What Does It Mean to Be An “Accredited Investor”?

“Accredited investor” is probably a term you’ve heard before – it’s often used as a filter to determine who can (or should) invest in a certain deal, fund, or business. Also referred to as a “sophisticated investor” in some circles, this designation is used for both individuals and businesses who are able to access certain deals that may not be registered with financial authorities. Accredited investors are entitled to this privileged access because they’re deemed financially sophisticated and solvent enough to bear the risks.

In the United States, the specific definition and criteria to be an accredited investor are determined by the Securities and Exchange Commission (SEC). General criteria for becoming an accredited investor:

• To be considered an accredited investor, you must have annual income exceeding $200,000 ($300,000 for joint income) for at least the prior two years, with the expectation that the income will remain steady or increase this year.
• If an individual has a net worth of $1M+ (individually or with a spouse), he or she is already considered an accredited investor.
• If a private organization has assets of $5M+, the entity is already considered an accredited investor. (Likewise, if the entity has owners who are accredited investors, the entity itself becomes an accredited investor).

The purpose of the accredited investor designation in the United States is to protect investors who might not have the knowledge and/or financial cushion to take on risky investments. A regulatory body like the SEC has to balance the desire to promote risky, big-bet, entrepreneurial investments with the need to safeguard the system. The specific criteria are consistently under review and there are certainly exceptions to them; this post, while not financial advice, is meant to provide a basic checklist of what qualifies one as an accredited investor.

If you are an accredited investor, the types of deals you can look at open up much more broadly – venture capital, hedge funds, and real estate syndications, to name just a few. There are still plenty of ways to engage in the entrepreneurial ecosystem even if you’re not an accredited investor, so don’t be discouraged. Knowing your options, though, is a helpful practice. The OVRC will provide more information on Oklahoma-centric investment options right here. Keep following along!