An Accredited Investor is an individual or entity that meets specific financial criteria, as defined by the U.S. Securities and Exchange Commission (SEC), allowing them to invest in private securities offerings that are not registered with the SEC.
Key Criteria for Individuals:
- Income Test:
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- Earned an annual income exceeding $200,000 (or $300,000 together with a spouse or spousal equivalent) in each of the last two years and expects the same for the current year.
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- Net Worth Test:
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- Has a net worth exceeding $1 million, either individually or jointly with a spouse or spousal equivalent, excluding the value of their primary residence.
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- Knowledge or Certification:
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- Holds certain professional certifications, designations, or credentials recognized by the SEC, such as a Series 7, Series 65, or Series 82 license.
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Key Criteria for Entities:
- Assets:
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- An entity with total assets exceeding $5 million, not formed solely for the purpose of investing in a specific security.
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- Ownership:
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- All equity owners of the entity must be accredited investors.
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Accredited investors are presumed to have the financial sophistication and capacity to bear the risks of investing in less-regulated and potentially high-risk ventures, such as hedge funds, venture capital, and private equity.