Even with a relatively small amount of money, a person may invest in stocks, mutual funds, or bonds. However, there is a category of investments that only a privileged category of investors may participate in, such as real estate ventures, startups, venture capital funds, and private equity, among others. These are referred to as private market investment opportunities and are largely open to only those who meet the accredited investor requirements.
Having accredited investor status means you have the financial capacity and know-how to handle the risks involved with these types of investments. Due to the higher level of speculation and risk associated with these investments, the SEC has placed restrictions on who can invest in these private placement opportunities.
How to Become an Accredited Investor?
To obtain the status of accredited investor and have access to the select investment opportunities mentioned above, you must fulfill at least one of the accredited investor requirements. These include:
•Possess a net worth of greater than $1 million USD either individually or with a spouse or spousal equivalent(not including the primary residence)
• Have a yearly earned income of more than $200,000 USD (or $300,000 USD jointly with a spouse or spousal equivalent) during the past two years with the expectation of earning the same or more in the current year.
• Possess specific professional credentials, certifications, or designations, such as:
◦ Employed by a private fund
◦ Considered a knowledgeable employee of a private fund
◦ Employed a state-registered or SEC investment advisor
◦ Hold professional certifications in good standing – i.e. Series 7, 65, or 82 licenses.
In order to verify that investors have met the accredited investor requirements, they often follow a certain process, as explained below.
Verifying Investor Accredited Status
The process of verifying an investor’s accredited status may involve either an internal screening procedure or third-party accreditation. The internal screening procedure may typically involve a series of questions the investor is given to answer that indicates whether the investor meets the accredited investor requirements. A company may also request specific documents from the investor in order to help verify the investor’s status, including
- W-2 forms
- Tax returns
- Credit reports
- Bank and brokerage statements
- Professional certifications, credentials, or designations
The ultimate responsibility rests on the issuer of securities to ensure its investor fulfills one of the accredited investor requirements. This involves the issuer adhering to all applicable SEC regulations.
