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How Do Accredited Investors Benefit Startups?

Mihir Gandhi

When you’ve exhausted your initial startup funding – which was more than likely sourced from friends and family - and your business is a functioning entity, you are now ready to look for more serious investors beyond the scope of your own personal network.

Accredited investors form a wide and varied pool of potential funding and they often got to where they are through an innate instinct for good business and savvy investing. In addition to money, they often have vast amounts of experience and expertise to bring as well. They are also usually well connected and have the necessary “street cred” to help your business get to where you want it to go.

The Right Resources

In order to be classified as an accredited investor, an individual has to have significant assets. Current regulations define an accredited investor who is a natural person, who has:

  • Earned an income of at least $200,000 (or jointly with a spouse, has earned $300,000) in each of the previous two years, and have a reasonable expectation of achieving the same in the current year, or
  • A net worth, (alone, or with a spouse) of over $1 million, excluding the value of a primary residence.

There are multiple other categories of accredited investors tied to the type of investor they are or other thresholds.  Accredited investors, in general, have resources at their disposal to make a positive contribution to the growth of your business.

No SEC Registration

Properly done, an offering of securities made solely to accredited investors meeting the Securities and Exchange Commission (SEC) criteria do not have to be registered with the SEC.  Raising money from non-accredited investors, on the other hand, may mean that you have to provide a vast amount of information about your startup company. This can incur high legal and accounting costs which, as a startup company, you may not be able to afford.

The Big Picture

Money is money, but one should think about the costs of obtaining capital.  See the bigger picture and think long term.  If you seek investors, think carefully about whether you want to take non-accredited investors into your company.  Are they the type of investors you want in your company, and is your company ready to take on the extra burdens that might come along with accepting non-accredited investors?

For more information on accredited investors, what they are, and how to prove they are accredited, visit VerifyInvestor.com.

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