Raising money from friends who are non-accredited investors?


3

I am wondering as to what is the best (easiest) way to raise money from interested friends who are non-accredited.

I feel like I am fortunate enough to have some wealthy enough friends who would like to be more involved in startups, but have always had a reason for not doing so. They have said that they are interested in investing in my company, but they don't yet make the accredited investors cut. So what is the easiest way to get an investment from them?

I have heard that a PPM can easily cost ~$10K, so it might not be worth it. Any recommendations?

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asked Oct 10 '09 at 10:18
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Vineet
1,080 points

2 Answers


2

I am not sure where you are looking to incorporate, but this is what I recently arranged where I am.

You referred to knowing several wealthy friends who would be interested. It might be worthwhile getting them to start an entity with the sole purpose of investing in your startup. They can make sure their company's constitution meets the protection requirements they have and then that entity can buy into your startup.

That way you (as the startup) only deal with 1 collective external party which can make life a lot easier when it comes to decision making.

answered Oct 11 '09 at 09:27
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Anthon
470 points
  • This sounds interesting. I will look into discussing this with our lawyer, or might end up staying away from Accredited investors. – Vineet 9 years ago

1

You should definitely get a lawyer to help you with this. Yes, a PPM will cost you $10k+, and it sucks to pay that, but it's worth it because of the protection it gives you when your startup is wildly successful or especially when things fail miserably.

Also see this article for some of the drawbacks about accepting non-accredited investors.

answered Oct 11 '09 at 00:51
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Ade Olonoh
416 points
  • Thanks for the link. I definitely intend to get a lawyer involved. The challenge really is in figuring out if it is worthwhile to doing it. – Vineet 9 years ago

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