Current Accredited Investor Definition Works, Creating Jobs and Innovation

2014 is a crucial time for angel investors. We’ve already made a big deal about the SEC’s new rules on verifying accredited investor status in generally solicited deals, but now there is a possibility of an even more existential issue for angels - many of us may no longer be accredited investors if the SEC follows the requests of organizations that want to increase the requirements for being accredited. Sometimes when it rains, it pours!

The potential higher bar could eliminate 60% of angel investors, reducing the pool of capital for startups. Currently to be an accredited investor, an individual must have an annual income of $200,000 or net worth of $1 million, not including their home (see the official definition here). If these thresholds were raised for inflation, they would go up to $450,000 income and $2.5 million in net worth.

This new issue has its start with the Dodd-Frank Act of 2010, which many ACA members will remember, as we successfully fought a similar change to the accredited investor definition. The act requires the SEC to review the accredited investor definition every four years, and the SEC will do so some time after July of this year.

ACA is actively working on this important issue and recently submitted our recommendations in a letter to the SEC. Not only do we strongly believe the current definition works well, but we also provided some ideas on how to allow other sophisticated investors to become accredited investors. We will work with ACA members this year to let policy makers know how important this issue is!

Why this Issue Matters

Accredited angels are a primary source of capital for high-growth early-stage companies, which account for most of the net new job growth in the United States in the last 25 years. These companies have relied on angel investors for money and mentoring for decades. This has created a strong capital network that fosters job‐creation and innovation. If the thresholds increase, there will be fewer angels to support these companies.

The loss of angel support could be devastating. The General Accounting Office (GAO) and the SEC estimate that an inflation‐based adjustment to net worth would eliminate approximately 60% of current accredited investors. This would be a huge hit for the very companies that create new job growth.

ACA added some new data to this issue, thanks to our 12,000+ members. The December-January survey of seasoned “professional” angel investor members netted data from more than 1,000 angels in 41 states and new demographics that we haven’t seen anywhere else. The survey indicates that more than a fourth of our members would fall below the thresholds if the income and net worth criteria were simply adjusted for inflation. You can see some of the results in our letter to the SEC.

ACA believes this impact could be devastating. The startup ecosystem would face grave disruption from a dramatic shrinkage of this vital investor pool—especially in regions where venture capital is not prevalent. Our survey found that the impact would be higher outside of Silicon Valley, Boston, and New York. These young companies have little or no access to the public markets for capital, nor can they obtain bank loans.

Join the Discussion

At the March 26-28th ACA Summit in Washington DC, hundreds of angel investors from around the country will explore this issue—and many others. We hope you join us too.


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