What is an Accredited Investor?

An accredited investor is someone the law allows to invest in private deals like startups. That’s the eighth definition in the startup dictionary, and it decides who can write you a check.

How does accredited investing work?

In the US, the SEC sets the bar: roughly $200,000 in annual income, $300,000 with a spouse, or $1 million in net worth excluding your home. Certain financial licenses count too. Meet one test and you can buy shares in private companies.

Why do accredited investors matter?

Startup fundraising runs on private securities exemptions, and those exemptions mostly require accredited buyers. Take money from the wrong wallet carelessly and you create legal problems that scare off every future investor.

Where did the accredited investor rule come from?

It traces to the Securities Act of 1933, written after the 1929 crash. Regulation D defined the modern accredited investor in 1982. A 2020 update added license-based qualification, so the club is no longer wealth-only.

How do you handle accredited investors well?

Verify before you take the check. Ask investors to confirm their status, keep the records, and run anything creative, like crowdfunding or tiny checks from friends, past your lawyer first.

Bottom line: the accredited investor rule is the bouncer at the private-markets door. Know it before you raise.

For more startup terminology, visit startupdefinitions.com.