Pass the Series 65 to Angel Invest in Startups

TL;DR: Want to invest in startups but don't have the cash or income to meet the "accredited investor" thresholds? Passing the Series 65 (Licensed Investment Adviser Representative) exam, registering, and maintaining good standing, is an alternative path

Read on to learn the details.

The SEC expanded their definition of "accredited investors" to include those who hold the Series 65 certification

On Aug. 26, 2020, The SEC modernized the definition of accredited investor to include an alternative to the wealth test. Licensed investment adviser representatives (those who have passed the Series 65, registered, and maintain good standing) are now accredited investors. This makes them eligible to participate in private market investing, including angel investing in startups. Read the official announcement.

Small Checks Matter

Colin Gardiner argues small checks are the most impactful. Here's a quick summary of his discussion with Brian Nichols of Hustle Fund's Angel Squad:

• Small checks from angel investors can significantly impact startups, not only for the capital but also for the "money multiplier" effect, as these investors often introduce startups to their networks and other investors.
• Access to capital is essential for startups, and platforms like AngelList, SPVs, and crowdfunding sites such as Wefunder allow aggregation of small checks into more substantial investments, benefiting both startups and investors.
• Challenges of accepting small checks include the additional work required to manage many investors and a messy cap table, with solutions like Special Purpose Vehicles (SPVs) and Rollup Vehicles (RUVs) serving to streamline this process.
• An issue of concern is that small checks often come from less sophisticated investors. However, initiatives like Hustle Fund’s Angel School aim to solve this by offering education and help with obtaining the Series 65 license, which accredits investors.
• Despite potential downsides like the time-consuming process of issuing K-1s, small checks from angel investors can provide crucial financial support and operational advantages to startups, showing the increasing importance of small checks in the angel investing ecosystem.

VITALIZE Angels is similar to Hustle Fund. And their motivation seems clear: Get startups too-early for their seed fund into the pipeline, and use early-stage, small check investing as a social network of sorts, with no carry.

How to get Accredited after Passing the Series 65 Exam

Here's a detailed article about the process, and a quick summary:

• Pass the Series 65 exam
• Create a registered investment advisory (RIA, state or federally-registered internet adviser) and register as a representative of the advisory (IAR)
• Maintain good standing by paying annual fees, and adhering to federal and state requirements (covered on the Series 65)

One Foot in Front of the Other

The Series 65 exam is the most acute part of becoming an accredited investor. It requires 30-80 hours of study (depending on your background) and dumping all that knowledge into a computer at a Prometric testing site in a 3-hour window. Once you pass, registration is an involved but learnable process. Maintaining good standing is something requiring at least annual check-ins. Federal and state administrators have made it a habit of examining new advisers in the first 6 to 12 months following registration, so you can expect a regulator will have questions. Still, their motivation is consumer protection, and if you restrict your activities to managing your funds and avoid providing advice, that should limit your risk.