Weekly Roundup: The Wealth Test ⚖️

Happy Friday, DVC! In an effort to quell concerns about transparency, Adidas CEO Bjørn Gulden recently gave his personal phone number to all 60,000 of the company’s employees.

Apparently he’s getting contacted by 200+ employees per week - most of whom are calling for strategic changes and only some of whom are calling for his mother’s maiden name and favorite food as a child.

Welcome to DVC!

Welcome to the 18 new members who’ve signed up for the DVC newsletter since last week! We’re happy to have you 👋 

Startup News & Weekly Poll:

This week the Doriot team was featured in Alts.co’s deep dive article The State of Accreditation covering the SEC’s controversial “Accredited Investor Rule”. We encourage you to read the whole article, but here’s our overview!

The Background:

The SEC is a complex beast, but its basic mandate is to protect investors in the public & private financial markets.

As part of this mission, in 1982 the SEC ruled that you need to be an “Accredited Investor” to participate in most private investments. By the SEC’s definition, being “Accredited” means you have a net worth of $1M or more (not including your home) or have an income of $200k+ per year ($300k+ with a spouse).

“All those in favor…”:

The rule is probably well-intentioned. After all, nobody wants to pay the Fool’s Tax and lose their house due to a poor or fraudulent startup investment.

The SEC’s default assumption here is that people with more money are better equipped to handle their money. Or, at the very least they’re better equipped to suffer a loss without it being a catastrophic life event.

“And those against…”

However well-intentioned it may be, there are countless inconsistencies suggesting the rule is outdated. To name a few:

• Simply having more money does not guarantee financial sophistication

  • Just ask the 33% of “Accredited” lottery winners who go bankrupt, or the VC’s who did “due diligence” on FTX…

• If your only asset today is a $1M home, you’re not “Accredited”. If you sell that home tomorrow, you’d instantly become “Accredited”.

• Anyone, regardless of net worth, can bet their life savings at the blackjack table in Vegas with no regulatory safeguards

  • Note: Please don’t do this

So what’s next?

Nobody really knows what’s going to happen to the Accredited Investor rule.

On the one hand, in June 2023 Congress ruled that the SEC should provide a knowledge-based path to “Accredited” status. However, this has not passed the Senate, and there’s no way to know how long it would take to be implemented if passed.

Meanwhile, in Dec. 2023, an SEC report on the Accredited Investor rule suggested the $1M wealth threshold should actually be increased to $3M+ to adjust for inflation since 1982. Side Note: The music in the report’s video summary is surprisingly cheery for an announcement telling us it might get even harder to invest our own money.

To put some numbers on it, our friends at the Angel Capital Association (ACA) shared that if the SEC’s wealth threshold increases to $3M, 66% of their already Accredited investors would lose their Accredited status.

Our take:

It’s not a simple issue, but in our opinion there’s clearly a better approach.

When you consider that startups are routinely going public later and that technological advancements generally amass economic power into fewer entities, we think it’s more important than ever for all investors to get a fair shot at owning a piece of the companies shaping our world.

At Doriot we’ve long advocated for a thoughtful, education-based path to democratizing the private markets. We led with Fantasy Startup®, continue to innovate with DVC, and have proposed a new standard via the Qualified Accredited Investor (QAI) certification.

If you’re interested in learning more or joining forces to advance this issue, reply to this email or give us a shout!

Time for a poll… Choose an answer below and see how you stack up next week!

Last Week's Results:

Last week we broke down Carta’s latest self-inflicted PR nightmare and asked for your outlook on the startup secondary markets… Turns out 80% of you are “bullish” on pre-IPO equity getting easier to buy and sell in the future! 🐂 

Carta getting out of the game is a big setback. But if at first you don’t succeed, wait for somebody else to try again…

Vote for New Deals:

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New companies suggested this week:

• A lot of them! See link above 🔍️ 

Deal Review 73 Update: