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Will Higher Thresholds on Angel Investing Hurt Business?

With the rich getting richer, many more entrepreneurs are turning to affluent individuals, known as “angels,” for capital to expand their nascent businesses.

Angels put $24.8 billion of their own money into 70,730 U.S. businesses in 2013, for instance, 41% more than the $17.6 billion they put into 57,225 businesses in 2009. Meanwhile, Americans’ wealth hit new records during the first quarter of 2014, thanks to higher stock prices and real-estate values.

About half of the more than 500,000 U.S. businesses created each year shut down within five years, for example, according to data from the U.S. Small Business Administration. A third survive a decade or more. Heightening the risks of investing in private companies is the fact that the companies aren’t required to publicly disclose revenue or other key financial data, such as their business plans.

To protect ordinary investors from startup failures or scams, Congress sets limits on who can qualify to invest in private firms. These “accredited” investors are only individuals who had $200,000 in annual income over the past two years, or couples with at least $300,000 in income. You can also qualify if you have at least $1 million in assets, not including your primary residence. Read the entire article here