🎓 Dr. Freemo 🇳🇱 @freemo@social.cleverlibre.org

@LouisIngenthron

We are talking as i write this by the way.

I asked about the whole"A sophisticated investor just needs a letter" thing you said.. and he said, its more complicated than that.

It is not your job as an investor to prove they are sophisticated, but if you know they arent it would work against you.

So if you know your aunt well enough and know she never worked in the industry, never invested, and didnt even graduate high school... then even if she lies in a letter and says she is an expert, because you know she isnt you can and probably will be found guilty should that ever go to court.

However if there is plasuable deniablity and the court would find that you had every reason to beleive they were a sophisticated investor and they just lied to you but you had no idea they were lying... then yea, you probably would be fine.

As he put it, you basically just need to show that any "reasonable person" in your situation would conclude the person was a sophisticated investor.

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@LouisIngenthron

I just asked my buddy who knows the law better than me (still not legal advice but closer to it than my advice)..

He said rule 504 must still be registered, so it is still prohibitive for most people, thought he sophisticated investor rule would exempt from registration as i mentioned earlier.

Rule 506 is the sophisticated investor rule, 20 while it does, as you say, give you access to sell to up to 35 non-accredited investors they must all qualify as sophisticated.

So seems, at least according to my friends, neither of these rules actually change what I said, they pretty much reinforce what i said but just add some more details...

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@LouisIngenthron

And thus why you'd need a lawyer to hash out the details :)

I cant speak to how complete your understanding is... I do know like anything it can get complicated and there are edge cases... If this is an actual issue for you please talk to a lawyer not me. I know enough to know when I need to talk to a lawyer, but even I after years of doing this still wont try to fully understand the law myself.

If you took the money and didnt consult with a lawyer you may get in a lot of trouble later.

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@LouisIngenthron

for what its worth you CAN however give your aunt who doesnt know the business shares for free... like they can hold shares, they just cant **buy** shares from you.

This is why you can bring on a partner and give them a cut no matter who they are, so long as they dont have to pay to come on board as a partner (unless they match the other criteria).

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@LouisIngenthron

It was intended to protect people.. Its the same logic that you cant give investment advice to someone if you yourself arent licensed..

But in reality i agree its fucked up because it severely limits the freedom of people to invest and take on the risks if they should choose to do so.

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@LouisIngenthron

Also accredidation, despite the confusing name, is not a license. There is no agency that gives it to you.. its simply a set of minimum criteria a person must meet and **prove** to you they meet before investing. There are a few criteria.. but for example anyone with a net worth of 1 million or more is automatically an accredited investor

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@LouisIngenthron

It is complicated, and im not a lawyer... so i cant go into the level of detail you'd like...

But the short of it... it depends. If your friend is just a friend with no business expiernce or money, then no, that would be illegal.

There would be three ways:

1) They have to qualify as credited (basically a rich experienced investor)

2) They would have to qualify as exempt from accreditation requirement by being what is legally defined as a "sophisticated investor"... more or less this means they have to be an expert enough in the field to be able to show they fully understood the risks and rewards. Basically if your aunt who is super sweet but has never worked int he industry wants to invest she wont qualify.

3) the investment needs to be registered... which basically means all the restrictions of a public company are enforced on it.. this is completely not a possiblity for any startup as the infrastructure to qualify the investment as registered is very very expensive (its about as expensive as just going public since you have to make all the same motions).

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@LouisIngenthron

I mean for what its worth after spending 2 years dealing with running a more or less public company... on this we agree... I took over after we as a company were already commited to go public... I said when I joined to the day I left our decision to go public was the dumbest shit ever and the type of investor we had to deal with was far less desirable than a private investor...

So yea, in this regard we sort of agree.. i wouldnt be quite as bad as you in terms of how anti-public I am (like ill invest in public companies a bit but i would never take my own public company)... but we do agree public invesment is a lot shittier a deal than private

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@LouisIngenthron

> You must admit, though, that the motivations behind investing privately in businesses tend to be vastly different than the motivations behind buying stock, even though they are both technically investment. That was the point I (apparently, inelegantly, lol) was trying to make.

Oh yes, the two types of investors thing very differently. But I think this has less to do with public vs private and more to do with who is allowed.

You cant legally invest in a private company unless you are an accredited investors... A person cant buy 1 share at 100$ off the street.. they need to prove they qualify as an investor (there are a bunch of rules but more or less they have to be rich and have experience in investing).

So yea obviously when the private investors are limited to professional investors who are mostly all rich and invest exclusively for a living you will have a **much** different dynamic then in the public where every 80 year old babushka (grandmother) is out there spending 20 cents on a share of google.

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@LouisIngenthron

> A company that lasts 100 years generates far more wealth than a company that closes after one

One small point about this... One company lasting 100 years will generate more wealth... But a company succeding and then failing over a 10 year period, but generates wealth over the ahort term puts more wealth into the world. So when it crashes that wealth has to move into some other place, a new company. So rolling that money into a new company that then generates wealth for 10 years, and repeat... may very well generate the same or even more wealth.

Generating wealth 10x with 10 seperate companies over 100 years, rather than one company generates the same wealth regardless.. The key is in understanding that a company crashing doesnt destroy wealth, so the fact that there is a "rebirth" cycle that bank rolls the society wealth every time means the overall picture is still wealth generation over the long term.

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@LouisIngenthron

Fair enough then.. doesnt always translate well ont he internet...

As a general rule i try to give everyone the benefit of the doubt around miscommunications. No worries then.

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