A. The risks are so high that the SEC has imposed severe limits on the amount you can invest in equity crowdfunding deals during any 12-month period. Here are the parameters:
- If your net worth and annual income are less than $100,000, you can invest up to the greater of $2,000 or 5 percent of the lesser of your annual income or net worth.
- If both your annual income and your net worth equal or exceed $100,000, you can invest up to 10 percent of your net worth or annual income, whichever is less, up to a maximum of $100,000.
You can calculate your annual income or net worth by jointly including your spouse’s income or assets. Property does not have to be held jointly. But if you use this option, your total crowdfunding investments cannot exceed the limit that would apply to an individual at that level.
You can calculate your net worth by adding up all your assets and subtracting all liabilities; for crowdfunding purposes, your primary residence and mortgages are excluded. (Mortgage debt that exceeds your home’s fair market value counts as a liability.)
In next blog post, we will discuss in more details the various risks of investing in crowdfunding deals.