How to Become an Accredited Investor - You Might Already Be One

8 min read

Most people don't realize they're already an accredited investor — are you?

Becoming an investor means taking into account various personal financial aspects and goals. What are your investment aspirations? Accredited investing is open only to a select few and carries different responsibilities than traditional investing for unaccredited investors. For instance, take a look at your:

Current finances. Becoming an accredited investor requires a certain provable net worth. Many investments are only available to high net worth individuals.
Short-term financial needs. How secure are you financially? In the short term, is there any chance you might need the money you're thinking of putting towards investments? Any major purchases on your horizon?
Investment goals. Why do you want to invest? Do you need cash flow? Are you looking at tax breaks? Are you planning for the future and want to find long-term income opportunities?
Tolerance of risk. What is your risk tolerance? Can you afford potential losses? Are you trying to build a nest egg for later in life?

These are questions you must answer honestly. The answers can help you decide if you want to become an investor or even an accredited investor. Depending on your answers, you might already be an accredited investor.

But first, here's some history regarding accredited investing.

How Did the JOBS Act Affect Investments?

Rules for investors were rigid prior to the Jumpstart Our Business Startups (JOBS) Act of 2016. The Securities and Exchange Commission (SEC) — a financial industry regulatory authority — opened new investment opportunities to everyday Americans when their new rules for equity crowdfunding took effect. This meant the average American could get in on more valuable trades, even if they didn't have the financial valuation to back up their investments.

No longer were investors required to be accredited according to Title III of JOBS. Title III widened the options available to entrepreneurs seeking operating capital. The Act allowed them to reach out to anyone via an online platform — crowdfunding.

But how?

By easing the regulations and widening the loophole associated with the securities this Act pertained to.

Legislation for the Act was signed during President Obama’s first term in office, in April 2012. The SEC then had to rewrite many of its rules, specifically the ones that stated only accredited investors could invest using crowdfunding. This addendum to the JOBS Act went into effect in May 2016.

Title III gave small businesses and startups in their early stages a different means of obtaining capital. Non-accredited investors now had access to equity crowdfunding sites.

But with securities investment comes great responsibility. Many unaccredited investors don't have the financial chops for the long haul. And this is one of the reasons why accreditation exists. Accreditation is vital in the world of high-dollar — and high-risk — investments.

So, what does it mean to be accredited? And how do you find out if you're an accredited investor?

Accredited Investor Definition

If you meet the criteria to be an accredited investor, the SEC allows you to invest in securities that aren't necessarily registered with appropriate financial authorities. To earn accredited status, you must have satisfied at least one of the requirements regarding your income or net worth, size of assets, status, or professional experience.

Some examples of accredited investors include:

Individuals with high net worth
Banks
Credit unions
Trusts
Insurance companies
Brokers

In the United States, the SEC (in Regulation D) considers anyone who is financially sophisticated and doesn't require disclosure protections to be an accredited investor.

Does becoming accredited matter?

That depends. Are you looking for the status? Or do you want to be a truly savvy investor?

Hedge funds and private equity may look like the pinnacle of investments, and while some of these investments can get you inside the gates, they’re not as “golden ticket” as you might think. In fact, many people have seen great financial success investing in funds as simple as the S&P 500.

For instance, Warren Buffet is a household name these days. His fortune is over $120 billion, and he amassed most of his wealth by investing in common stocks that even non-accredited investors can participate in. In fact, Buffet bought his first stock at the tender age of 11!

Obviously, Warren Buffet is an accredited investor, but he didn’t start out that way — his status today isn’t thanks to accreditation.

Rather than focusing on accredited status alone, it's smarter to consider becoming a savvy investor. You can grow financially sophisticated by applying some of the techniques that Buffet used. This isn't to say that accreditation means nothing. It only means that accreditation isn't everything if you don't know what to do with this coveted status.

Benefits of Having Accredited Investor Status

All that said, there are several perks for accredited investors. One of the biggest perks is that investment options are wide open. Investing in smaller or privately held companies often offers a much higher potential for gain. For instance, the cannabis market is one of the most prized markets for accredited investors. Why? New opportunities arise daily, and many of these companies are still private. Getting in on the ground floor before a company goes public can guarantee greater dividends.

What advantages do accredited investors have over non-accredited investors?

Non-accredited investors can also invest in certain private companies, but as an accredited investor, you’ll have many more options. Non-accredited investors are bound by regulatory restrictions. From the viewpoint of a company, raising capital with non-accredited investors can be a burden — if not outright prohibitive.

Accredited investors have the chance to learn about investment opportunities first, get access, and then invest. Some of these opportunities can include syndications, crowdfunding, angel investments, and hedge funds. Although the JOBS Act opened opportunities for non-accredited investors in 2016, there are still conditions that must be met by both the individual investing and the company receiving the investment funds.

How You Can Become an Accredited Investor

Perhaps you’ve been waiting for this golden nugget of information: How do you become an accredited investor? Well, you might mistakenly think there’s some special formula, government agency, or review board that bestows this status upon you after filling out some forms or jumping through some hoops. The truth is there’s no magical road or fast-track process to becoming an accredited investor. There are no credentials to earn. No exam to take.

In fact, you might already be an accredited investor!

Each prospective company you desire to invest in must conduct due diligence before offering up a sale to you. If a company issues unregistered or private securities, they must discern your investor status. This involves several steps on their part to ensure you're an accredited investor before they can offer securities.

Can you simply tell the company you’re accredited? Unfortunately, no. You’ll be presented with a questionnaire to verify your accredited status. You’ll probably have to attach financial statements, tax returns, and W2s from your employer. The assessing company may also ask to see your credit report to determine, should you have any outstanding debts, if those debts would hamper your investment ability. It's a good idea to have written statements from your lawyer, accountant, broker, or advisor.

Proving your status

To prove accredited status, you must be able to show that:

You’ve earned income greater than $200,000 ($300,000 with a spouse/domestic partner) for the past two consecutive years, and
You expect this same level of income to continue, or
Your net worth is more than $1 million (solely or with a spouse/domestic partner), after subtracting the value of your primary residence

What Platforms Exist for Accredited Investors?

Are you scared to death of owning your own investment property and all the work involved with repairs and maintenance?

On the other hand, just the mere mention of real estate investments gets you excited. It’s never been easier to stake a claim on a real estate deal or a fund that’s focused on commercial deals.

The JOBS Act allowed crowdfunding companies to market this type of investment, and many platforms have popped up that bring the opportunities to you. These platforms strictly vet the opportunities as well as the investors seeking them.

But what if you’d rather get in on the next big round of equity funding for a tech startup? Well, with equity crowdfunding, you can do just that.

The JOBS Act made it possible for accredited investors to invest in privately held companies for a piece of ownership. And the platforms that provide these types of opportunities aren’t offering a nice thank-you letter or token product in exchange for your contribution. You actually get part ownership in the company you invest in — and the chance to share in their success. Don’t be blinded, though. Investments are tricky, and not every opportunity leads to success.

Equity crowdfunding platforms host opportunities from startups to large privately held companies looking for investment funding from individuals like you. Many of these platforms allow you to invest in either a venture capital fund or choose the companies you’d like to assist. And the best part is that equity crowdfunding allows you to invest with much less than the traditional investment minimum. Some platforms allow both accredited investors and non-accredited investors to take part, but non-accredited investors are hampered by rules and limits on allowable investments. For instance, the SEC states that non-accredited investors can only invest a certain amount in a one-year period. A non-accredited investor’s limit is based on income and net-worth, but an accredited investor has no restrictions.

Hedonova is the platform for alternative investing

Many people don't realize they're already accredited — is that you? If you fit the criteria listed above, and you're interested in today's best alternative investments, come see what Hedonova is all about.

Are you ready? Get started investing or contact us.

FAQs

What Qualifies an Accredited Investor?

To prove accredited status, you must show that:

You’ve earned income greater than $200,000 ($300,000 with a spouse/domestic partner) for the past two consecutive years, and
You expect this same level of income to continue, or
Your net worth is more than $1 million (solely or with a spouse/domestic partner), after subtracting the value of your primary residence

Do You Have to Prove You Are an Accredited Investor?

Yes. Accreditation offers access to investments that unaccredited investors cannot access. You must prove your accreditation before you can invest in certain vehicles, such as private equities.

What Happens if You Lie About Being an Accredited Investor?

Typically, the blame falls on the fund or company. Companies must perform due diligence and ensure investors are accredited. As for your involvement, you will likely lose your investment.

How Much Can an Accredited Investor Invest?

Accredited investors have no limits on investments.

What is the Benefit of Being an Accredited Investor?

Accredited investors have no limits on investment amounts, plus they have access to private investments that unaccredited investors do not.

Can an LLC Become an Accredited Investor?

LLCs and other such entities can become accredited investors. But the LLC must have at least $5 million in assets and prove their accreditation was not solely for the ability to invest.

General Disclosure

Hedonova.io, LLC (together with its affiliated entities, collectively "Hedonova") operates a website at www.hedonova.io (the "Site" or “Hedonova Platform”). The information contained on the Site that is generally available to non-members (i.e. persons who have not established a user profile) neither constitutes an offer for nor a solicitation of interest in any securities offering. If an indication of interest or reservation is provided, it may be withdrawn or revoked, without obligation or commitment of any kind prior to being confirmed by the investor and accepted by Hedonova and any offer, solicitation or sale of any securities will be made only by means of an offering circular, private placement memorandum, or prospectus. Any person considering investing in an offering referenced on the Site should carefully review the documents on file with the Securities and Exchange Commission (the “SEC”) relating to such an offering. An exempt offering of shares or interests will only be made pursuant to the relevant Offering Circular or Private Placement Memorandum (a ”Memorandum”) and subscription documents. The Site contains active hyperlinks to such information and, with respect to public offerings pursuant to Regulation A, it can be found under the name of the respective issuer entity on www.sec.gov. None of the information on the Site or in other promotional materials distributed by Hedonova is a substitute for such detailed information filed with the SEC (“SEC Materials”) or set forth in a Memorandum. We refer to SEC Materials together with all information on the Site (including this Important Disclosure) and other promotional materials distributed by Hedonova as “Materials”. The information contained herein will be qualified in its entirety by reference to the SEC Materials, Memorandums and other agreements and documents referred to therein, which contain additional information about the investment objective, terms, risks, and conditions of an investment.

Except as otherwise indicated, the Site is maintained by Hedonova in its sole and absolute discretion and Hedonova is solely responsible for the content on this website. No broker-dealer member of FINRA is or has been involved in the development or dissemination of this website, but any page(s) on the password-protected portion of the Site that identify a broker-dealer or that are otherwise used by a representative of a broker-dealer in connection with sales activities are reviewed and approved by a principal of the broker-dealer. Broker-dealers licensed with FINRA may participate in offerings sponsored by Hedonova as underwriters or placement agents.

Nothing contained herein shall be deemed to be binding against, or to create any obligations or commitment on the part of, any potential investor, the offering sponsors, or the respective affiliates. No person has been authorized to give any information or make any representation or warranty regarding the subject matter hereof, either express or implied, and, if given or made on this website, in other materials, or verbally, such information, representation, or warranty cannot and should not be relied upon, nor is any representation or warranty made as to the accuracy, content, suitability, or completeness of the information, analysis, or conclusions, or any information furnished in connection herewith contained in this presentation.

Past performance is no guarantee of future results and past historical appreciation rates of artwork may not be indicative of future appreciation rates. An investor can lose money. Diversification and asset allocation do not ensure a profit or guarantee against loss. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Hedonova.io and its affiliates are independent and unaffiliated with any broker-dealer participating in a securities offering conducted through the Site. Any securities transactions or related activities by Hedonova affiliated entities are conducted by registered representatives of one or more FINRA-licensed broker-dealers, or by Hedonova associated persons in their capacity as a “principal” to the transaction pursuant to SEC Rule 3a4-1.

No money or other consideration is being solicited, and will not be accepted without such potential investor having been provided the applicable offering document. Joining the Site neither constitutes an indication of interest or reservation of shares in any offering nor involves any obligation or commitment of any kind.

There can be no assurance that an investment mix or any actual performance or appreciation rate shown on the Site will lead to the expected results shown or perform in any predictable manner. It should not be assumed that investors will experience returns in the future, if any, comparable to those shown or that any or all investors on the Site experienced such returns. Likewise, it should not be assumed that historical artwork appreciation rates are predictive of future appreciation rates.

The information presented on the Site regarding each offering merely constitutes a summary of such information and is qualified in its entirety by the disclosure contained in each issuer's offering circular or Memorandum available on the Site. There can be no guarantee that any offering available on the Site will achieve its business objectives or that a painting or collection of paintings will appreciate in value or be able to be sold.

Offers to sell, or the solicitations of offers to buy, any security can only be made through official offering documents that contain important information about risks, fees and expenses. Investors should conduct their own due diligence, not rely on the financial assumptions or estimates displayed on the Site, and are encouraged to consult with a financial advisor, attorney, accountant, and any other professional that can help you to understand and assess the risks associated with any investment opportunity.

Neither the SEC nor any state securities commission or regulatory authority approved, passed upon or endorsed the merits of any investment on the Site. Each investor should always carefully consider investments in any security and be comfortable with his/her understanding of the investment. Investors should not construe any Materials as tax, legal or investment advice. Investors are urged to seek independent advice from their own advisors for legal, tax or investment advice.

All product names, logos, and brands are property of their respective owners. Use of these names, logos, and brands is for identification purposes only, and does not imply endorsement or affiliation.

Services available on the Site do not constitute "crowdfunding" as described in Title III of the Jumpstart Our Business Startups Act ("JOBS Act"). Hedonova is not registered as a broker-dealer and is not a member of FINRA. Hedonova is not registered as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”) and the membership interests do not have the benefit of the protections of the Investment Company Act. Furthermore, Hedonova is not registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), and the members of Hedonova issuers will not have the benefit of the protections of the Investment Advisers Act. Neither FINRA, the SEC or any other regulatory organization endorses, indemnifies, or guarantees any offering referenced on this website. The SEC does not pass upon the merits of or give its approval to any securities offered or the terms of any offering, nor does it pass upon the accuracy or completeness of any offering circular or other solicitation materials.

No offeree will be accepted as a subscriber who does not make the representations set forth in the subscription agreement accompanying each Memorandum or Offering Circular, including, when applicable, the representation that such offeree is an accredited investor and is acquiring the membership interests for investment and not with a view to resale or distribution thereof in violation of applicable securities laws, and, when applicable, that the investment amount does not exceed 10% of the offeree’s net worth or annual income. Investors also will be required to represent that they are familiar with and understand the terms of each relevant offering, among other things. Investors may also be required to provide additional information to verify their identity or investor status.

The shares will not be offered or sold to prospective investors subject to the Employee Retirement Income Security Act of 1974 and regulations thereunder, as amended (“ERISA”).

Investors are urged to review the disclaimers, Hedonova Terms of Use and Privacy Policy and cautionary statement regarding forward-looking statements at the bottom of the landing page of the Site.

This Important Disclosure is deemed to be incorporated by reference in its entirety into any social media communication, advertisement, email or other communication which contains a link to this page at www.hedonova.io/disclaimer.