Just because someone has money (an Accredited Investor) doesn’t mean they know how to invest.
Or that they can afford to lose it.
It seems the way regulators assess investor eligibility is based on the fact they can “probably” afford to lose if the investment goes bad.
Wouldnt it be better if the prospective investor had to self certify that they were firstly fully aware of the risks, meaning they were prepared to lose all of their money, and secondly they have the knowledge and experience to invest.
So thats …
1) Aware of the risks
2) Knowledge and experience to invest
Aware of the risks is just making sure they sign a statement that includes they realise they could lose all their money, that this is a high risk area and they should do their research before investing.
Knowledge and experience could be based on a points system, say 100 points an investor needs to self certify to be able to invest.
Jordan Green and I have built the following list as a start. 100 points to qualify. There are probably 50 more qualifications but this is a start.
Fellow of an Angel Investors Group 100
Member of an affiliated Angel Group 40
Graduate of an Angel training (one module) (cumulative) 20
Graduate of Angel training (all modules) 60
Fellow of the Institute of Directors 70
Graduate of Company Directors Course 50
Graduate of Mastering the Boardroom 40
Graduate of Foundations of Directorship 20
Graduate of International Company Directors Course 20
Director of Public Company (at least one year, only counts once) 20
Director of Private Company (at least one year,only counts once) 10
Financial Services Responsible Manager (at least one year) 30
Institute of Management Advanced Diploma of Management 40
Graduate Stock Exchange Shares Course 10
The qualification should imply some specific ability to address the risks of an early-stage high growth venture.
An “Informed Investor” is a self certification that covers risk and knowledge / experience. It seems far more appropriate than taking the line that just because someone has money they can afford to lose it.