What Is Accredited Investor?

Under SEC rules, an individual typically qualifies as accredited by earning over $200,000/year ($300,000 with a spouse) for the last two years with the expectation of continuing, or by having a net worth over $1 million excluding a primary residence. Certain professional certifications (Series 7, 65, or 82 license holders) and "knowledgeable employees" of private funds also qualify regardless of income or net worth.

The accreditation requirement exists because unregistered securities — the SAFEs, convertible notes, and preferred stock startups issue — don't carry the disclosure protections of public securities. Startups raising under Regulation D (the most common exemption used for seed and early-stage rounds) generally must verify investors are accredited before accepting their money, not just take their word for it.

Raising money from non-accredited investors without following the correct exemption can create serious securities-law liability for a startup, including the right for investors to demand their money back years later. A securities or startup attorney should structure any raise — even a small friends-and-family round — to confirm which exemption applies and what verification is actually required.