I get asked frequently what’s the deal with friends and family, as in funding your startup with people who aren’t sophisticated investors as defined by securities and exchange laws. What that means, in a nutshell, is that it can be illegal to take money in exchange for stock from someone who doesn’t have the income or net worth as defined by the government as the minimum that makes that person a “sophisticated investor.”
I was browsing for an explanation of why not, yesterday, when I came up with this one: The Trouble with Raising Money from Non-Accredited Investors on The Startup Lawyer. That looks to me like a very good summary.
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