Who counts as an accredited investor, and why does it matter for my round?
FundraisingCompliance
Accredited investor is a definition in the SEC's rules, not a judgment about sophistication. For an individual it means income above $200,000 in each of the last two years, or $300,000 together with a spouse or spousal equivalent, with a reasonable expectation of the same this year; or net worth above $1 million, alone or with a spouse, not counting the value of the primary residence; or holding a Series 7, 65 or 82 license in good standing. Entities qualify with more than $5 million in assets, and an entity qualifies if all of its owners do.
Why founders care
The exemption almost every startup round uses, Rule 506(b), allows any number of accredited investors and up to 35 who are not. But selling to even one non-accredited investor triggers disclosure requirements close to what a public offering would need, which is far more than a seed-stage company can produce. So the practical rule is that a SAFE or note round takes accredited investors only, and the instrument asks each investor to confirm they qualify.
Under 506(b) the company can rely on the investor's own representation. Under the sister rule 506(c), which allows public advertising of the round, the company must take reasonable steps to verify status, usually through tax returns, bank statements or a letter from the investor's accountant or lawyer.
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Written by the lawyers who built Arabella. This is legal information, not legal advice for your situation, and reading it does not make us your lawyers. For a real dispute or a high-stakes decision, talk to a licensed attorney. More questions.