Sophistication or Discrimination? How the Accredited Investor Definition Unfairly Limits Investment Access for the Non-wealthy and the Need for Reform.

February 8, 2023 - Sophistication or Discrimination? How the Accredited Investor Definition Unfairly Limits Investment Access for the Non-wealthy and the Need for Reform 


Early this morning, the Subcommittee on Capital Markets held a hearing entitled “Sophistication or Discrimination? How the Accredited Investor Definition Unfairly Limits Investment Access for the Non-wealthy and the Need for Reform.” The purpose of this hearing was to examine policies designed to expand investor access to our private markets. 

Among those testifying were ACA Board Member and the Founder & Managing Partner, Investors of Color Network Eli Velasquez as well as David Olivencia, CEO & Co-Founder, Angeles Investors. Other experts included Omi Bell, Founder, Black Girl Ventures and Jennifer Schulp, Director of Financial Regulation Studies, Center for Monetary and Financial Alternatives, Cato Institute.

Expanding Opportunities for Underrepresented Investors and Entrepreneurs 

Companies have two ways of accessing capital in the securities markets to fund their operations: an initial public offering (IPO) where they sell securities publicly through a registered offering with the SEC or a private offering under an exemption from registration. Accessing capital through an IPO is a significant step for a company because there are considerable upfront costs as well as increased costs associated with the company’s ongoing reporting requirements as a public company. Before an IPO, companies often spend tens of millions of dollars gathering and compiling mandatory information to submit to the SEC and make available to the public for the sale of its securities.1 After an IPO, companies must continue to comply with SEC regulatory requirements, such as audit and disclosure requirements intended to provide shareholders and potential investors information necessary to make informed investment and voting decisions. 

Many companies want to avoid the costs associated with being publicly traded, particularly smaller companies. However, raising capital privately can be challenging for these companies as the pool of potential investors is largely determined and restricted by the accredited investor definition. This definition uses criteria such as wealth and other limited qualitative professional criteria to determine sophistication, which limits access to private offerings and makes it harder for companies to secure funding.2 Underrepresented entrepreneurs are particularly impacted because their potential investor pool is often limited to others within their personal network or community who do not qualify as accredited investors due to historical wealth disparities.3 

The gap in capital raised in private versus public markets is significant, with private offerings raising $4.45 trillion from July 1, 2021 to June 30, 2022, compared to $126 billion raised in IPOs during the same period.4 This gap highlights the investment opportunities primarily accessible to wealthy accredited investors. To increase investment opportunities for everyday Americans and help entrepreneurs raise more funds, Congress should consider policy changes that broaden the pool of investors in our private markets. 

If you’re interested in participating alongside ACA in our Public Policy efforts, or to learn more about the work of expanding opportunities for underrepresented investors and entrepreners, please reach out to Pat Gouhin, CEO, Angel Capital Association.


  • 1 See Thaya Brook Knight, A Walk Through the JOBS Act of 2012: Deregulation in the Wake of Financial Crisis, Cato Institute (May 3, 2016), at 9, available at  
  • 2 See e.g., “What is the Role of Accredited Investors?” available at  
  • 3 See Office of the Advocate for Small Business Capital Formation Annual Report for Fiscal Year 2022 (Dec. 2022), available at FY22 OASB Annual Report (  
  • 4 Id.