Help the SEC Define the New Accredited Investor Standards
The Angel Capital Association is conducting a short, anonymous survey to learn more about current accredited investors in the United States. Please take a minute to fill it out so that they can have accurate information before presenting a proposal to the Securities and Exchange Commission (“SEC”). Take the confidential, 2 minute survey here: http://angelinsightsurveys.org/surveys/index.php?sid=31783&lang=en
Under the Dodd-Frank Act, the SEC must review the standards for what makes an investor “accredited” according to regulation D of the Securities Act of 1933. The Dodd-Frank Act already adjusted the definition of an accredited investor in 2011 when it mandated that individuals can no longer include the value of their primary residence when calculating their net worth. The SEC will now examine whether to increase the 30 year old standards for what makes an individual person an accredited investor. Currently, an individual can qualify as an accredited investor if they are: 1) a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; 2) a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. [Source: SEC.gov]
Some advocates are trying to raise these standards to account for inflation. One proposal would raise the minimum net worth requirement to $2.5 million and the annual income requirement to $450,000. A study by Angel Capital Association suggests this change would reduce the number of individual accredited investors by as much as 60%. The SEC will also consider whether to allow individuals who do not meet the wealth requirements, but who have financial or investment expertise (eg. a CPA or CFA certification) to participate in private placements. According to the SEC, about 8.5 million households qualify as accredited investors, but only a very small number participate in private placements for startup and emerging growth companies. Last year, companies raised about $900 billion through private placements, which was nearly 4 times the amount raised through public offerings or “IPOs”. These investments were only made by about 234,000 investors.