Effect of JOBS Act on Demand for Accredited Investor Leads

What Will Be the Role of Accredited Investors in Private Investments?

As the different ramifications of the 2012 JOBS Act begin to sink in, some assumptions have been made regarding the future role of accredited investors with regard to private investments. The Act specifies rules that change Rule 506 of the Security and Exchange Commission’s Regulation D. Rule 506 provides a safe harbor for the offering and sale of certain private, unregistered securities. Previously, Rule 506 allowed unlimited private fundraising from an unlimited number of accredited investors – investors with $1 million in wealth or $200,000 income in each of the previous two years – and up to 35 non-accredited investors (assuming certain financial disclosures are met). The old Rule 506 also prohibited general solicitation or marketing of restricted securities to the public.

The new rules contained in the JOBS Act lifts the marketing prohibition on Rule 506 offerings. Rule 506, according to the SEC’s Division of Risk, Strategy and Financial Innovation, is already the most frequently used safe harbor rule within Reg D (the others being Rules 504 and 505), and this lifting of marketing restrictions will no doubt accelerate the move to Rule 506-based private placements. Some have speculated that the regulations will diminish the role of accredited investors in Rule 506 offerings because of the dropped ban on general advertising. However, this viewpoint overlooks the fact that fully 90 percent of Reg D offerings are composed entirely of accredited investors. In other words, most everyone who invests in a Reg D offering is accredited, and there is no reason to believe they will be crowded out in the future.

One reason why accredited investors will most likely continue to dominate the private placement market is that private companies prefer them:

  1. Accredited investors, who are by definition wealthy, can on average make larger purchases than can non-accredited ones.
  2. By favoring large investors, private firms can reduce the number of small investors, which means reducing the total number of investors.
  3. Reducing the number of different investors saves operational costs, increases privacy, and in general reduces the hassles of dealing with a lot of small investors.

Therefore, the demand for accredited investors is likely to remain robust even when the SEC roles out the final version of its new rules. SalesLeads.tv is the industry leader in the sale of accredited investor lead lists and is looking forward to the continuing opportunity of providing clients with the highest quality lists that are DNC and state-law compliant.

Eric Bank