Redefining Accredited Investor: That’s One Small Step for the SEC, One Giant Leap for Our Economy

Abstract

New ventures move our economy. Most of these ventures need additional capital to grow. They raise this capital through exempt offerings, and exempt offerings are essentially limited by the pool of accredited investors (AIs). Currently, individuals must meet either net worth or income thresholds to be considered AIs. Because of this, AIs make up only 13% of U.S. households, and only a small fraction of these households actually invest in exempt offerings. There is consensus that it is time to consider criteria besides net worth and income. Expanding the AI population by welcoming people who pass a relevant exam is a responsible way to increase the number of AIs. Even if no other securities laws or rules change, the AI exam would help ensure investor protection while generating more investment alternatives for individuals, additional capital for new ventures, and increased liquidity for the market.

Keywords: Accredited Investor, Securities Laws, Angel Investing, Venture Capital, Accredited Investor Exam

JEL Classification: K22, G24