The U.S. Securities and Exchange Commission (SEC) Small Business Capital Formation Advisory Committee recently met to discuss the accredited investor definition. The Commission is expected to demand higher hurdles to qualify as an accredited investor.
Expanding not shrinking the pool of accredited investors will drive innovation, stimulate economic growth, and improve the quality of life in underserved communities. How? Because individual investors are more likely than VCs to fund women- and other diverse-founded startups, which, in turn, bring jobs to their communities.
Oh, and diverse founders also give great returns to those who invest.
Who Are These Accredited Investors?
The SEC defines accredited investors as financially capable individuals who can absorb potential investment losses without affecting their standard of living. To qualify, investors must meet at least one of four criteria:
- a net worth of $1 million (excluding primary residence)
- an individual income of $200,000 in each of the previous two years
- a household income of $300,000 for joint filers in the previous two years
- certification/credentials in specific professions (e.g. Series 7, 65, and 82 licenses)
The SEC is mandated review ensures that the definition remains appropriate and up-to-date in a constantly evolving investment landscape and changing economic conditions.
The review ensures the definition reflects the diverse range of investments available and the evolving financial sophistication of investors. This balances inclusivity and safeguards against investors who may not possess the necessary knowledge to invest in high-risk ventures.
Between 2020 and 2023, the number of accredited households grew 42.3% to 19,444,975 in the U.S., according to DQYDJ. They represent 14.8% of households and control $109.5 trillion in wealth.
Why Accredited Investors Matter
Accredited investors matter because they can invest in startups. “Main Street” investors are deemed less…
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