Accredited vs. Non-Accredited Investors — What Startups Need to Know

🧾 What Is an Accredited Investor?

An accredited investor meets specific financial thresholds defined by the U.S. Securities and Exchange Commission (SEC). These individuals or entities are presumed to have the financial sophistication to bear investment risks in private securities.

✅ Accreditation Criteria (Individuals):

• Income: Over $200,000 annually (or $300,000 with spouse) for the past two years

• Net Worth: Over $1 million in net worth, excluding primary residence

• Other Routes: Holding Series 7, 65, or 82 licenses (since 2020 SEC update)

✅ Accreditation Criteria (Entities):

• Assets over $5 million or owned by accredited individuals

• Registered investment companies or banks

🔗 Full criteria on SEC website

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🙋‍♂️ What Is a Non-Accredited Investor?

A non-accredited investor is anyone who does not meet the above financial or professional requirements.

While they make up the majority of the population, they have limited access to startup investments due to regulations designed to protect them from high-risk offerings.

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⚖️ Why Does This Matter for Startups?

When raising capital, startups must comply with securities laws. The type of investor determines:

• What offering exemptions you can use

• How much you can raise

• Whether general solicitation (marketing) is allowed

• Disclosure requirements

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🛡️ SEC Rules That Affect You

📌 Note: Under 506(c), investors must prove accreditation via tax returns, net worth documentation, or a third-party letter.

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💼 How to Work with Accredited Investors

• Use a 506(c) exemption to broadly market your raise

• Verify their status early using platforms like VerifyInvestor

• Send formal offering docs (PPMs, SAFEs, term sheets)

• Maintain investor suitability files

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👥 Raising from Non-Accredited Investors

If you’re working with retail investors:

• Consider Reg CF or Reg A+ routes

• Use a registered portal like StartEngine, Republic, or Wefunder

• Be aware of investment limits based on income/net worth

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⚠️ Compliance Tips for Founders

• Do not publicly solicit unless using Reg CF, Reg A+, or 506(c)

• Keep documentation of investor accreditation

• Consult legal counsel before accepting checks

• Use platforms that handle legal and compliance

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📈 Trends in Retail Investing

The democratization of investing is growing. More startups are blending rounds:

• 506(c) for high-net-worth investors

• Reg CF to activate community supporters

• Strategic angels + crowdfunding = smart capital stack