If you do any investing in private companies, Equity Crowdfunding investing, or essentially anything outside of the stock market (maybe even some cryptocurrency), you have more than likely heard of accredited investors. Some sites will wait until the last second to tell you “you must be an accredited investor to continue.” But what is an accredited investor? And what is the definition of an accredited investor?
Accredited Investor Definition 2021
According to the SEC, an accredited investor is someone who…
- earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year,
- has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
- OR holds in good standing a Series 7, 65 or 82 licenses.
Trusts or entities can also become accredited investors under the criteria:
- any trust, with total assets in excess of $5 million, not formed specifically to purchase the subject securities, whose purchase is directed by a sophisticated person
- certain entity with total investments in excess of $5 million, not formed to specifically purchase the subject securities,
- any entity in which all of the equity owners are accredited investors.
Essentially, you just have to have be balling out like this old man. But what if you aren’t balling out? As a non accredited investor, it can feel terrible looking at these definitions, since investors with more money don’t necessarily know more about what they’re doing than everyone else.
How to Become an Accredited Investor in 2021?
If you’re a non accredited investor, and you wish to become an accredited investor, how do you go about doing that? Is becoming an accredited investor hard? Not necessarily. Similar to taxes, there are loopholes and tricks in the rules that can make it easier if you use them.
Some Simple Ways to become accredited:
- Get a professional license, or become involved in a fund or family office. According to the SEC, you can become accredited now “based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution.” Family offices with >$5M in assets were also added and can be a way to invest through an accredited entity as well.
- Get married. The Limit doesn’t simply double if you are married, it only increases by 50%. If you marry someone making more than you, or who can increase your net worth to over $1M, that is one of the easiest ways.
- Increase your income. Start a business, do partnerships, start a blog, get a side hustle, do anything you can to achieve that $200k milestone for two years and you are there. Many have become investment bankers, and that seems to be one of the easiest ways to immediately make enough to meet the requirements.
- Save as much as you can, and increase your net worth. The net worth requirement to become accredited is currently $1 Million, meaning, especially with inflation, the number essentially becomes lower every year unless it is raised or lowered by the SEC.
- Get involved with a trust that has $5 Million in assets. This is probably the hardest one to achieve, unless you happen to have a rich family or grandparents leaving you money. Of course, if you can manage to acquire five million in funds to start a fund or business with, that could work as well.
What Can Accredited Investors Do?
Here in the United States, Accredited Investors have very few limits. If you’ve seen shark tank, you’ll have noticed that since the sharks are accredited investors, they can make an angel investment in any of the companies that come into the shark tank.
As far as Equity Crowdfunding, there are no restrictions on investing limits in either Regulation A+, or Regulation Crowdfunding offerings (as per StartEngine). For Regulation D offerings, only accredited investors may invest, and they have no limits (Wefunder).
Elsewhere, similar to the Shark Tank show – there very few limits, and accredited investors have access to a whole array of opportunities. These may include shares in private placements, structured products, and private equity or hedge funds, among others.
Non Accredited Investor Definition
“Non Accredited” investors, also sometimes referred to as unaccredited, are simply those without accreditation from the SEC as defined above. Many are considered “retail” investors, as they are not affiliated with institutions or large amounts of money associated with hedge funds, VCs, or family offices. Is being unaccredited a bad thing? Not necessarily. As stated later in the article, only around 10% of Americans are accredited, meaning nearly 90% are not.
Non Accredited Investors – Can They Still Invest?
Via Equity Crowdfunding, non accredited investors can still invest in private companies, with limitations.
For Regulation Crowdfunding (Raises up to $5M from anyone)
As per StartEngine, those with a net worth or annual income less than $107,000…
- are limited to invest the greater of $2,200 or 5% of the greater of their Annual Income or Net Worth over any 12-month period
Those with a net worth or annual income greater than $107,000…
- may invest 10% of the greater of his or her Annual Income or Net Worth, to an annual maximum of $107,000 over any 12-month period.
Regardless of income, non-accredited investors are permitted to invest…
- 10% of their net worth of income in Regulation A/A+ Crowdfunding, or whichever is greater, per investment
- In the public stock market
- In Real estate, REITs (publicly traded real estate investment trusts), or real estate crowdfunding/funds such as Fundrise
- In physical assets such as gold, silver or other valuables
- In Cryptocurrencies
If you would like to learn more about the laws behind equity crowdfunding, mainly the JOBS (Jumpstart Our Business Startups) Act (our article is linked), you can learn more over at the equity crowdfunding category of the website.
How many accredited investors are there?
According to DQYDJ (Don’t Quit Your Day Job) estimates, in 2020 there were 13,665,475 accredited investor households in America, and roughly 10.6% of all American households were accredited in 2020. So while it may sound daunting or elite, over 10% of America, especially since the limits have yet to be raised, qualify as accredited investors. But, even if you don’t qualify, do know you are a part of the remaining 89.4% majority who do not qualify as accredited investors.
Want More?
If you would like to learn how to get started investing via Equity Crowdfunding, you can read my other posts on Equity Crowdfunding. Our Newsletter (you can sign up at the bottom and sidebar of the page!) will also keep you up to date on Equity Crowdfunding and much, more, as well as whenever we publish another post!
Legal Disclaimer: This is not financial advice. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by Asset Overload, Connor, or any third party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.
