Update the accredited definition to reflect investor sophistication

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We believe that updating the "accredited investor" definition laid out in Regulation D is critical to not only providing early-stage companies with easier access to capital, but also to democratizing access to alternative asset classes. We have written a letter to the U.S. Securities and Exchange Commission (SEC), asking them to update the definition for the first time since its inception in 1982. Read the letter in its entirety or see the highlights below:

The definition today:

An accredited investor, when it comes to individuals investing on their own behalf, includes anyone who:

  • Earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
  • Has a net worth over $1 million, either alone or together with a spouse (excluding the value of their primary residence). 

What are some of the biggest problems with the current definition?

  • Assumes that wealth, to the exclusion of financial knowledge, solely determines whether or not people are sophisticated enough to understand private investments.
  • Exacerbates America's growing regional wealth disparity by disregarding geographic wealth discrepancies across the US ($199,000 a year goes much further in Jackson, MS than it does in San Francisco, CA), and consequently obstructing access to potential avenues of wealth creation for many living areas of the country with lower average income. 
  • Leads to a shortage of capital for early-stage company founders reliant on Regulation D, but who might otherwise benefit from fundraising from their non-accredited user bases. In turn, fewer companies are developing life-changing technologies and creating jobs.
  • Does not reflect the technological advances that have occurred since its inception, namely the broad adoption of the Internet. Access to information makes it easier for investors to perform due diligence on investment opportunities.

Potential solutions:

  • Supplement the current blanket financial threshold with an additional test to demonstrate an understanding of investment risks.
  • Include a person’s experience, knowledge and credentials (e.g. an advanced degree, professional qualifications, or Securities Licenses) as a measure of sophistication.

As long as both Main Street investors and early-stage entrepreneurs remain shut out the majority of the VC ecosystem, they'll never catch up. Sign our petition to tell the SEC that you want these outdated regulations updated to help level the playing field.