Accredited Investor
In the domain of private capital fundraising, the 'accredited investor' status is a pivotal benchmark that delineates the pool of individuals and entities eligible to engage in investments, particularly within the early-stage company sector. Federal securities laws craft exemptions that specifically limit participation in these higher-risk investment opportunities to accredited investors, while also imposing certain constraints on the involvement of non-accredited investors. This regulatory framework is designed to protect novice investors from the inherent risks of such ventures, while simultaneously ensuring that companies can secure capital from investors who are deemed to have the necessary financial insight and resilience
There are several ways to get accredited in the United States.
Individuals, natural person:
- If you are a director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that company.
- If you are an individual with a net worth or joint net worth with a spouse or spousal equivalent of at least $1 million, not including the value of his or her primary residence.
- If you are an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
- If you are a knowledgeable employee under the Investment Company Act, involved with a Covered Fund or serving in a capacity such as an executive officer, director, trustee, or similar role with an Affiliated Management Person of a Covered Fund, you may qualify as an accredited investor.
- If you hold a current and valid general securities representative license (Series 7), investment adviser representative license (Series 65), or private securities offerings representative license (Series 82), you may qualify as an accredited investor. Good standing requires compliance with FINRA regulations and, where applicable, state-specific licensing criteria
As an entity:
- If you are a bank, savings and loan association, insurance company, registered investment company, business development company, or small business investment company, or rural business investment company.
- If you are a trust with assets exceeding $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment.
- If you are a family office or its family clients, the family office has assets under management in excess of $5 million and whose prospective investments are directed by a person who has such knowledge and experience in financial and business matters that such a family office is capable of evaluating the merits and risks of the prospective investment.
Verification and Compliance
Engagement in the private markets requires rigorous compliance with regulatory standards. Verification of accredited status, understanding of the investment's risks, and due diligence are mandatory steps. Before making investments in the private markets take your time to properly educate yourself on the laws and regulations of the US, SEC, FINRA, IRS, and any other applicable bodies.
Final Note
The landscape of private investing is nuanced and requires a thorough vetting process. Both entities and individuals should seek professional advice to confirm their status as accredited investors, ensuring informed participation in private offerings. This information serves as a foundational guide and is not a substitute for professional counsel.
