding the onerous task of compliance and dodging the excessive cost. In the end who loses out? Just about everyone – unless you happen to have a million dollars in your bank account (or earn over $200,000 / year). Yes, we get the government we, as citizens, elect. Unfortunately all too frequently they know not what they do. Are there companies raising capital using exempt offerings that are dodgy? Sure, but a requirement to assure sophistication, and comprehension of risk, will go a long way in safeguarding those individuals who would be better off with professional financial advice. The size of a bank account has never been a guarantee of wisdom. Just look at the number of millionaires populating the US Congress.
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