# How to Calculate Your Maximum Crowdfund Investment

If you’re an unaccredited investor (meaning your net worth is less than $1 million excluding your primary residence, and you haven’t earned more than $200,000 for each of the past two years), you can’t invest every dime you’ve got in crowdfund investment campaigns. Doing so would be a nightmare for your portfolio (you’d be doing the opposite of diversifying), and it also wouldn’t be legal.

That’s because, per the JOBS Act, the SEC sets specific limits on how much any individual can invest. The limits are based on how much you make (your annual income) or have in your savings (your net worth).

If you can’t quote your annual income off the top of your head, look at your tax return from last year. The adjusted gross income (AGI) on line 37 of Form 1040 is what you’re looking for.

If you don’t have your tax forms handy, just grab one of your paychecks and look for the gross income amount. That amount is what you make before taxes. Multiply the number by how many pay periods you have in a year. (If you’re paid every two weeks, multiply by 26. If you’re paid monthly, multiply by 12. If you’re paid twice a month, multiply by 24.)

*Net worth* is the value of all your stocks, bonds, and savings outside the equity that you have in your house. This figure includes what you have in your retirement account. To calculate your net worth, log on to your online investment account, dig up your investment statements, determine how much you have in the bank, and start adding.

The following table offers the breakdown of how much the SEC allows you to risk on crowdfund investments based on your annual income or net worth. Note that the SEC allows you to use the greater of these two figures when calculating your limit.

If Your Annual Income or Net Worth Is . . . | You Can Invest Up To . . . | Which Caps Out At . . . |
---|---|---|

Less than $40,000 | $2,000 | $2,000 |

$40,000 to $99,999.99 | 5% of your annual income or net worth | $5,000 |

$100,000 or more | 10% of your annual income or net worth up to $100,000 | $100,000 |

To clarify what these limits look like, consider these examples:

If you make $28,000 per year and your net worth is lower than that amount, you can invest up to $2,000 per year.

If you have $45,000 in net worth and earn less than that amount in annual income, you can invest up to $2,250 per year (which is 5 percent of your net worth).

If you make $99,999 per year, and your net worth is lower than that amount, you can invest up to $4,999.95 (which is 5 percent of your annual income).

If you have $325,000 in net worth and earn less than that amount each year, you can invest up to $32,500 (which is 10 percent of your net worth).

Keep in mind that each example reflects an *aggregate amount *(the total amount that this individual can put into all his or her crowdfund investments each year). For example, if you earn $28,000 per year and your net worth is less than that amount, your cap is $2,000 for all your crowdfund investments for the entire year.

If your annual cap is $2,000, you shouldn’t invest most of that amount in a single campaign. Doing so impedes your ability to invest in other crowdfund investment projects for the rest of the calendar year. It also breaks the rules that venture capitalists use for their investments, which is to make small investments in several companies to diversify your risk.

What are the rules for accredited investors? The SEC has determined that accredited investors are individuals with income above $200,000 per year if single ($300,000 per year if married) or with a net worth over $1 million (excluding the value of your home).

If your income/net worth qualifies you as an accredited investor, with the proper legal disclosures, the SEC allows you to make investments of any amount you choose in any private company. Although having this flexibility to make investments at any level may sound like a great thing, it also means there are no guardrails to help limit potential losses from investments in companies that fail.

If you are an accredited investor, use caution when investing in private companies. Use the same principles of portfolio investing that an unaccredited investor uses. High-risk investments (including crowdfund investments) should not comprise more than 10 percent of your investment portfolio. No matter how much of a sure thing the investment may seem to you, do not put all your eggs in one high-risk basket.

Venture capitalists make ten investments in startups to try to get one large winner. Following their example, aim to make a larger number of small-dollar investments in crowdfund investing, and remember that no investment comes with a guarantee. There is no substitute for doing your homework on the companies you are considering and then using your own best judgment to make prudent investment decisions.

If you’re an accredited investor, you have two options when it comes to funneling dollars into crowdfund-investing campaigns:

If you’re investing through an online crowdfunding portal, you’re limited to caps that are provided by the legislation. So, although normally you could invest whatever you like because accredited investors can invest as they see fit, the legislation restricts your cap to $100,000 (even if your net worth is, say, $1.2 million).

If you are investing directly into a company (outside of a funding portal or broker-dealer) that is running a crowdfunding offering online, you can invest as much as you want, provided that the

*company*doesn’t exceed its yearly cap of $1 million of crowdfunded investments per the legislation.From the SEC’s point of view, you’re investing parallel to the crowdfund investments collected on the portal, and your investment counts in the tally of how much the company has generated via crowdfund investing.

If the company doesn’t hit its campaign funding target online, depending on what you agree to with the entrepreneur, you may or may not have the option to withdraw or to keep your funds in. Therefore, if you’re making an investment outside of a funding portal or broker-dealer, make sure you have a lawyer involved.