How “Accredited Investor” Laws Cost Me $500K

For as long as I can remember, I’ve been an entrepreneur.

When I was around six, I had a lemonade stand that could pull in $8 net on a good day.

In third and fourth grade, I sold candy to the other kids at 200% markups. (Supply and demand was a lesson learned early.) On a field trip day, I could pocket $15 or so.

In sixth grade, my friend Mark and I opened a baseball card shop inside his mom’s gift store. We’d bug one of our parents to drive us 45 minutes to BJ’s so we could buy bulk packs and turn them around for profit.

That business worked out for a while, but my card-collecting endeavors would eventually end in tears.

Over the years, I “invested” much of the profit from my enterprises into baseball cards. Which turned out to be quite the lesson in overvalued assets, scarcity and bubbles. But I digress…

By the time I graduated from college in 2002, the internet was hitting its stride.

In 2005, I started a small side business operating content websites. My most successful project was Hair-Loss.org. It was a simple content site, but at its peak it pulled in $500 per day from advertising.

I learned a lot about how search engines work from projects like this, and eventually I began a consulting business focusing on SEO (search engine optimization).

This is how I met my friend Erik, whom I would partner with on a number of other projects.

My $750K Missed Opportunity

In 2006, my friend Erik ran one of the largest online chess sites. I helped him optimize it for search engine traffic. It was a very fruitful partnership.

Erik was quite an entrepreneur. When he told me he bought Chess.com in a bankruptcy sale, I was floored. He had scooped up one of the world’s premier domain names for a steal. What a coup!

And when he told me he was fundraising to build this new business, I immediately told him to count me in.

The minimum investment was sizable, especially for me at the time. But I had seen Erik do business, and I knew he was destined to succeed with this new venture.

So I got the money together and waited for my chance to invest.

Not long after, I got a message from Erik: “My lawyer wants to know if you’re an accredited investor.”

“What’s that?” I replied.

He told me what it meant, and I lost the chance to invest in the deal. The other investors and lawyers weren’t comfortable having a non-accredited investor on board. Non-accredited investors are considered a liability who could sue if they lose money. And even today in most private deals, the majority of investors aren’t allowed to participate.

Needless to say, Chess.com is now one of the most popular websites in the U.S. And that investment I missed out on would be worth somewhere around $500K to $750K today.

An Unjust System That Needs to End

While we’ve made good progress in opening up private investments to everyone, there’s still work to be done. Only a small percentage of deals are structured in such a way that allows anyone to invest.

Accredited investor laws are outdated and unjust. There is no wisdom that comes from having $1 million or making $200,000 per year. Yet these arbitrary limits determine who is free to invest as they choose.

We should all be able to invest in private businesses. With the growth of online crowdfunding, each investor can put in small amounts and diversify across a large number of opportunities. All the infrastructure necessary to do this is already in place.

These laws restricting investment based on wealth should be abolished.

The same Americans who can’t invest in startups waste $70 billion on lottery tickets every year. If regulators were looking to prevent wasteful investment, lottery tickets would be outlawed, not startup investments.

We should all have the opportunity to invest as we see fit. Naturally, that means some people will lose money and others will make it. This is how markets work and how lessons are learned.

The time is ripe for this to happen. As I recently pointed out, politicians have been warned that the American people are not happy with the rigged status quo. We’re in a period of rapid societal disruption and change. May as well take advantage of it…

So if you’re also fed up with this crooked situation, consider taking a few minutes to contact your elected representatives. Feel free to copy/paste excerpts from this article if you like, or craft your own message.

Have a great weekend, everyone.

Adam Sharp
Founder, Early Investing