An accredited investor is a person or entity that meets certain criteria established by securities laws to be eligible to purchase certain types of investments. These criteria are designed to ensure that accredited investors have the financial sophistication and ability to bear the risks associated with these investments.
In the United States, the criteria for being an accredited investor are outlined in Regulation D of the Securities and Exchange Commission (SEC). According to these regulations, an individual must meet one of the following criteria to be considered an accredited:
* Have a net worth of at least $1 million, either individually or jointly with their spouse (excluding the value of their primary residence).
* Have an annual income of at least $200,000 (or $300,000 jointly with a spouse) in each of the past two years and expect to earn at least the same amount in the current year.
Entities, such as corporations, partnerships, and trusts, can also qualify as accredited investors if they meet certain requirements. For example, a corporation with assets exceeding $5 million or a trust with total assets over $5 million and a history of investing in securities may be considered an accredited investor.
Accredited investors can access a broader range of investment opportunities than non-accredited investors. These may include private placements, hedge funds, and venture capital investments, which are not required to register with the SEC and are, therefore, not subject to the same level of regulatory scrutiny as publicly traded securities.
However, the fact that these investments are less heavily regulated means that they may be riskier and less transparent than publicly traded securities. As a result, accredited investors are expected to have the financial knowledge and expertise necessary to understand and evaluate the risks associated with these investments.
It is important to note that being an accredited investor does not guarantee a profit or protect against loss. All investments carry some level of risk, and it is up to the individual investor to carefully evaluate the potential risks and rewards before making any investment decisions.
Reg D 506(c) syndications are reserved only for accredited investors. Reg D 506(b) can have up to 35 non-accredited investors, but the rest of the investors have to be accredited.
Feel free to reach out to us if you want to learn more about our 506(c) funds for accredited investors.