“Ethical investing” is not an oxymoron. There are many opportunities for individuals with a conscience to invest in private companies that do good and do well.
Usually, only accredited investors can invest in private companies, but you can get around this restriction by using the new equity crowdfunding rules established by the 2012 Jumpstart Our Business Startups (JOBS) Act. Whereas accredited investors are by definition wealthy, just about anyone can participate in crowdfunding, up to defined income and overall caps.
Crowdfunding has been around for a while, and websites like Kickstarter offer you the opportunity to donate funds to worthy artists. However, the new Act initiates equity crowdfunding, which is an investment, not a donation.
You purchase restricted shares from a private crowdfunding company in the hope of receiving a good return on your investment. Companies can raise up to $1 million a year through crowdfunding. To direct your investment towards a worthy cause, you can do the following:
- Find an equity crowdfunding portal: These websites don’t go “live” until late 2014, but they are up and running now, taking down names of interested parties. You invest in companies through these portals, which act as brokers in the transaction. Research the different portals out there and select one that looks reputable.
- Select a company: The portal will have a list of different firms looking for your crowdfunding dollars. Find the ones that appeal to your ethical sensibilities and then do your homework. Discover everything you can about the firm before you invest – these companies must make certain disclosures before they can crowdfund, and the portal will make these materials available to you.
- Make your investment: Observe the income caps: the greater of $2,000 or five percent of your net worth or annual income if that amount is less than $100,000. Richer investors can invest ten percent of their income/wealth up to a maximum of $100,000 in securities purchased.
- Cross your fingers: You cannot sell your shares in the public market for about two years, so hope that your investment does well until then. If the firm goes public, you can sell your shares right away.
By limiting your choices to ethical enterprises, you have a good chance of advancing a cause in which you believe and also securing a possible profit. Remember, there are no guarantees and don’t be surprised if you occasionally hear stories about frauds and scams. Still, there will be plenty of honest opportunities to exercise your moral beliefs and support the entrepreneurial spirit at the same time.