An accredited investor is a person that may trade in securities without being registered with the various regulating authorities within the United States. An accredited investor can make investments in early stage companies that a non-accredited investor cannot.
Typically, security offerings from companies are required to be registered with the Security and Exchange Commission (SEC). Naturally, this is to avoid fraudulent offerings. However, certain offerings do not have to be registered if every investor being solicited is an accredited investor. This lowers the burden on the company trying to raise funds and, thus, makes accredited investors extremely important. It is for this reason that accredited investors are often angel investors.
What makes someone an accredited investor is specified under Regulation D of the Securities Act of 1933. In 2020, the rules for being an accredited investor requires that someone be able to show an income of $200,000 or more for the last two years and have a reasonable expectation of earning at least $200,000 in the current year or have a net worth exceeding $1,000,000 exempting the value of their primary residence. Lastly, an accredited investor can be an officer of the company offering this type of security. A company can be an accredited investor if the business' assets exceed $5,000,000 or if all of the partners within it are accredited themselves.
- More about Regulation D