An accredited investor is a person or legal entity that meets certain net worth or income requirements. Accredited investors are considered to be sufficiently sophisticated enough to make decisions regarding investments in a startup’s private offering.
The federal securities laws define an accredited investor in Rule 501 of Regulation D as:
1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
a director, executive officer, or general partner of the company selling the securities;
4. a business in which all the equity owners are accredited investors;
5. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, provided that the value of a person’s primary residence may not be used for such net worth calculation, but any indebtedness in excess of the value of the primary residence shall be used in the calculation;
6. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
7. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.