How Changes to Accredited Investor Rules Could Effect Real Estate and Tech Investments
April is just around the corner, which means that Securities and Exchange Commission will soon vote on how to adjust the definition of an “accredited investor.” A change to this rule could effectively broadening or limiting the pool of who will be able to invest in private equity markets. While the SEC’s primary goal is to protect investors, tweaking the qualifications for accredited investor status will inevitably affect how startups raise capital. So what does this mean for tech companies looking to transform the real estate industry?
The SEC has created the accreditation rule to protect investors. The hope behind the distinction, at least in the SEC’s mind, is that an accredited investor would be savvy (i.e. wealthy) enough to withstand a significant loss if they find themselves investing in the wrong venture. The strict conditions for net worth, professional expertise, and income are in place to protect investors who may lack the necessary cash reserves to weather large losses. Less experienced investors, in the view of the SEC, may be in over their heads, especially since these offerings often have high minimum amounts.
If the subject of changing the requirements for accredited status is stirring up déjà vu, it’s because the SEC broadened the definition just a few years ago. As of now, the current financial criteria for an individual or business entity to qualify for “accredited” status involves either a sustainable year-to-year income of at least $200,000 (or $300,000 if combined with a spouse), or a net worth of $1
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