Raising Money From Non-Accredited Investors: Expanding Your Funding Options

Traditional startup funding often relies on accredited angels and venture capitalists. But thanks to regulatory changes, startups can now raise capital from a much wider group - non-accredited investors. This shift opens up new possibilities for founders to access funding, turn customers into stakeholders, and build brand communities.

Understanding Non-Accredited Investors

Non-accredited investors are individuals who don't meet the Securities and Exchange Commission's (SEC) financial thresholds for accredited status. While accredited investors must have $1 million in net worth (excluding primary residence) or income exceeding $200,000 individually ($300,000 with spouse) for two consecutive years, non-accredited investors represent the vast majority of potential individual investors in the United States.

Key Characteristics:

• More numerous than accredited investors
• May invest smaller amounts individually
• Often include customers, community members, and supporters
• May be more motivated by affinity for your product or mission
• Typically have less investing experience than accredited investors

Regulatory Frameworks for Non-Accredited Fundraising

Several SEC exemptions make it possible to include non-accredited investors in your funding rounds:

Regulation Crowdfunding (Reg CF)

• Allows raising up to $5 million in a 12-month period
• Requires filing Form C with the SEC
• Must use an approved crowdfunding portal
• Limits individual investment amounts based on income/net worth
• Requires certain financial disclosures

Regulation A+ (Reg A+)

• Enables raising up to $75 million in Tier 2 offerings
• Requires SEC qualification and more extensive disclosures
• No individual investment limits for accredited investors
• Non-accredited investors limited to 10% of income/net worth
• Allows general solicitation and advertising

Rule 504 of Regulation D

• Permits raising up to $10 million in a 12-month period
• Less onerous disclosure requirements than Reg A+
• State securities laws still apply
• May allow general solicitation in certain circumstances

Advantages of Non-Accredited Investor Funding

Including non-accredited investors in your fundraising strategy offers several benefits:

Expanded Capital Access

• Tap into a much larger pool of potential investors
• Potentially fill funding gaps when traditional sources are unavailable
• Create funding momentum that might attract larger investors

Marketing and Advocacy Benefits

• Convert customers and supporters into invested stakeholders
• Create a community of brand ambassadors
• Generate word-of-mouth marketing through investor networks

Mission Alignment

• Attract investors who genuinely believe in your product or service
• Find supporters motivated by impact as well as returns
• Build relationships with investors who may be more patient with growth

Challenges and Considerations

While appealing, raising from non-accredited investors comes with unique challenges:

Compliance Requirements

• More regulatory obligations than accredited-only fundraising
• Need for careful documentation and disclosure
• Potential state-by-state compliance issues

Investor Management

• Communicating effectively with a larger, less experienced investor base
• Managing expectations around liquidity and returns
• Providing appropriate levels of transparency and updates

Cost Considerations

• Legal fees for proper compliance
• Platform fees for crowdfunding campaigns
• Marketing expenses to reach potential investors

Best Practices for Non-Accredited Fundraising

1. Prepare Thorough Documentation

Creating comprehensive disclosures protects both your company and investors:

• Develop clear offering documents explaining the business model
• Provide transparent risk factors and use of funds
• Create realistic financial projections with supportable assumptions
• Include a professional business plan and market analysis

2. Design an Effective Outreach Strategy

Successful non-accredited fundraising requires thoughtful marketing:

• Build a compelling narrative around your company's mission
• Create engaging video and visual content explaining the opportunity
• Leverage existing customer and community relationships
• Develop a clear communication plan for the fundraising period

3. Choose the Right Platform or Approach

Your fundraising method should align with your goals and audience:

• Research crowdfunding platforms based on industry focus and success rates
• Consider hybrid approaches combining crowdfunding with direct investment
• Evaluate white-label solutions versus established platforms
• Assess fee structures and support services

4. Prioritize Investor Relations

Maintaining strong relationships with investors benefits everyone:

• Establish regular investor communication cadence
• Create systems for efficiently answering investor questions
• Consider investor perks or involvement opportunities
• Be transparent about both progress and challenges

Common Structures for Non-Accredited Investment

When raising from non-accredited investors, several structures may be appropriate:

Revenue Sharing

• Investors receive a percentage of revenues until reaching a specified return
• Aligns investor returns with company performance
• Doesn't dilute equity or create debt obligations

Convertible Notes or SAFEs

• Defers equity valuation to future funding rounds
• Familiar to many investors and follow-on funders
• Can include investor-friendly terms like discounts or caps

Direct Equity

• Provides ownership stakes with potential appreciation
• May include special share classes with limited voting rights
• Creates clear alignment with company growth

Legal Compliance Checklist

Before raising from non-accredited investors, ensure you:

• Consult with experienced securities attorneys
• Select the appropriate exemption for your fundraising goals
• Prepare all required disclosures and filings
• Implement proper investor verification procedures
• Understand applicable state securities laws
• Create compliant marketing materials

Looking Ahead

As your company grows, consider how non-accredited investors will fit into your broader funding strategy:

• Plan for investor communications as your company scales
• Consider how early non-accredited rounds affect later institutional funding
• Develop clear paths to potential liquidity for early investors

Opening your fundraising to non-accredited investors can provide not just capital, but also dedicated supporters who believe in your mission. With proper planning and execution, this approach can become a valuable component of your overall funding strategy.

Need guidance navigating the complexities of raising funds from non-accredited investors? Our team can help you develop compliant strategies that maximize your fundraising potential while building valuable stakeholder relationships. Contact us today to discuss your specific situation.