🧾 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
🙋♂️ 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.
⚖️ 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
🛡️ SEC Rules That Affect You
Rule by rule — can you use Accredited Investors? Non-Accredited Investors? General Solicitation?
- Reg D 506(b) — Accredited: ✅ Yes; Non-accredited: ✅ Yes (limit: 35); General solicitation: ❌ No
- Reg D 506(c) — Accredited: ✅ Yes (must verify status); Non-accredited: ❌ No; General solicitation: ✅ Yes
- Reg CF (Crowdfunding) — Accredited: ✅ Yes; Non-accredited: ✅ Yes (limits apply); General solicitation: ✅ Yes
- Reg A+ — Accredited: ✅ Yes; Non-accredited: ✅ Yes; General solicitation: ✅ Yes (with SEC review)
📌 Note: Under 506(c), investors must prove accreditation via tax returns, net worth documentation, or a third-party letter.
💼 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
👥 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
⚠️ 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
📈 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
Planning a Compliant Raise, Step by Step
The right path depends on who you plan to raise from and how you plan to find them. Working through these questions early, ideally with a securities lawyer, saves problems later.
- Map your likely investors. List who you expect to invest: angels you already know, people met through events, customers, or a wider community. Note which are likely to be accredited.
- Decide how you will reach them. If you want to post about the raise publicly, speak about it at events, or advertise, that affects which exemptions are open to you.
- Choose an exemption before outreach begins. Your choice shapes what you can say in public, who can invest, and what paperwork you need. Changing course halfway can be difficult.
- Set up verification and records. Decide how you will confirm investor status and where you will keep the documents.
- Confirm the filings and deadlines. Most exemptions involve federal filings, and some states have their own notice requirements. Your lawyer can confirm what applies.
A Simple Example
For example, imagine a founder who plans to raise $750,000. Most of the money is expected from a handful of experienced angels, but the founder also has a loyal customer base that wants to invest small amounts.
One approach is to run two separate tracks: a private round for the angels under an exemption suited to accredited investors, and a crowdfunding campaign through a registered portal for customers. That lets the community take part without putting the main round at risk. Whether this structure works, and how the two offerings must be kept separate, is exactly the kind of question to settle with counsel before announcing anything.
Common Mistakes Founders Make
- Posting about an open round on social media while relying on an exemption that does not allow general solicitation
- Accepting a check from a friend or family member without checking their status
- Relying on an investor saying “yes, I’m accredited” when the exemption requires verification
- Paying someone who is not properly registered a fee for introducing investors
- Leaving filings until after the round closes and missing deadlines
What This Means for Founders
Investor status is not just paperwork. It affects how you market your round, who you can accept money from, and how clean your company looks during later due diligence. Mistakes here can create problems that surface years later, when a new investor or acquirer reviews your history.
Rules, thresholds, and definitions in this area are updated from time to time, and the details above are a general overview rather than legal advice. Always check the current rules with a qualified securities lawyer before you start raising.
What This Means for Investors
If you invest in startups, expect to be asked to confirm your status, and in some offerings to provide documents that prove it. Founders who ask for this are doing their job properly. Non-accredited investors still have routes into startup investing, but usually with investment limits designed to manage risk.
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