SEC reopens the accredited-investor question again
The rule decides who a US startup may legally take money from without registering the raise. The threshold that has defined it for decades is back under review.
The US Securities and Exchange Commission is revisiting its definition of an accredited investor, according to a report by Inc.
The definition matters to founders for one reason. It sets who a company can raise unlimited sums from without registering the offering with the regulator.
Registration is the expensive path. The exemptions that avoid it are written around accredited investors, so the boundary of that term is the boundary of a startup's legal investor list.
At present the test includes a net worth of $1 million, the figure named in Inc.'s report. Move the line and the pool of people a founder may approach moves with it.
A lower or broader test would widen that pool. Angels who fall short of the current wealth bar today cannot be counted on for an unregistered raise, however much they know about the sector.
The SEC has not announced a new definition. No proposed thresholds, timetable or consultation dates have been published.
This is also not the first pass at the question. Inc. describes the commission as returning to a debate it has revisited before, which is a reasonable warning against redrawing a cap table around an outcome that has not arrived.
For founders raising in the US, the practical position is unchanged until a rule changes. The current test still governs who can be in the round, and the paperwork on a raise closing this quarter has to satisfy the definition as it stands.
The thing worth watching is the proposal itself, when it appears. A revised test would alter not only who can invest, but how much diligence a founder must do to prove an investor qualifies.