what is an accredited investor 
an accredited investor is an individual or a business that is allowed to buy and sell securities that are not registered with financial authorities such as shares in new businesses that have not yet gone public accredited investors get this designation by satisfying at least one requirement regarding income net worth asset size governance status or professional experience in the u s the term is used by the securities and exchange commission sec under regulation d to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings accredited investors include high net worth individuals banks insurance companies brokers and trusts investopedia katie kerpelduties of an accredited investoraccredited investors have privileged access to pre ipo companies venture capital companies hedge funds angel investments and various deals involving complex and higher risk investments and instruments a company that is seeking to raise a round of funding may decide to directly approach accredited investors an example might be a young technology company that has a product in the late development stages and needs more money to launch the product on the market it is not a public company but hopes to launch an initial public offering ipo in the near future such a company might decide to offer securities to accredited investors directly this type of share offering is referred to as a private placement for accredited investors there is a high potential for risk or reward the sec wants to ensure that they are financially stable experienced and knowledgeable about their risky ventures 21requirements for accredited investorsthe regulations for accredited investors vary among jurisdictions in the u s the definition of an accredited investor is put forth by the sec in rule 501 of regulation d 3to be an accredited investor a person must have an annual income exceeding 200 000 300 000 for joint income for the last two years with the expectation of earning the same or a higher income in the current year the income test cannot be satisfied by showing one year of an individual s income and the next two years of joint income with a spouse 3an accredited investor should have a net worth exceeding 1 million either individually or jointly with a spouse this amount cannot include a primary residence the sec also considers applicants to be accredited investors if they are general partners executive officers or directors of a company that is issuing unregistered securities 3an entity is considered an accredited investor if it is a private business development company or an organization with assets exceeding 5 million also if an entity consists of equity owners who are accredited investors the entity itself is an accredited investor 3 however an organization cannot be formed with the sole purpose of purchasing specific securities a person can qualify as an accredited investor by demonstrating sufficient education or job experience in the financial industry 3recent changes to the accredited investor definitionthe u s congress modified the definition of an accredited investor in 2020 to include registered brokers and investment advisors 4according to the sec s press release the amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge experience or certifications in addition to the existing tests for income or net worth the amendments also expand the list of entities that may qualify as accredited investors including by allowing any entity that meets an investments test to qualify 5among other categories the sec now defines accredited investors to include the following individuals who have certain professional certifications designations or credentials individuals who are knowledgeable employees of a private fund and sec and state registered investment advisors 5