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Pro Analysis

New start-up investing rules: What to know first

President Barack Obama, surrounded by members of Congress and business leaders, signs the Jumpstart Our Business Startups (JOBS) Act in the Rose Garden of the White House on April 5 2012 in Washington, DC.
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President Barack Obama, surrounded by members of Congress and business leaders, signs the Jumpstart Our Business Startups (JOBS) Act in the Rose Garden of the White House on April 5 2012 in Washington, DC.

Earlier this month, new regulations that are part of the 2012 JOBS Act went into effect, essentially allowing the "little guy" to play venture capitalist by allowing him or her to invest in small private issuers.

I think that the SEC mostly got it right. The smartest thing that it did to protect individuals was to limit their investments in dollar amounts and as a proportion of their wealth. For investors with less than $100,000 in annual income or net worth, investments are restricted to the greater of $2,000 or 5 percent of their wealth as defined above. It's a sliding scale so "heavy hitters" can invest up to $100,000, or 10 percent of their annual earnings or net worth.

I think that 5 to 10 percent of your nest egg in a speculation — and crowdfunded companies are just that — still may be too much to allocate, but at least the SEC has attempted to rein folks in.