Accredited Investor
An accredited investor is an individual or entity that meets specific financial thresholds set by the SEC and is therefore permitted to invest in private securities offerings that are exempt from standard registration requirements.
The concept of the accredited investor is central to U.S. securities regulation. Because the SEC requires most securities offerings to be registered — a process involving extensive disclosure documents, legal review, and ongoing public reporting — many companies, particularly startups and private equity funds, seek exemptions from registration. Regulation D under the Securities Act of 1933 provides the most commonly used exemptions, and most of them require that investors in unregistered offerings qualify as 'accredited investors.'
The original definition, established in the 1980s, was based entirely on financial wealth. An individual qualifies as an accredited investor if they have earned more than $200,000 in annual income ($300,000 jointly with a spouse) for the two most recent years with a reasonable expectation of the same in the current year, or if they have a net worth exceeding $1 million, excluding the value of their primary residence. For entities such as corporations, partnerships, and trusts, the threshold is generally $5 million in assets.
In 2020, the SEC significantly expanded the accredited investor definition to include individuals who demonstrate financial sophistication through professional credentials rather than just wealth. Holders of FINRA Series 7, Series 65, and Series 82 licenses automatically qualify. 'Knowledgeable employees' of certain private funds also qualify when investing in those funds. This was the first substantive update to the definition in nearly 40 years and reflected the view that expertise, not just wealth, should determine access to private markets.
The rationale behind the accredited investor framework is that sophisticated investors with significant financial resources are better equipped to evaluate the risks of unregistered securities and can absorb losses without catastrophic personal consequences. Because private offerings are not subject to the same disclosure requirements as public securities, they carry elevated risks including illiquidity, limited information, and absence of an audited financial track record.
Accredited investor status opens access to a wide range of investments unavailable to the general public: hedge funds, private equity funds, venture capital funds, angel investing in startups, and private placements by growth-stage companies. The trade-off is fewer legal protections and less regulatory oversight. Investors should carefully evaluate private offerings and consider seeking independent financial advice before investing in exempt securities.