We can all be venture capitalists now and invest in start-ups due to new regulations that took effect in mid-May. From the Verge:

Way back in 2012, Barack Obama signed the JOBS Act into law. Part of the legislation was aimed at making it easier for average people to invest in startups, potentially reaping the rewards on the next Facebook, upside which until now has been limited to wealthy investors and venture capitalists. The ordinary citizens who backed the Oculus Rift on Kickstarter, for example, might have found themselves better rewarded if they were actual investors, not just fans making a pledge.

It took the Securities and Exchange Commission four years to iron out the details of exactly how those investments should work. The SEC was understandably concerned about the potential for Ponzi schemes and snake oil salesman. Today the new rules finally went into effect, with two important caveats. Unaccredited investors — people who make less than $200,000 a year — can’t invest more than $2,000 a year in small companies. And those investments must be made through a funding portal approved by the SEC, with the expectation that these middlemen will help to ensure quality control.

Interesting to see that a company that was bought by Facebook for billions (two, to be exact) was originally funded through Kickstarter (where backers receive no equity but did get a cool Virtual Reality headset). Well, it hasn’t taken long for the financial wizards to cook up some new product (investments in start-ups) to meet the demand driven by this new regulation.

So, here is a way for your students to think about the implications for this new law. A company, Circle Up, has created a mutual fund-like instrument, which allows investors to own an interest in a basket of 25+ start-up companies.

On the webpage describing the investment vehicle, CircleUp provides a presentation and a 22 minute webinar (see graphic below) which provides an overview of this investment opportunity. Have the students thumb through the presentation, listen to the webinar and read through the Frequently Asked Questions (FAQ) on the same webpage to get a thorough understanding of the investment.

Here are some questions to organize the activity:

• What are you actually investing in through this fund?
• What are the pros/cons you have identified in evaluating this opportunity?
• What questions would you want to have answered prior to making this decision?
• What are the fees associated with this investment?
• How risky do you think this investment is? Please explain.
• Assuming you had the $25,000 minimum required to invest, would you invest in CircleUp’s Marketplace Index Fund II?
• How is this index fund different from the S&P500 Index Fund? Which fund should generate higher returns?
• Overall, do you think opening up investing in start-ups to ordinary investors is a good idea? Why or why not?

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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