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Comment by sethg | Hacker News Reader

In fact, what we need is to eliminate all accredited investor requirements for small investments of up to $25k. Why does someone have to be a millionaire to invest in a friend's startup? I understand that we don't want someone mortgaging their home, or betting their entire life's savings on a startup. But for a small amount, like $25k, we should not be regulating angel investing.

How many non-millionaires would have $25k lying around that they could throw at a friend’s startup without mortgaging their home or doing something equally rash? OK, maybe they wouldn’t have to bet their entire life savings, but cashing in a third of one’s 401(k) to put into a startup isn’t very bright, either.

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I'm 29. I have two non-millionaire friends who are 27-28 years old and have over 100k in savings each. They saved the money over last 5-6 years by being smart with their finances. Both are willing to invest $20k-$30k in me whenever I am ready. Neither expects crazy high returns (10% interest rate will suffice). They also know that if I hit it big, I will reciprocate well beyond 10%. Both trust me enough that no matter what happens in my life, they will at least get their seed money back in a couple of years.

Even though 25% of savings seems like a big bet, if you truly trust a person, it really isn't a risk. I wouldn't trade my friends for any amount of money so cheating them out of a measly $20k during a stage in my life when I really need their support would be pretty stupid of me. I have life insurance and so if I get hit by a truck, they will be compensated well. I don't see why it isn't bright to invest in your friend's startup if you trust them. Sure, money can get in the way of friendship but as long as there is honesty and maturity among all parties involved, investing can only make the bonds stronger.

My friend loaned me about $10k over the course of a year and I fully paid him back once I was able to. This helped strengthen our friendship instead of tearing it apart. So my personal advice is to go ahead and invest in your friend if you trust him/her. You only have one life and if 25% of your savings can change their lives forever, you gotta give it a shot.

It's not the governments place to tell you how to invest your money in the same way they don't tell you how to spend your money. It is an unfortunate artifact of bad legislation that the government feels the need to protect its citizens from foolhardy investments.

It is the government's place to tell you how to invest your money when they are backstopping all of society's risk.

Then the government should review all financial transactions, not just a specific minority based on haphazard benchmarks.

(executed regular expression as proposed)

s/half-hazard/haphazard

Regulation D was not created by Congress, FYI. The SEC created it in 1982 under the Reagan administration, when Donald Regan was treasury secretary.

Ok, but there are plenty of other ways that stupid people find to lose their money, so why not let them? It's not as if they have to invest the full 25K. You could put that money on a horse, invest it in Worldcom and Enron shares, and all kinds of other equally stupid ideas.

One of the comments in the article says "If I can mortgage my house and bet it on black at a roulette wheel in Vegas, I can surely invest in a friends startup, regardless of how wealthy I am."

There's a lot of ways to just blow money, but so many restrictions on investing it.

The whole point of advertising something as an investment opportunity is to say that it’s offering better odds than roulette.

> The whole point of advertising something as an investment opportunity is to say that it’s offering better odds than roulette.

Roulette advertises 35:1 payouts. Most investment opportunities advertise under 20:1.

Yes, the actual returns are different than the advertisements - the "expected" is much closer to 1:1 in both cases.

But with roulette you get "free" drinks'.

I actually know more people who gamble than who have investments outside of a 401k or their own business. Not even counting people who just play the lottery.

Upper-middle-class family.

Plenty.

250 grand in the bank leaves you a long way from being a millionaire, yet still makes 25k a realistic (albeit relatively large) percentage to invest in one asset.

What's funny (well, sad) is that the government considers one an accredited investor by virtue of having money, not actual investment knowledge. You could have a PhD in finance, on the other hand, and be considered by law unsophisticated enough to make an educated investment.

It's not so much an "educated" investment but one you can afford to lose without significant pain.

Good points (you and URSpider), it's just a regulation that really bothers me. Anyway, when I finish my MS in mathemetical finance, I plan to lose money through options instead :). (It's much faster that way lol!)

This isn't entirely correct. Regulation D also includes requirements that the investor be knowledgeable and experienced enough to evaluate the potential risks and rewards of the investment, and be able to tolerate those risks. However, the net worth/income test is a pre-requisite.

Now, in practice, an investor's knowledge and risk tolerance are usually established by signing a piece of paper attesting to such, or at most by having the investor check "YES" in a check-box.

A PhD in finance should automatically deem you unsophisticated enough to make an educated investment. For proof, I give you Wall Street.

Actually, that is only one of the criteria for accreditation. There are multiple ways to qualify as such without meeting the specified financial thresholds.

They're harder to prove, more subject to dispute, or require greater entanglement in a venture's management (like taking a title). Essentially, the wealth tests are the bright-line rules an investor needs to meet to have the legally-cheapest/safest/standard financing terms.

> How many non-millionaires would have $25k lying around

Me?

How many people drive luxury cars, paying $25K more than a two year old non-luxury car?

would you be happier if he said something like $20k or $10k?

Maybe some formula along the lines of “no more than X% of the investor’s net assets or Y% of the investor’s annual income”, and a footnote saying that for the purpose of computing the X%, your primary residence is not considered an asset and your mortgage on it is not considered a liability.

Upvoted. I wish all legislation involving money were required to express quantities as percentage - of the federal budget, a criminal's assets, or whatever else - rather than absolute dollar amounts, whose value and significance fluctuate over time.

raises hand

Single people and Dual Income No Kids.

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