We’re partway through the labyrinth of red tape and regulations when we hit a dead end. Confused, we check our wrist coms for coordinates, but we’re out of range of Mission Control.
A dusty little creature that looks like a snail made out of rock slithers out from under the hedge. “You forgot about accredited investors!” she says.
“What?” I ask, confused.
The snail-thing is right, though: if you’re going to be raising money, it’s important to know what an accredited investor is, how accreditation is determined, and who is responsible for that determination.
In the United States, “accredited investor” is a term defined by the SEC in Regulation D (Rule 501, if you care). The point of having this definition is to allow people with a certain amount of income or net worth to invest in higher-risk (and higher-reward) ventures than people with income or net worth below the given point. The current point for an accredited investor is that the person must make $200,000 (or $300,000 combined with their spouse) for the two most recent years, or have a net worth above $1 million excluding the person’s primary residence.
There is no process or agency that gives the accreditation. The burden of determining whether an individual is a qualified accredited investor or not lies on the person who is selling unregistered securities to accredited investors. Therefore, it is vital that if you are fundraising from accredited investors, you include the due diligence of determining that they are in fact what they say they are.
“That makes sense,” you say, and we turn back to the rock-snail creature. It’s gone, and so is the hedge that was blocking our path.