What you should expect as an Accredited Investor

One of the advantages of being an “Accredited Investor” is the ability to invest in “Private Offerings” or “Private Placements.” I have seen a lot of this happen, and I would like to share with you what  you need to know and do.

Let’s start with a simple explanation of an “Accredited Investor”: Someone that makes $200,000 or more per year, or as a couple $300,000 per year (and has made that in the last 2 years), OR has a net worth of $1 million or more. (By the way, the rumor is that might be changing soon).

As far as “Private Offerings” – this is a private method for entrepreneurs to raise money for their businesses. When you “invest” in a “Private Offering” – you are buying shares in that company.

So here are SOME things to recognize:

1. Accredited Investors invest in these things because they are hoping that a SMALL PERCENTAGE will hit big while the rest will fizzle and/or die. What that means in plain English is the Accredited Investors recognize that with a big percentage, they will LOSE MONEY! It is a fact – look at the statistics – most businesses go out of business. Savvy investors recognize that.
2. Given the above, most savvy investors will invest a SMALL PERCENTAGE of their net worth into a whole bunch of private offerings  – because they recognize it is a numbers game. Some make big money, most will go out of business.
3. As a savvy investor, do your DUE DILIGENCE!!!
4. Savvy investors do not invest in “ideas”, but rather they invest in the “people”. Find out everything you can about the MANAGEMENT team. Then, and only then, should you look at the “idea” and the demand for the product/service.
5. Read ALL the documents you receive; At a minimum, read the PPM (private placement memorandum) and the Operating Agreement.
6. Have experts review those documents – your attorney, your CPA, etc.
7. I have heard many complaints that originate from misaligned expectations. In my opinion, the overly positive expectations of investors are their own fault for not doing enough investigation and due diligence. Also many of those investors expect to be paid within a short period of time when most small companies need a good 5 year run to be able to “make it.”
8. The PPM lists specific RISKS that you need to read carefully. Spend time reading these carefully. It is under a specific “Risks” section.
9. Make sure to ask a lot of questions – it is your right to do so.
10. According to my mentor, NO ONE hits 1000 batting average. Recognize that you are taking a risk as well. THE WORST thing you can do is blame the entrepreneurs. I have seen it over and over again. People hear about someone that has done REALLY well over the years, making millions of dollars, then suddenly they want to invest with this “everything she touches turns into gold” person. The economy turns around like it did (beyond her control), and she loses that deal and the investors money, and suddenly this person now is EVIL and a CROOK when all she tried doing was the absolute best for the investors. This is all to0 common!

That’s why SEC prefers Accredited Investors invest in this. This is a game for the RICH – not for anyone.

So here is my message to everyone that is thinking about investing into such deals:

RECOGNIZE THAT THERE IS A HIGH PERCENTAGE OF LOSING YOUR MONEY INVESTED.

So either get in and shut up, or get out and stay out. Really!

The fact is that most people should NOT be doing this!