Proposed Amendments to the Accredited Investor Definition

Hello I’m Jessica McKinney from the SEC’s office of the advocate for small business capital formation. The SEC
proposed amendments to update the accredited investor definition. This is
the first rulemaking proposal to come out of this summer’s harmonization
concept release in which the Commission solicited your feedback on how to
harmonize and improve the rules for exempt or private offerings. Let’s take a
step back and explain why this definition is important, then we’ll
explore the proposed changes. Qualifying as an accredited investor determines
whether you can invest in companies and funds using the most commonly used
private offering types. Most angel investor, venture capital, and private
equity transactions rely on this definition. The current rule uses wealth
or income to determine whether investors do not need the protections that come
from registration, because of their own sophistication and financial profile. Who can participate in private market
transactions is critical both for the investors access to investment
opportunities as well as companies’ ability to raise the capital they need
to grow and thrive. Now let’s dive into the changes. The proposal leaves the
current wealth or income thresholds in place but adds other means of
qualifying. The proposal also permits spousal equivalents to qualify under the
joint income thresholds like married couples. The proposal would add new
measures of sophistication for individuals to qualify as accredited
based upon their having certain types of professional credentials or their status
as a knowledgeable employee of a private fund. For entities I’d like to highlight
two proposed changes. First the proposal would expand the types of entities that
can qualify capturing all existing entity forms including LLC’s, Indian
tribes, and family offices as well as entity types that could be created in
the future. Second for many of the new entities to
qualify they would use a new five million dollars in investments test
rather than the five million dollars in assets used under the current rule. This
video was produced by the SEC’s office of the advocate for small business
capital formation and is meant to provide only a very high-level summary
of the proposed amendments. I encourage you to look at the release for more
details and how to share your feedback with us. Check out our office’s how to
comment video for more information. Help shape the future of capital raising.

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