Why is the SEC shaking up its investing rules?

The SEC is changing its rules for investing in private markets. Find out what it means for you.

August 31, 2020

For decades, the Securities and Exchange Commission (SEC) has only allowed “accredited investors” (individuals who are worth $1m+, or earn $200k+ a year) to invest in private markets.

Now, the rules are being changed to allow people to get accredited if they can show “knowledge and expertise.”

2 things catalyzed this change

First, common sense. Wealth alone does not guarantee financial literacy; in the same vein, many people worth less than $1m are capable of sound investing.

Second, private companies are taking longer to hit the public markets. In 1999, the average age of a tech company at the time of IPO was 4 years; by 2014, it’s 11 years.

Why does this second reason matter?

In the past, when tech companies IPO’d earlier, public market investors were able to realize the bulk of the gains. In today’s market, those rewards are increasingly monopolized by private investors.

Just take a look at 2 major IPOs — one from 1997, the other from 2019:

  • 1997: Amazon IPO’d 3 years after its founding at a valuation of $438m; since then, public investors have seen $1.6T+ in growth.
  • 2019: Uber IPO’d 10 years after its founding at a valuation of $70B; since then, public investors have seen a loss of ~$10B.

The SEC’s rule change won’t open the floodgates, but it’s a promising start.

Join 1.5m+ professionals getting The Hustle daily news brief

Business and tech news in 5 minutes or less

100% free, no ads or spam, unsubscribe anytime


How'd Bezos build a billion dollar empire?

In 1994, Jeff Bezos discovered a shocking stat: Internet usage grew 2,300% per year.

Data shows where markets are headed.

And that’s why we built Trends — to show you up-and-coming market opportunities about to explode. Interested?

Join us, it's free.

Look, you came to this site because you saw something cool. But here’s the deal. This site is actually a daily email that covers the important news in business, tech, and culture.

So, if you like what you’re reading, give the email a try.

If you don’t like it, unsubscribe any time. Privacy policy.