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Written by: John Panaccione
Experienced, accredited investors who invest in startups and private businesses do so using a set of principles and methods that are part of the Angel/VC playbook. It’s a common belief among those who do that when they allocate capital to private companies—either directly or through venture capital firms—they do so with a portfolio-level objective: achieve average returns of roughly 30% across many investments. Most deals fail - all the money is lost - or they may get lucky and get their money back. Some underperform, but survive. A small number, the unicorns, take off and drive the overall results. It's widely accepted in the Angel/VC world that if you can't offer a 10x return in 5-7 years, chances are, they're going to pass on you.
That model has worked for decades. It’s rational, disciplined, and not going away.
Only about 11% of U.S. households qualify as accredited investors. However, that doesn’t mean they all actively invest as Angels or cut checks to Venture Capital and Private Equity firms to do so on their behalf. In fact, most people who fit the definition of an accredited investor don’t even know they are one. Those relatively few who do invest actively in private businesses as angel investors have something most people don’t: choice. They see hundreds of opportunities each year and typically invest in only 1–2% of those hopeful souls that pitch to them. If you’re a founder raising capital, the traditional route, those are your odds.
As an aside, I’ve always thought it was somewhat amusing that despite how selective these supposedly highly skilled investors are, their investments fail about half the time. Because of this, traditional angel and venture capital investors understand the importance of not putting all their eggs in one basket. A portfolio approach distributes risk, and they can afford total losses on a meaningful number of investments because the winners are expected to carry the load.
The remaining 89% of U.S. households (the non-accredited) operate in a very different set of risks and principles around that risk. Most of their capital sits in public markets through retirement plans, pensions, and professionally managed portfolios. Historically, in that world, a 10% annual return is considered a good year, sometimes an exceptional one. The financial advisory industry reinforces this system, often steering clients away from anything labeled an “alternative investment,” with private company investing firmly in that category. If you have a financial advisor, ask them what they think of your idea of investing in a private company you like, then note the look on their face.
This is where a common misunderstanding about the new opportunity for non-accredited investors to start investing in private companies begins.
Why the Angel Investor Playbook Doesn't Work for Most People
Access to investment opportunities, coupled with the reach of the Internet and the introduction of the Regulation Crowdfunding exemption in 2016, has widened the pool of potential investors. Under Reg CF, an unlimited number of non-accredited investors can invest in our startups and private businesses. For the record, up to 35 can invest under an older exemption called Reg D506(b), and an unlimited number can invest under Reg A as well; they have been able to do so for a long time.
The mantra in the Reg CF space has been “now everyone can invest like an Angel investor”. In my view, that's dangerous. This belief is wrong. The angel investing playbook involves concentrated bets, high failure rates, long holding periods, and a tolerance for losses that only works for a small, wealthy subset of investors. Trying to copy that behavior for non-accredited investors that can’t afford to lose too often entirely misses the point.
Consider these three realities.
Your Pension Fund Is Already Betting Big on Private Equity
The irony is that many non-accredited investors are already exposed to private companies. They just don’t know it.
Public pension funds have dramatically increased their allocations to private equity over the past two decades, fundamentally reshaping institutional investment strategies. According to data from NASRA and the Public Plans Data, private equity allocations have surged from approximately 7% of pension fund portfolios in 2001-2008 to 13% by 2023, with the most aggressive funds now allocating 15% or more of total assets to this asset class. This growth has been even more pronounced when measured as a percentage of "risky" assets, jumping from 14% in 2001 to 39% by 2021. Leading this trend, CalPERS—the nation's largest public pension fund with over $500 billion in assets—recently increased its private equity target allocation from 13% to 17% of total plan assets (with a permissible range of 12-22%), representing approximately $92 billion in private equity investments as of 2024, up from $50 billion just two years earlier. The School Employees Retirement System of Ohio has similarly embraced private equity, allocating 14% to it, citing it as its highest-returning asset class over the past decade. The New York State Common Retirement Fund has also dramatically expanded its private equity commitments, with nearly half of its $3.1 billion in new commitments directed to this asset class. This prolonged growth reflects pension managers' conviction that private equity can deliver superior long-term returns, with CalPERS reporting 20-year annualized returns of 12.3%—significantly outpacing public equities' 8.9% and fixed income's 2.4% over the same period.
Read that again. A growing share of pension assets—money largely belonging to teachers, firefighters, nurses, and other middle-class workers—is invested in private enterprises or in funds that invest in them. The trend is toward greater investment in private equity and debt in the future.
Here’s the twist: Most of the people whose money sits in these pensions are from non-accredited households.
So while individuals are often told that private company investing is too risky, too complex, or inappropriate for them, 11% or more of a good number of people’s retirement money is already being deployed into private companies—just indirectly, through institutional intermediaries who decide which private funds, which in turn invest it in private companies, get their money.
The risk isn’t eliminated. The control and visibility are.
New Access Doesn't Mean You Should Invest Like an Angel or VC
What’s shifted in recent years isn’t investor psychology. It’s distribution and access.
The internet, social media, and long-overdue enhancements to securities laws—including Regulation Crowdfunding (2016) and Regulation A reforms—now allow emerging companies to reach thousands of potential investors directly. Not angels. Not venture funds. Customers, operators, supporters, and community members who understand the business, the problem it solves, and the people running it.
These opportunities aren’t about chasing unicorns. They don’t need to be. Instead, they can offer returns meaningfully above public-market expectations, often targeting IRRs in the 10–30% range, depending on structure and execution. That range sits squarely between traditional market exposure and institutional private equity. Another bonus: they're not tied to the up and down swings of the public markets - they're what's known as "non-correlated" assets, or things that are not tied ("correlated") to the public markets.
Why You Need Cash Flow, Not Just Unicorn Dreams
There’s an additional critical distinction founders often miss: liquidity matters far more to non-accredited investors. Many need the option to receive cash returns while the business is operating, not only if it’s sold or taken public. As a result, they’re often more attracted to debt-style investments, such as revenue share agreements, bonds, or convertible notes, that provide interim distributions and allow them to recoup their investment without having to sell the company they invested in.
Angel and VCs, by contrast, typically prefer equity. They’re comfortable waiting years for liquidity and usually aren’t interested in debt deals because the upside simply isn’t compelling enough relative to their risk appetite and opportunity cost.
Why is this important? If you’re a founder raising capital, debt offerings mean you won’t be under pressure to sell, sell, sell so the investors can get their (preferred) return. Standard terms that are tied to angel and VC investments often force a sale, too, but that’s a topic for another day.
The Real Opportunity: Trillions in Community Capital
For the majority of today’s founders, statistically, the opportunity doesn’t lie in turning non-accredited investors into amateur angels. It doesn’t lie in competing with angels and VCs who reject 98% of the deals they see, running a playbook that doesn't make sense for most non-accredited investors who have never invested in a private company before. I know many who endlessly hope that the next pitch contest is "the one”. Hope is not a strategy.
Rather, for many types of businesses (especially those that don’t involve AI these days), the opportunity for most founders lies in the trillions of dollars held by a growing population of non-accredited investors. For most of these potential investors, they rarely have been invited into a direct, transparent way to participate in private businesses they actually believe in—despite the fact that their pension funds have been doing exactly that on their behalf for years.
Too many founders make the rookie mistake of failing to align the security type with the targeted investor. If non-accredited investors are the audience, liquidity, the potential for passive cash flow, and, eventually, getting their money back without you having to sell matter. If accredited investors are the target, straight debt is usually a nonstarter. Their rulebook typically supports going big or going home.
Access changes who gets to invest. Scale driven by the Internet, coupled with new and expanded securities laws over the past decade have expanded access to non-accredited investors, and is changing how capital can be accessed. It’s always been and always will be hard to raise capital, but who you raise it from often determines success or failure in a capital raise. I like to say we, as entrepreneurs, “earn capital”; we don’t “raise it,” as if we have full control over it. It’s our job to earn it.
The Bottom Line
The irony is that non-accredited households have been funding private enterprise for decades without realizing it. What’s different now is that they finally have a seat at the table, instead of being told they shouldn’t be in the room at all. It’s not a celebratory time to proclaim that “now everyone can invest like the sharks”. Rather, it’s a celebratory time to say now we can all choose if and where we want our dollars invested in private companies.
Related: International Markets Outpace U.S. Stocks as Valuation Gap Widens
References
- National Association of State Retirement Administrators (NASRA), “Public Fund Survey” (2001–2023)
- Public Plans Data, Center for Retirement Research at Boston College
- CalPERS Annual Investment Report (2023)
- Teacher Retirement System of Texas Annual Financial Report (2023)