Do you need to verify a prospective investor, or wish to self-verify to prove your accredited status? While being certified as an accredited investor isn't mandatory for all capital raises, it's necessary for those wishing to participate in private offerings that have engaged in general solicitation. For those startups and businesses that have publicly solicited while fundraising, they are required to take reasonable steps to ensure their securities transactions are concluded with accredited investors only. This is the only way to ensure that such small businesses and entrepreneurs raise the investment capital they need in a legal manner.
Purchasers who are interested in obtaining an accredited investor status must first meet the requirements held by the U.S. Securities and Exchange Commission (SEC). An investor's income, net worth, and assets are assessed to determine whether or not they qualify as a validated accredited investor. Typically, the minimum-asset requirements vary for different types of investors. For instance, an individual investor's net worth must add up to $1 million or more, while corporations, charitable organizations, and institutions are generally required to have more than $5 million in assets to qualify for accreditation.
Reliable, Licensed Reviewers
Title II provisions of the Jumpstart Our Business Startups Act (JOBS Act) and Rule 506(c) of Regulation D charges issuers with the responsibility of taking reasonable steps to verify that their investors are accredited investors. While the SEC allows an issuer to take any steps that the SEC might later deem reasonable, the only safe method of compliance is to employ one or more of the SEC's pre-approved methods of investor verification. If you're an issuer, one of the methods you can use to determine the status of a potential investor is third-party verification services. Trustworthy third-party platforms will typically use SEC-registered investment advisors or broker dealers, licensed accountants, or attorneys to evaluate investors.
Necessity of Reasonable Steps
Proving accredited investor status is important for both issuers and purchasers. If an issuer doesn't take reasonable steps to ensure an investor is verified, they may be required to return the money to the investors and may be prohibited from raising investment capital through Reg D exemptions. This can be disastrous for a company that needs to raise capital in the future because Reg D is the most commonly used exemption in the US. Purchasers who feel they meet the accredited investor requirements should consider requesting a self-verification from a reliable third-party reviewer, as having that pre-certification will make you a more attractive investor to companies.