What Is an Accredited Investor?
As you browse our platform and the various platforms out there for interesting companies raising capital, you’ve probably run across the phrase “accredited investor.” The term is used quite broadly. We’re here to breakdown what exactly an accredited investor is.
In short, an accredited investor is someone who meets one or more special requirements. The general definition you often see for accredited investors includes certain individuals. These individuals earn an income that exceeded $200,000 ($300,000 with a spouse) in each of the prior two years. Such individuals are expected to do the same for the current year, or have a net worth over $1 million. This may be achieved either alone or together with a spouse. (excluding the value of the person’s primary residence).
Accredited investors may also be an entity. These entities include banks, partnerships, corporations, nonprofit organizations, or trusts when the entity satisfies certain criteria. The full definition of an accredited investor is actually more comprehensive and can be found here. Naturally, if you do not meet one of these requirements, you are a non-accredited investor. As such, you are limited in the amount of money you may invest in companies.
The Bottom Line:
As you can see, accredited investors are generally reserved to wealthy individuals. However, these individuals may not actually be competent or sophisticated in investing. As such, many organizations and individuals have called on the SEC to amend the definition of an accredited investor to include some type of “sophistication clause” that would allow educated and skilled individuals to invest in startups and companies that have generally been reserved to the very wealthy, venture capitalists, angel investors, and others. According to the SEC, accredited investors comprise around 10% of American households, though other sources report the number to be far less.
As a platform and company involved in the online private markets, our ethos is to provide access to the best analysis and research for everyone. Accredited or not, signup for KingsCrowd here to find institutional grade, unbiased research and ratings for startups raising on the online private markets for accredited and non-accredited investors.
About: Francis Vu
An investment professional with a background in private equity and venture capital having spent time conducting investments at VU Venture Partners and Pacific Oak LLC with a finance and management degree from Tulane University.