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Understanding Accredited Investor Rules

Innovation is the key to our economic future, and investing in startups is one of the best ways that individuals can help push our society and economy forward. However, the majority of individuals in the US (98%) are not permitted to invest into private companies due to the regulation that governs the venture capital industry. These rules, specifically accreditation laws, make it harder for regular people to invest in private companies because they require more paperwork, verification and documentation than simply opening an IRA account with Vanguard or Schwab.

Accredited investor rules are defined by law and apply only to private offerings made under Regulation D or Rule 506(b) of Regulation D.

The rules for accredited investor status are set by the SEC, which defines an accredited investor as "any person who comes within any one of the following categories, or who the issuer reasonably believes come within any one of the following categories, at the time of the sale of securities to that person:

  • Individuals with annual income over $200K (individually) or $300K (with spouse or spousal equivalent) in each of the last 2 years and an expectation of the same this year

  • Individuals with net assets over $1 million, excluding the primary residence (unless more is owed on the mortgage than the residence is worth)

  • An institution with over $5 million in assets, such as a venture fund or a trust

  • An entity made up entirely of accredited investors

  • SEC- and state-registered investment advisers

  • Exempt reporting advisers filing with the SEC

  • Individuals with certain professional certifications (Series 7, Series 65, and Series 82 license)

  • "Family Offices” with over $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act

  • Any entity with over $5 million in investments and that was not formed for the specific purpose of investing in the securities offered

If an investor has a pre-existing relationship with a deal sponsor, then they are not required to provide verifiable evidence of their accreditation status. Verifiable means that you can show the documentation to a third party, such as an accountant or financial advisor.

If you want to invest in startups or venture capital funds, it's important that you know if you're an accredited investor. Accredited investors are a specific type of investor who have been deemed by the SEC to be "qualified" to make these sorts of investments.

So, ready to roll?

So, ready to roll?

So, ready to roll?