Accredited investors are individuals and entities the SEC deems financially sophisticated enough to participate in private investment opportunities without the full disclosure protections required for public securities. Most startup funding rounds are restricted to accredited investors.
Who qualifies as an accredited investor?
Individuals qualify if they meet ANY of these criteria:
- Net worth exceeding $1 million (excluding their primary residence), either alone or with their spouse
- Annual income exceeding $200,000 (or $300,000 with spouse) in each of the prior two years, with a reasonable expectation of the same this year
- Hold a Series 7, 65, or 82 financial license in good standing
- Are a "knowledgeable employee" of the fund they are investing in
Entities that qualify include:
- Banks, insurance companies, and registered investment advisors
- Any entity with total assets exceeding $5 million
- Any entity in which all equity owners are accredited investors
Why accredited investor status matters for startups
Under Regulation D (specifically Rule 506(b)), startups can raise unlimited capital from accredited investors without SEC registration. This is the legal basis for virtually every seed and venture round in the US.
Key rules:
- 506(b): Up to 35 non-accredited investors allowed; no general solicitation
- 506(c): Only accredited investors; general solicitation (public marketing) allowed
Accredited investor vs qualified purchaser
"Qualified purchaser" is a higher bar — $5M+ in investments — required for certain private funds. Most startup investments only require accredited investor status.
2026 note
The SEC periodically proposes expanding accredited investor definitions to include financial sophistication beyond net worth, such as relevant education or professional experience.