An accredited investor is a person or organization that is qualified to participate in financial opportunities that are not legally offered to regular investors.
The word "accredited" is the root of the phrase. This suggests that in order to be such an investor, an entity must satisfy the necessary criteria. Investors are considered accredited according to standards based on asset size, net worth and income. The standards for corporate entities are also dependent on governance.
Different countries have different rules for what constitutes an accredited investor. The regional financial regulator sets the requirements. In the US, the rules are specified by the SEC.
The following criteria must be met in the US:
An individual must have earned more than $200,000 per year during the previous two years ($300,000 combined with the spouse’s earnings). The person must also anticipate receiving the same amount of income or more in the current fiscal year.
An organization's assets must be worth at least $5 million for it to be accredited. If the entity's owners are accredited investors, the entity may also be regarded as an accredited investor.
A person must be at least $1 million in net worth at the time of purchase, either alone or jointly (if married). The value of the person's principal house is not factored into the computation of net worth. An accredited investor may also be a general partner, director, or executive officer of the company that issued the unregistered securities.
An organization is not permitted accredited status if it was created specifically to buy unregistered stocks. The US Congress amended the definition of an accredited investor in 2016 to include investment advisers and brokers.
Some benefits of being an accredited investor include:
When a company raises money privately instead of going for public capital markets, this is known as a private placement. They usually offer greater returns than the public markets. Being an authorized investor makes it much simpler to access higher-yield capital markets.
Accredited investors may help startups at any stage of growth, and seed-funding platforms link them with small enterprises whose goals coincide with theirs.
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