What Is an Accredited Investor?

The phrase “accredited investor” shows up in almost every startup fundraise. It matters because many private offerings rely on securities law exemptions that either (a) limit who can invest, or (b) assume accredited investors can evaluate risk with fewer mandated disclosures.

Quick answer

In the U.S., an accredited investor is a person or entity that meets the SEC’s definition in Rule 501 of Regulation D. For individuals, the most common paths are (1) meeting certain income thresholds, or (2) meeting a net worth threshold (with special rules for your primary residence). Some professional license holders and certain entities also qualify.

The core idea (why the law cares)

Federal securities laws are designed to protect investors in securities offerings. One way the system works is: if you sell securities without registering the offering, you typically need an exemption. Many exemptions used in startup fundraising (especially Regulation D) lean on the concept of “accredited investors.”

This is not a “badge of sophistication” so much as a legal category. Being accredited can expand what you’re allowed to participate in, and in some cases it changes what the issuer must do to verify eligibility.

How individuals qualify

1) Income test (individuals)

You generally qualify if you had income over $200,000 in each of the two most recent years (or over $300,000 jointly with a spouse) and you reasonably expect to reach the same income level in the current year.

These thresholds come from the SEC’s accredited investor definition in Regulation D. Whether a particular type of income “counts” can be fact-specific, so if your situation is unusual, ask counsel.

2) Net worth test (individuals)

You generally qualify if your net worth exceeds $1 million, either alone or jointly with a spouse, excluding the value of your primary residence.

Net worth is assets minus liabilities. There are special rules about how to treat debt secured by a primary residence. If you’re close to the line, or your mortgage situation is complicated, get professional advice rather than guessing.

3) Professional qualifications (certain certifications and roles)

The SEC expanded the definition in 2020 to include certain individuals based on professional knowledge rather than wealth. This includes holders in good standing of certain FINRA licenses, including Series 7, Series 65, and Series 82.

“Knowledgeable employees” of certain private funds can also qualify for investments in that fund, subject to specific conditions and definitions. This is a narrow category and depends on the facts.

How entities qualify (high level)

Entities can qualify in several different ways under the SEC rules, and the details matter. Common examples include certain regulated entities (like banks and insurance companies), certain types of business entities that meet asset thresholds, and family offices that meet specific requirements.

Because entity qualification depends heavily on the type of entity and why it was formed, it’s worth confirming the exact rule your entity fits under rather than relying on a single “$5M assets” shortcut.

Accredited investor qualification paths (common ones)

Qualification path	What it generally means
Income test (individual)	Over $200,000 individual income (or $300,000 joint with a spouse) in each of the last two years, plus a reasonable expectation of the same this year
Net worth test (individual)	Over $1 million net worth (alone or with a spouse), excluding primary residence value (with special rules for primary residence debt)
Professional licenses	Holders in good standing of certain FINRA licenses, including Series 7, 65, or 82
Knowledgeable employee (limited)	Certain employees of a private fund may qualify to invest in that fund, depending on role and other conditions
Entity qualification	Depends on the type of entity (for example, certain regulated institutions, certain entities meeting asset tests, and certain family offices that meet specific requirements)

Frequently asked questions

Why does accredited status matter in startup fundraising?

Because many startup “private rounds” rely on Regulation D. Depending on which Rule 506 exemption a company uses and how it markets the offering, accredited status can affect who is eligible to invest and what steps the company must take (including, in some cases, investor verification).

Can non-accredited investors invest in startups?

Yes. One common path is Regulation Crowdfunding (Reg CF), which allows non-accredited investors to participate, subject to legal limits that depend on the investor’s financial situation. (Those limits are formula-based and change over time, so don’t rely on a fixed number without checking current rules.)

How do you “prove” you’re accredited?

What you need depends on the type of offering. In some offerings, investors may self-certify. In others, the issuer must take “reasonable steps” to verify accredited status, and that often means reviewing documents.

• Income-based: commonly IRS forms (like W-2s, 1099s, K-1s, or filed tax returns) plus a written representation about expected current-year income.
• Net worth-based: commonly bank and brokerage statements plus a credit report or other liability documentation, along with representations about assets and debts.
• Professional license-based: commonly confirmation of an active Series 7/65/82 status.
• Third-party verification: sometimes a CPA, attorney, investment adviser, or broker-dealer provides a verification letter, depending on the offering and the issuer’s process.

If you’re a founder running the raise, don’t improvise verification requirements. The right process depends on the exemption you’re relying on and how you’re soliciting investors. Talk to securities counsel if you’re unsure.

Bottom line

“Accredited investor” is a specific SEC definition that often determines who can invest in private offerings and what compliance steps issuers must follow. The common individual paths are the income test, the net worth test (excluding primary residence), or certain professional qualifications. If you’re close to the thresholds or investing through an entity, confirm the details rather than assuming you qualify.