Accredited Investors
Accredited investors play a vital role in the capital-raising landscape, as their eligibility often determines which individuals or entities can participate in certain investment opportunities. The regulations for accredited investors vary across jurisdictions, typically defined by local market regulators or competent authorities. In the U.S., the Securities and Exchange Commission (SEC) sets forth the definition of an accredited investor in Rule 501 of Regulation D, specifying criteria that help shape the pool of eligible investors for many early-stage companies. Several offering exemptions under federal securities laws restrict participation to accredited investors or limit non-accredited investor involvement.
How can individuals qualify as accredited?
Individuals (i.e., natural persons) may qualify as accredited investors based on specific wealth, income thresholds, or other professional measures of financial sophistication:
- Financial Criteria
- Net worth exceeding $1 million, excluding the primary residence, either individually or jointly with a spouse or partner.
- Annual income over $200,000 (individually) or $300,000 (with a spouse or partner) in each of the prior two years, with a reasonable expectation of maintaining or exceeding this income level in the current year.
- Professional Criteria
- Investment professionals in good standing who hold the general securities representative license (Series 7), the investment adviser representative license (Series 65), or the private securities offerings representative license (Series 82).
- Directors, executive officers, or general partners (GP) of the issuing company (or a GP of that company).
- Any “family client” of a “family office” that qualifies as an accredited investor.
- For private fund investments, “knowledgeable employees” of the fund may also qualify.
How can entities qualify as accredited?
Entities may qualify as accredited investors depending on their structure or the value of their assets:
- Investments
- Entities with investments exceeding $5 million.
- Assets
- Entities with assets over $5 million, including corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, employee benefit plans, and any “family office” or “family client” of that office.
- Owners as Accredited
- Entities in which all equity owners meet accredited investor criteria.
- Investment Advisers
- Investment advisers, whether SEC- or state-registered or exempt reporting advisers, as well as SEC-registered broker-dealers.
- Financial Entities
- Banks, savings and loan associations, insurance companies, registered investment companies, business development companies, or small business investment companies (SBICs) or rural business investment companies (RBICs).
For more information on the accredited investor requirements and other related details, please visit the SEC’s comprehensive resource: SEC Accredited Investors Guide.