The recently passed JOBS Act may have created confusion among some people as to the meaning and applicability of the term “accredited investors”.

The main point of confusion is the conflation of private shares sold through crowdfunding under the JOBS Act, and the older regulations for private placements specified in Section 501 of the Security and Exchange Commission’s Regulation D.

The JOBS Act allows any investor (subject to income caps) to invest in a startup company through a crowdfunding broker or portal. The startup company can receive up to $2 million of funding per year under this method, and have up to 2,000 private shareholders.

Obviously, this method for raising capital is for very small companies needing only modest amounts of funding. In contrast, larger private companies may wish to raise considerably more funding and therefore use Regulation D to sell restricted, unregistered shares to accredited hedge funds buyers, private equity investors, etc. through preparation of a Private Placement Memorandum (PPM). A PPM is similar to a prospectus in the types of information it contains. Purchasers of private shares pursuant to a PPM cannot publicly sell these shares before the end of a one-to-two year holding period, during which time the shares are illiquid.

The question arises as to what constitutes an accredited investor. There are eight types:

  • Entities such as banks, thrifts, brokers, dealers, insurance companies, investment companies, small businesses, and employee benefits plans.
  • A private business development company
  • An organization corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
  • Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
  • Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000;
  • Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
  • Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person; and
  • Any entity in which all of the equity owners are accredited investors.

Obviously, the identities of accredited investors can be a very valuable resource for private companies wishing to offer private placements. offers high-quality lists of accredited investors that are 100 percent FTC-compliant. The surveyed prospects on the lists have annual income of $200,000 over the past two years (or $300,000 combined) and/or a net worth of $1,000,000+ and experience managing their personal portfolios.

We hope this clarifies any confusion you may have regarding accredited investors. Please feel free to contact us with any questions or requests.

Eric Bank