Accredited investors are individuals or organizations that meet certain financial and legal criteria, as defined by securities regulations in the United States. These criteria are intended to ensure that accredited investors have the financial sophistication and resources to assess the risks and potential rewards of investing in certain types of securities or financial products.
In the United States, the Securities and Exchange Commission (SEC) defines accredited investors as:
Individuals who have a net worth of at least $1 million, either individually or jointly with their spouse (excluding the value of their primary residence)
Individuals who have earned an annual income of at least $200,000 in each of the past two years, or $300,000 together with their spouse, and have a reasonable expectation of earning the same amount in the current year
Banks, insurance companies, registered investment companies, business development companies, and small business investment companies
Charitable organizations, corporations, partnerships, trusts, and estates with assets in excess of $5 million
Accredited investors are typically eligible to invest in private placements, which are offerings of securities that are not registered with the SEC and are not required to be publicly traded. These investments may carry a higher level of risk, as they may not have the same level of regulatory oversight as publicly traded securities. As a result, only accredited investors, who are considered to be more financially sophisticated, are allowed to participate in these types of investments.