Some startup companies search for and obtain a limited amount of funding to launch their startup businesses. Sometimes this capital comes from their assets or family and friends. However, there comes a time when these companies need to reach for a new type of investor to obtain the capital necessary to achieve their goals. The accredited investor is this type of investor. As an accredited investor, you can help companies like this succeed and reap the rewards of participating in some higher risk and more profitable investment opportunities. All you have to do is meet the accredited investor requirements.
Some of the reasons why it is worth meeting the requirements to become an accredited investor include:
Exemption from SEC Registration
Accredited investors are a sophisticated category of investors who have access to investments not available to regular investors. Due to the fact they have fulfilled the criteria for sophistication and wealth established by the Securities and Exchange Commission (SEC), accredited investors are authorized to invest in offerings such as small business private placements.
These accredited investors can also be entities, not just persons. For example, corporations and banks with more than $5 million USD in assets may be accredited investors.
Businesses that sell securities to accredited investors do not have to register those securities with the SEC per Regulation D, Rules 505 and 506.
Access to More Investment Opportunities
Another reason to meet the accredited investor requirements is the ability to access more significant investment opportunities. Accredited investors have access to options such as private placements, crowdfunding, and other alternative investments, that other investors do not.
Some examples of investment opportunities available to accredited investors include:
• Commercial real estate
• Real estate syndications
• Venture capital (angel investing)
• Real estate crowdfunding
• Hedge funds
Potential for Higher Returns
Investors who fulfill the accredited investor requirements have access to riskier investments that offer the possibility of higher returns. The higher risk involved also presents the possibility of greater loss if the investment fails.
Options for Diversification
Since accredited investors have access to a greater number of investments, they can also diversify their portfolios to a greater extent. For example, certain investments, such as real estate crowdfunding, added to other investments may reduce the overall risk of the investor’s investment portfolio.
As one can see, there are a number of advantages to meeting the requirements for becoming an accredited investor.