Want to Invest in the Next Facebook or Twitter? A New Law Means You Can

how to invest in startups
www.BillionPhotos.com under Creative Commons

Remember the graffiti artist who is now a multi-millionaire because he opted to be paid in Facebook shares? Makes you wish you could invest in promising startups too, doesn’t it?

Well, a recent change in the law — which went into effect on May 16 — has now made that possible.

Before you get too excited, keep two things in mind: You need money saved for your initial investment, and the ROI is far from guaranteed.

(Don’t have extra money to invest? Keep saving those pennies, and you will someday! To get started, check out these smart ways to earn money on the side.)

If you’re looking for an interesting alternative to traditional investments like stocks and bonds, keep reading.

How to Invest in the Next Big Thing

Until now, you couldn’t invest in a startup unless you had $1 million in assets or made $200,000 per year.  

But thanks to new regulations, “startups or small businesses looking for investors can go through brokers or online platforms to find them — and those investors can now be, well, anyone,” WIRED reports.

Yes — even you! However, there are limits on how much you can invest each year.

People with an annual income or net worth below $100,000 can invest no more than $2,000, or up to 5% of the lesser of their annual income or net worth,” WIRED states.

It’s like backing a Kickstarter project, except you’ll receive a stake in the company rather than their product. That could mean a big payout if the company is successful, or a total loss if it flops.

So, we’d recommend only investing in startups you truly believe in — and only once you’ve paid off debt and have healthy savings and retirement accounts.  

If you dream of owning a piece of a startup, this is pretty exciting news. Sock away $100 each month, and by the end of the year, you’ll have $600 to invest in what could be the next big thing.

Your Turn: Would you like to invest in a startup?

Susan Shain, senior writer for The Penny Hoarder, is always seeking adventure on a budget. Visit her blog at susanshain.com, or say hi on Twitter @susan_shain.

The Penny Hoarder Promise: We provide accurate, reliable information. Here’s why you can trust us and how we make money.