Investment Limitations

Learn About Investment Limitations

Prior to the JOBS Act, investing in startups and new ventures was only available to certain high net worth (accredited) investors. The JOBS Act introduced Crowdfunding which allows companies to raise up to $1.07 million in a 12-month period from both accredited and non-accredited investors. However, because of the risks associated with investing in startups and private companies, the SEC limits the amount an individual can invest in such offerings. The SEC’s Office of Investor Education and Advocacy published “Investor Bulletin: Crowdfunding for Investors” which offers the following guidance on your investment limitations. To read the full Investor Bulletin, please click Here.

Investor Bulletin: Crowdfunding for Investors (Feb. 16, 2016)

Crowdfunding generally refers to a financing method in which money is raised through soliciting relatively small individual investments or contributions from a large number of people. Over the last few years, crowdfunding websites in the United States have proven a popular way by which to solicit charitable donations and to raise funds for artistic endeavors like films and music recordings.

Under recently adopted rules, the general public will have the opportunity to participate in the early capital raising activities of start-up and early-stage companies and businesses. Starting May 16, 2016, companies can use crowdfunding to offer and sell securities to the investing public.

Can I make a crowdfunding investment?

Anyone can invest in a Title III crowdfunding securities offering. Because of the risks involved with securities-based crowdfunding, you are limited in how much you can invest during any 12-month period in these transactions.  The limitation on how much you can invest depends on your net worth and annual income.  Following are the inflation-adjusted investment limits.

If either your annual income or your net worth is less than $107,000, then during any 12-month period, you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth.

If both your annual income and your net worth are equal to or more than $107,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $107,000.

The following table provides a few examples:

Annual Income

Net Worth

Calculation

12-month Limit

$30,000

$105,000

greater of $2,200 or 5% of $30,000 ($1,500)

$2,200

$150,000

$80,000

greater of $2,200 or 5% of $80,000 ($4,000)

$4,000

$150,000

$107,000

10% of $107,000 ($10,700)

$10,700

$200,000

$900,000

10% of $200,000 ($20,000)

$20,000

$1.2 million

$2 million

10% of $1.2 million ($120,000), subject to cap

$107,000

 

Joint calculation. You can calculate your annual income or net worth by jointly including your spouse’s income or assets. It is not necessary that property be held jointly. However, if you do calculate your income or assets jointly with your spouse, each of your crowdfunding investments together cannot exceed the limit that would apply to an individual investor at that annual income or net worth level.

How do I calculate my net worth?

Calculating net worth involves adding up all your assets and subtracting all your liabilities. The resulting sum is your net worth.

For purposes of crowdfunding, the value of your primary residence is not included in your net worth calculation. In addition, any mortgage or other loan on your home does not count as a liability up to the fair market value of your home. If the loan is for more than the fair market value of your home (i.e., if your mortgage is underwater), then the loan amount that is over the fair market value counts as a liability under the net worth test.

Further, any increase in the loan amount in the 60 days prior to your purchase of the securities (even if the loan amount doesn’t exceed the value of the residence) will count as a liability as well. The reason for this is to prevent net worth from being artificially inflated through converting home equity into cash or other assets.

 

IMPORTANT LEGAL NOTICE: Spark Financial Technology, LLC. runs sparkinvest.com and is an affiliate of Spark Investments, LLC. Spark Investments, LLC is a funding portal registered with the Securities & Exchange Commission and a member of the Financial Industry Regulatory Authority that operates sections of sparkinvest.com with offerings pursuant to Regulation Crowdfunding, (the “Funding Portal”).

By accessing any page on the SparkInvest™ website and/or the Funding Portal you agree to be bound by the Terms of Use and Privacy Policy, as may be amended from time to time. The Funding Portal only permits the posting of securities offerings made pursuant to Section 4(a)(6) of the Securities Act of 1933, as amended, in accordance with the Title III of the Jumpstart Our Business Startups Act of 2012, including its adopting release and subsequent guidance. Investors must acknowledge and accept the high risks associated with investing in private securities offerings, include holding your investment for periods of many years with limited ability to resell, limited access to periodic reporting, and losing your entire investment. You must have the ability to bear a total loss of your investment without a change in your lifestyle. The Funding Portal is only required to conduct limited due diligence on each offering and does not in any way give investment advice, provide analysis or recommendations regarding any offering posted on the Funding Portal. Past performance is not indicative of future performance. All investors should make their own determination of whether or not to make any investment in an offering, based on their own independent evaluation and analysis and after consulting with their financial, tax and investment advisors. Prior to making any investment, you will be required to demonstrate your understanding of the speculative nature of investing in such private securities. The securities presented on this Funding Portal can only be marketed in jurisdictions where public solicitation of offerings are permitted; it is solely your responsibility to comply with the laws and regulations of your country of residence. You are strongly advised to consult your legal, tax and financial advisor before investing.

You can learn more about investing in crowdfunding from the SEC, FINRA or NASAA.

Spark Investments LLC, FINRA Registered Funding Portal (http://www.finra.org/about/funding-portals-we-regulate)

Additional information about companies raising money on the Funding Portal is also available on the SEC’s EDGAR Database. Please review the Form C carefully for a full description of each company and its offering prior to making any investment commitments.

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