According to regulations set by the UK Financial Services (Experienced Investor Funds Regulations of 2012), you must declare yourself an ‘Experienced Investor’ before you may legally participate in Crowdfunding investments.
This term means more or less the same as ‘Accredited Investor’ in the USA. The aim of the restriction is to ensure that the investor’s financial base is strong enough to absorb the risk of investing in an unregulated product.
If the investment requires an Experienced Investor, its prospectus will explicitly say so. Generally, you will be required to declare yourself as such, in writing, before having access to all the promotional material.
The investment promoters may also require you to sign a statement that typically reads:’I accept that the investments involved herein may expose me to a significant risk of losing all of the money or other assets invested‘.
An Experienced Investor is defined as a person or association who can declare one of the following:
- You professionally deal with acquiring, underwriting, managing,holding or disposing investments as a principal, agent, or advisor;
- You have net assets of at least €1,000,000 (£920,000)as a group, or as a trustee;
- As an individual, or jointly with your spouse, your net worth is greater than €1,000,000, excluding your main residence;
- You presently have a total of €100,000 (£92,000) invested in one or more Experienced Investor Funds (EIF);
- You are investing a minimum of €50,000 (£46,000) in an EIFunder the guidance of a professional advisor (with the Fund having received confirmation);
- You are a professional client as defined under the Markets in Financial Instruments Act 2006.
The minimum investment for a self-declared Experienced Investor who does not meet any of the above criteria is €100,000 (£92,000).
In some ventures, participants are restricted to the ‘Sophisticated Investor’ category, which consists of both high-net-worth individuals and seasoned investment professionals.
The restriction applies to‘unregulated collective investment schemes’ (UCIS), and certain kinds of ‘non-readily realizable securities’ offered on Crowdfunding platforms.
According to the FCA’s Conduct of Business Source book, cited by MoneyObserver.com, you can declare yourself a Sophisticated Investor if you meet one of the following criteria:
- You earn a salary of at least £100,000 a year, or have at least £250,000 in assets (not including your main residence);
- You have been a member of a business angel organization;
- You have already invested more than once in an unlisted company;
- You have worked professionally in the private equity sector;
- You have been Director of a company with a turnover of £1 million or more.
For more details, contact your financial advisor.