What Is an Accredited Investor?
An accredited investor is an individual, business entity, trust or other investing entity that is allowed to buy unregistered securities deemed higher risk because of reduced reporting obligations to the Securities and Exchange Commission (SEC). In Regulation D, the SEC deems investors to be financially sophisticated and thus have a reduced need for the protection provided by regulatory disclosure filings, if they can satisfy at least one of several alternative requirements regarding their income or net worth, amount of assets under management or professional experience. Accredited investors include high net worth individuals, investment professionals and their firms, banks, trusts, retirement accounts or plans, and certain other businesses such as insurance companies. The same standard applies whether the individual is a U.S. citizen or not.
Option 1: Meeting an Income Requirement
To meet the SEC’s accreditation requirement using personal income, an individual can have an annual income exceeding $200,000 for each of the last two years with the expectation of earning the same or higher income in the current year. The income requirement can also be met if an individual jointly declares income with a spouse, then the threshhold is income of $300,000 jointly over the last two years.
Option 2: Meeting an Asset Requirement
Investors can also meet the accreditation requirement if they have a net worth exceeding $1 million, either individually or jointly with their spouse, but excluding the value of their primary residence. In order to meet this requirement, typically one would have to present evidence of the existence of officially-priced assets, such as an official custodian account statement or through the affirmation of their investment manager.
So long as an investor can meet either the income or the asset requirement, they are able to invest in Nucleation Capital’s venture fund or syndication deals.
Qualified Clients, Qualified Purchasers & Professional Qualifications
There are several higher standards and certain professional credentials that the SEC has established for investors, which would also qualify to participate in Nucleation Capital investments. One is deemed a “Qualified Client” with assets in excess of $2 million. A “Qualified Purchaser” is an accredited investor with assets exceeding $5 million. Entities consisting of equity owners who are each accredited investors entitles the entity itself to be deemed an accredited investor. Many entities such as IRAs, Self-Directed Pension Plans, Trusts, Charitable Corporations, Employee Benefit Plans and Private Investment Funds typically qualify as “Qualified Purchasers. The SEC also considers a person to be an accredited investor if they are a general partner, executive officer, or director for the company that is issuing the unregistered securities.
Finally, if a person can demonstrate sufficient education or job experience showing their professional knowledge of unregistered securities, they too can qualify to be considered an accredited investor. (This addition to the rule was approved in August 2020 and went into effect on December 8, 2020. )
How do I get accredited?
Those who qualify as accredited investors and who elect to subscribe to the Nucleation Capital fund or participate in any of its syndicate offerings, will need to set up an online account at AngelList, the Nucleation Capital venture platform, and submit information relating to financial status there. This may include tax returns, account statements or verification by a financial manager. (Note: Please do not submit any accreditation information directly to Nucleation Capital.)