By J.P. Dahdah, Founder & CEO of Vantage
Historically, investing in startups, private placements or other alternative assets has had its hurdles. Primarily that only “accredited investors” (those whose net worth exceeds $1 million, excluding their primary residence, or who earn more than $200,000 a year) were allowed to participate. That will soon be a thing of the past. The Securities and Exchange Commission (SEC) recently passed Title III of the 2012 Jumpstart Our Business Startups (JOBS Act) which was developed to help small businesses raise capital from a wider range of investors. The new Title III rules will allow anyone to invest as much as $2,000, or 5% of their annual income or net worth – whichever is greater, into opportunities with capital funding requirements as low as $1 million in a twelve-month period.
Additionally, first-time issuers who are fundraising below the $1 million level will not be required to undergo an audit. “Reviewed” financials will be sufficient. This creates significant savings and lowers another hurdle. If your income and net worth are both above $100,000, you can invest the lesser of your income or net worth.
Ever since the JOBS Act was passed, there has been an explosion of financial technology (FinTech) companies popping up to monetize on the new rules.
Vantage respects many of them and is working alongside them to explore strategies for the user experience to be as proficient as possible. This is yet another hurdle that needs to be overcome. Because the process to open, fund and invest with a Self-Directed IRA can be clunky, the various parties involved in the transaction are seeking to collaborate with one another to identify the best way for money to move from the Self-Directed IRA to the investment in an optimal manner. The most challenging step is the transfer of funds from a traditional custodian to a Self-Directed IRA company. Many custodians require “wet signatures” on transfer paperwork and the process can take as long as 21 days. The FinTech and Broker Dealer industry is happy to work through these challenges because they are not willing to ignore the nearly $7 trillion currently held within Individual Retirement Accounts.
The bottom line is there is positive movement in the right direction with the passage of Title III, which will be in effect in six months. If you are a young investor or one that still hasn’t accumulated significant wealth, don’t fret. You will soon be able to direct your retirement into alternative investments formerly restricted to you. Remember, having access to deals does not solve all your problems nor does it eliminate the need to still perform the proper due diligence on each investment being offered to you!
Happy and safe investing!