How to Invest in Facebook, Twitter and LinkedIn

The saying “It takes money to make money” seems to manifest itself at every corner.  If you want to become a landlord and exploit the leverage and interest deductions allowed while having someone else pay your rent, you need money for a sizable down payment (unless you fall for the scammy infomercials touting the guy with 1 tooth that bought 3 properties last year with no money down).  If you want to buy a profitable business and grow it further, you need money.  Today, I learned that while the general public can’t invest in private companies such as Facebook, Twitter, LinkedIN and other hot services that I know and love, I could invest in them – if only I were an “accredited investor”.
I was reading about a company Second Market which bills itself as the leading clearinghouse for the buying and selling of private and illiquid assets.  Basically, since employees and investors in these companies have “shares” but they’re not traded publicly, when they want to unload some shares, they do so on Second Market.  And I’d likely oblige in taking some shares off their hands at the market rate if I had the opportunity.
Here’s how the $70 Million in share exchanges shaped up in March:

source: TechCrunch

However, in order to become an investor with Second Market, you need to be in the club.  That would be the Accredited Investor Club.

What is an Accredited Investor?

In the US, an accredited investor is required to have a net worth in excess of $1 Million or have made over $200,000 each year for the last 2 years (make that $300,000 if married) and have an expectation to repeat for this year as well.  Well, that precludes most everyone save for the very upper echelon of earners in the country.  The thinking is that these are “sophisticated investors” that are able to navigate the complexity of exotic instruments and could more reasonably recover from a sizable loss (like the 50% retail investors lost in 2008-2009?).  Anyway, the Securities and Exchange Act of 1933 is protecting us from ourselves.

What I find frustrating is that if I had the opportunity to invest in the likes of Facebook, Twitter or LinkedIn years ago when I first started using them, I’d be looking at a substantial return on my investment – much better even, than how I’ve fared recently in stocks.  But alas, I’m not an Accredited Investor.

And of course, there are ways to make money if you’re not rich – like blogging!  Or starting a small business from the ground up.  But that’s a long, arduous process, as opposed to buying a stake in an existing profitable enterprise or other passive income options people routinely explore.

Would You Invest in Facebook, Twitter and LinkedIn if You Could?

Tagged as: Accredited Investor, Alternative Investments