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Investors: Qualified Vs Accredited

What’s the Difference Between a “Qualified” Investor and an “Accredited” Investor

For people to be considered SEC Qualified Investors, they need to meet certain criteria with the SEC. There are two ways to qualify including being an Accredited Investor or a Sophisticated Investor, which is also based on SEC standards. If you are raising money for your private placement, it is important to know the difference in order to stay within compliance. The type of Reg D offering you select should in part be based on the type of investors you are going to work with, and their accreditation status plays a role in that.

Here is what you need to know about SEC Qualified Investors:

Sophisticated Investors are people that have knowledge and experience that pertains to financial or business transactions. Some examples of a sophisticated investor are a banker, CPA, lawyer, business owner, broker, investment advisor, etc. Basically, if they are successful in their current role and seen as a respected advisor of others, they may be considered sophisticated. The goal of this qualification is to identify those that would be able to fully analyze a deal and make an educated decision about whether or not it is a good investment opportunity. They are allowed to invest in Reg D 506b offerings but not allowed to invest in Reg D 506c opportunities.

Sophisticated investors typically make a good income, but not enough to be considered accredited.

They do not have to meet a set income or net worth standard so this qualification is strictly based on knowledge and experience. Many people within the investment community and especially the crowdfunding community would like this to be more of the standard criteria than being an accredited investor because in their opinion knowledge is more important than money.

Accredited Investors, on the other hand, have the ability to invest in all types of private offerings, without restriction. They are the highest level of SEC Qualified Investor and have all of the privileges of such. As a business or broker looking to raise capital, working with Accredited Investors is an ideal way to raise money because you don’t have as many compliance issues to worry about. If someone is accredited, they are allowed to invest, so your job is to document why they are accredited.

In order to meet the standards of becoming SEC Qualified Investors, people primarily need to achieve it through financial criteria. In order to be accredited, this means that they need to make $200,000 a year as an individual for two years or $300,000 combined with a spouse. They can also qualify by having a net worth of $1 million or more, excluding their primary residence. These financial standards have become the rule of thumb when determining if someone is qualified to invest in private offerings and now that Reg D Rule 506c has been created, this standard is a necessity. Businesses with that type of offering are only allowed to work with Accredited Investors.

The SEC has been discussing several changes to their standards. SEC Qualified Investors today, may not be qualified if the changes go through. If you are considering launching a private offering, do so now before the rules change. You can also expedite the process by purchasing an accredited investor list from


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Definition of an SEC Accredited Investor

The Definition of An SEC Accredited Investor” Has Stayed the Same for Decades with One Exception

An SEC Accredited Investor is part of an elite group of individuals that can invest in pretty much anything. They are considered to be sophisticated in nature and able to withstand the loss, should their investment not work out. The SEC rewards this group with the ability to invest in private offerings that the general public cannot. For example, an accredited investor is the only type of investor that is allowed to invest in Reg D Rule 506c offerings.

The definition of what makes an SEC Accredited Investor has stayed the same for decades with one exception. Previously, an investors primary residence could be included in the net worth calculation. Now, it is only taken into consideration if an investor owes more than their property is worth. In this case, the negative equity is actually deducted from the total net worth calculation. In order for an investor to be considered accredited, they must make at least $200,000 as an individual or $300,000 jointly with a spouse and have done so for the past two years. They must also anticipate their income to remain at that level for the current year. The investor may also be considered accredited if their net worth is over $1 million.

With the recent passage of the JOBS Act, creation of Reg D Rule 506, and pending SEC crowdfunding rules, the SEC is considering making changes to these requirements. Since they have not been changed significantly for over 30 years, the purchasing or investing power of an accredited investor meeting the minimum income requirements has been diminished. In other words, the requirements have not kept up with inflation. In the 1980’s $200,000 a year was considered well off. In 2014, many families need to earn this much in order to sustain in a major metropolitan area like Los Angeles or New York. The cost of living has gone up significantly, and the SEC is concerned that by following the existing definition many people are investing that cannot withstand the risk – the primary intent of creating a specific group of investors to begin with.

By using the current income and net worth criteria, there are over 8.5 million people that are considered an SEC Accredited Investor within the U.S. If it were to change for inflation this number could drop as low as 3.75 million. This would be a drastic reduction that could stem the flow of capital into companies using private offerings to raise capital. Companies, broker-dealers, and crowdfunding platforms are all concerned about the SEC taking this form of action. The JOBS Act was passed in order to increase access to capital, not to restrict it. Changing the standards now would have the opposite effect.

Companies that are looking to raise capital using a private offering should launch their campaign rather than wait. The SEC is notorious for moving slow, unless they don’t want to. Rather than waiting to see if the definition of an SEC Accredited Investor changes, raise money now while the investor pool is large. You can purchase your leads list at


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Tips for Finding Accredited Investors

Raising money through a private placement is an excellent source for obtaining capital. In order to get started, most companies need help finding accredited investors. This is different from going public, where companies can market their offerings and anyone with a savings account can buy shares. Private offerings through Reg D are generally only available to accredited investors, which are a select group of high income earners or high net worth individuals.

The SEC defines accredited investors as someone that has made $200,000 a year for the past two years and is likely to continue, or makes $300,000 combined with their spouse. Investors can also qualify by using the net worth standard. They must have a net worth of $1 million or more excluding their personal residence. This is an elite group of income earners and investors, making it difficult to target them unless you know how.

Here are some tips for finding accredited investors:

  • Buy an accredited investors lead list. You can purchase a list of investors that meet the income or asset qualifications and sort it geographically or using other filters you wish to have applied. Purchase a list from for an accurate, up to date lead list that you can start calling from.
  • Attend angel investment group meetings. Most areas have angel investment groups. These are groups of accredited investors that come together to listen to presentations from businesses and entrepreneurs, evaluate deals, and discuss investing. Many of them are niche based and prefer to invest in a specific industry while others like Keiretsu Forum hear from a broad range of businesses. Before presenting, it is wise to visit as a guest so that you can get a feel for the set up and type of investors that are in the room. Once ready to present, these forums typically charge a presentation fee and require you to make a presentation and pitch in front of the group at a regularly scheduled meeting. This can be effective, depending on who is in the room and whether they are interested in your deal type. As a general rule of thumb, angel investors prefer to invest in local companies.
  • Network. Reach into your professional network of lawyers, CPA’s, and bankers to see if they know investors that are actively looking for deals. Since they are intimately involved in their clients transactions and finances, they will often know how people are allocating their funds and may be willing to set up a meeting for you. This is a very personal so it may take time to establish the relationships with both your referral network and their clients.
  • Marketing. If you use Regulation D Rule 506c, you can advertise your offering. The general solicitation rule has been lifted for this offering type which enables you to use your website, social media, local newspapers, etc. The key is that you must disclose that only accredited investors are allowed to participate.

The fastest and easiest way for finding accredited investors leads is to purchase a lead list. It reduces the amount of time you have to spend networking and shaking hands to get you right to the decision makers. All you need to do is create an amazing sales pitch and pick up the phone.

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How to Create an Accredited Investor Questionnaire

In order to stay in compliance with the SEC, most Reg D private offerings require the company to work with accredited investors that complete an accredited investor questionnaire. The SEC defines an accredited investor as someone who has made $200,000 as an individual and is likely to continue to do so or a couple that has made $300,000 combined.  Investors can also qualify by having a net worth greater than $1 million, excluding their primary residence.

As a compliance best practice, companies should require each investor to complete an accredited investor questionnaire prior to transferring any shares or finalizing the investment. This document should be kept on file in case the SEC ever launches an investigation.

There are two types of certification or questionnaires: self-certification and third party certification.  Investors participating in Reg D Rule 504, Rule 505, or Rule 506b can self-certify or complete a company provided form.  Investors in offerings using Reg D Rule 506c need to have their status certified by a third party like an attorney, CPA, or a company representative that has reviewed their financial documents.

If you are creating your own accredited investor questionnaire, here is what you need to include:

  • Statement of confidentiality.  Investors need to feel confident that you will not share their private financial information with anyone outside of company officers, or the SEC if required to do so.
  • Statement as to why the form is needed.  Disclose your offering type and any requirements placed on the company by the SEC that pertain to the specific document.
  • Why the investor is accredited.  Many companies elect to use system where all of the exemptions are listed out, and the investor simply checks the applicable box.
  • Type of investor.  There needs to be an area for the investor to identify if they are an entity, individual, or investing with their spouse.
  • How the investments will be held.  For example, individually, jointly with their spouse, or as tenants in common.
  • Statement of accuracy.  The investor must make a statement that the information they provided is true and accurate to the best of their knowledge.
  • Signatures.  Each investor needs to sign the certification.  If the investment is coming from an entity, it must be signed by an officer or employee with the ability to bind the company and must also contain a line for their title to be written.  If the investment is coming from a married couple, both people must sign the form.
  • Personal information.  The accredited investor questionnaire must contain personal contact information that includes:

o   The name of the investor (individual or entity)

  • If an entity, the name of the person binding the company and their title

o   Address, physical and mailing along with business address

o   Contact phone number

o   Email address

o   Spouse information (same as above)

o   If an entity is investing include:

  • State of organization
  • State of principal office
  • Contact person

When creating the accredited investor questionnaire create a separate document or additional for the verification process for offerings under Rule 506c.  Each financial item that an investor attests to needs to be verified unless they provide third party certification, which you can keep on file in its place.

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Building Your Database

An Accredited Investor Database can help you to raise money for your private offering.  When using Regulation D to raise capital, you need to be able to reach accredited investors that may be interested in your unique opportunity.  One of the greatest challenges that a company has is locating these investors.  Those working with a broker dealer may benefit from their established connections, which can make it easier to raise funds.  The challenge, however, is that they will typically take a fee and commission, pricing themselves out of the market for smaller companies.

If you are raising money for your private offering without the help of a broker dealer, you need access to an Accredited Investor Database.  Fortunately, you can purchase accredited investor leads from  This is a great starting point because it gives you the ability to contact investors.

The key to building a solid Accredited Investor Database is being able to refine the information and categorize it for future use.  When you order your lead list start by putting demographic and geographic qualifiers on the list.  For example, if you are promoting an opportunity that would most likely appeal to the over 60 crowd, ask for a lead list of older accredited investors.  By putting these qualifiers onto your lead list, you can create a database of investors that can be sorted based on their likelihood to invest in each type of transaction.

When you start making investor calls, keep detailed notes of the conversation.  Learn about prospective investors, what they like, what they are interested in, what their risk tolerance is, and if they are actively investing.  You can gather a lot of information by asking open ended questions and listening for ques.  For example, an investor may ask if you have hear of a recent technology or an oil and gas deal.  These types of questions will give you an idea about their interest and how they feel about certain types of transactions.  You will learn the most about an investor by engaging them in conversation, then listening.

Place the information you have gathered into your Accredited Investor Database.  You can use a sales tracking system or a robust excel sheet.  When you learn about your investors, you can create alerts and reminders to contact them if a particular opportunity arises.  This will save you time and money in the future, by allowing you to connect with prospects faster.   It can also save you time by telling you who not to call.  For example, if you contact an investor about an opportunity in consumer goods and they tell you they only like to invest in real estate, you can make a note to only call them about real estate transactions.  This prevents you from wasting time and making a potential investor angry.

When you have an investor on the phone, ask them if they know of anyone else that may want to learn about your private offering.  In other words – ask for referrals.  You may be surprised at how many people will be willing to share their excitement with friends and family.  If you ask for a referral during every interaction, you will build a larger Accredited Investor Database in no time.

For now, start by ordering your lead list from

accredited investor database

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506c Companies are Raising Money

With the SEC lifting the ban on general solicitation, 506c companies are raising money and recruiting new investors.  Regulation D is an exemption from registration with the SEC.  Within Reg D are several rules, including Rule 506.  After the JOBS Act was passed, the SEC created Rule 506c to be a unique exemption that would allow companies to raise money without registering and be able to advertise their private placement at the same time.  Previously, companies were only able to advertise once the deal had been closed to investors.

This important change has made it possible for companies to expose their offering to a wider group of investors.  Instead of being confined to their local investor community, they can now comfortably advertise to investors throughout the United States.  The key is that they need to be accredited investors.  A company using Rule 506c can only accept money from verified accredited investors, or they can lose their exemption.

In order to start raising money, 506c companies need to create their private placement and all of the disclosures that go with it.  Once the private offering has been prepared, the advertisements need to be prepared as well.  These need to be submitted to the SEC before they are made public.  The SEC wants to keep them on file and may or may not comment on them.  The company also needs to register in the EDGAR system before advertising the offering.  This is a change from the traditional Rule 506, where a company could register in the system after an investor was ready to participate.

While 506c companies can advertise the advertisements all need to state that only accredited investors can participate.  With this in mind, it is wise to maintain the traditional investor cultivation of one on one meetings and calling from accredited investor leads as well. Consider these traditional activities as a good way to build your base of investor, while advertising can attract investors to push the raise over the top.  It is unwise to focus on one strategy alone but combined they can make a dynamic impact.

There are several ways to advertise the offering, including:

  • Print Ads.  Buy ad space in investor newsletters, publications, and magazines.  By targeting your ads in places where accredited investors are likely to be found, you will have greater success. Remember that this is a specific audience.
  • Radio.  You can take out radio ads in your local community and may want to promote an informational event that people can attend for free.
  • Television.  While an expensive form of advertising, this market is now open to 506c companies.
  • Online.  Announce your offering on your website and social media pages.  This will give you good exposure with your existing customer base, people that know you and may be interested in supporting you.

The market is wide open to raise money and attract accredited investors.  Leverage this opportunity to expand your investor base and close more deals.  Just make sure to stay in compliance along the way.

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Maximize Your Private Placement Leads

If you are looking to raise money, private placement leads need to be part of your tool kit.  Every year companies raise more money through private offerings than they do on the stock market.  This is fantastic news for business owners and entrepreneurs because it shows that there is an appetite for off the market deals.  The key is reaching the investors that can participate.

When raising money, it is important to determine which vehicle you are going to use.  The Securities and Exchange Commission offers several exemptions from registration.  By using an exemption you will file less paperwork, spend less money, and start raising money faster.  The most commonly used ones are found within Regulation D.  Within Reg D there is Rule 504, Rule 505, and Rule 506.  Each one of these rules has specific guidelines for who can invest in the offering, with them geared towards Accredited Investors.

When searching for private placement leads, look for accredited investor leads.  These are people that meet the SEC’s requirements for being able to invest in all types of private offerings without restriction.  When you work with accredited investors, you have a better chance of staying in compliance and avoiding issues with the SEC down the road.

Where can i purchase private placement leads?

You can buy private placement leads from  Once purchased, you need to have a strategy for maximizing your lead list and closing more deals. It starts by understanding the value of your offering.  What opportunity are you presenting to investors and how will it deliver direct value to their lives?  If you cannot clearly articulate that within thirty seconds to a minute, your sales pitch is dead.  Investors need to know what is in it for them first.

After you have explained the value of your specific deal, it is important to discuss the overall industry opportunity and how you are uniquely positioned to take advantage of it. Investors want to know that there is an opportunity here and on the horizon.  It is a good idea to have industry facts and bullet points written out before you make a call or schedule a meeting.  Your job is to be the industry expert and to understand every reason why this particular opportunity can benefit from current industry trends. The more knowledgeable you are, the more confidence investors will have in you and your company.

Cultivate your private placement leads by following up with people.  Once you have made initial contact try to get them excited enough to want more information, request a meeting, or copy of your private placement.  The goal is to keep your leads engaged while you walk them through the process.  Many leads are lost not because the investor isn’t interested but because they weren’t followed up with.  Use a tracking system to document whom you spoke with, when, what was discussed, what the next steps are, and when to follow up.  Continue to cultivate your leads list as you walk investors through the closing process.

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Making the Most of the 506c

You can raise more money by using the 506c opportunity.  When the JOBS Act passed it had a provision that included people being able to advertise their private offerings.  The SEC responded by lifting the ban on general solicitation under a newly created rule, 506c.  This gives companies and their representatives the ability to market their offering to the general public as long as it is made clear that only accredited investors can participate.

In order to make the most of the 506c opportunity you need to create an advertising plan that exposes your offering to the maximum number of potential investors. You can approach it from two perspectives, advertising in areas where you know investors frequent or advertising within the industry niche that our company operates. Your advertisements can be broad or specific but must include language that only accredited investors can participate.  If you accept any money from a non-accredited investor, you will be in violation of the rule and could waive your entire exemption.

Here are ways to advertise your 506c opportunity.

  • Online.  You can place information about the offering on your website and invite viewers to contact your internal employee or investment representative for more information and to request a copy of the full private placement.
  • Social Media.  Using Facebook, Twitter, LinkedIn and Google+ can all be effective ways to spread the news about your offering.  You are able to narrow down your advertisements based on niches and geographic location.  This is ideal for companies that are looking to build an investor base within their community.
  • Magazines.  You can take out advertising space in magazines that are geared toward investors and industry groups.  There are specific publications that are geared toward accredited investors that could be useful in your efforts.
  • Radio.  If you have demographic data on your ideal investor, you can reference that data against the demographic data for local radio stations.  Run ads on stations that your demographics listens to.
  • Mailers.  You can buy a lead list of accredited investors and send them out a mailer or postcard with teaser information that makes them want to call and request a copy of your offering documents.
  • Phone calls.  Calling investors on the phone is still an effective way to reach people and get them interested in your offering.  When looking to make the most of the 506c opportunity do not take calling off of our list.

This is a unique opportunity to widen your investor base.  People that you never had the opportunity to contact are now available for you to reach through traditional advertising methods.  The key is to ensure that you are in compliance.  When using 506c the SEC requires you to file a Form D with EDGAR before you ever start advertising.  This is different than normal where you can talk about your offering but are not required to file until you are ready to raise money.  If you fail to meet this requirement, you are in violation and can lose your exemption.  Take advantage of the 506c opportunity by running a thorough marketing campaign and staying in compliance.


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How to Verify Accredited Investors and Stay in Compliance

If you are raising money through a private placement, you will need to verify whether or not interested investors are Accredited Investors.  How you structure your private offering will determine whether or not all of your investors need to be accredited.  For example, if you use Reg D Rule 504 or 505 you can accept a limited number of non-accredited investors.  If you issue the offering under Rule 506(b), your investors must be either sophisticated or accredited.  Under Rule 506(c) you can work with accredited investors only.  In order to stay in compliance, you must obtain and keep information on your investors that attests to their accreditation status.

Here is what you need to know about how to verify accredited investors and stay in compliance:

Reg D Rule 504 and Rule 505

A limited number of non-accredited investors may participate in your offering.  They still need to be given all of the same disclosures as accredited investors and you need to maintain investor information on everyone, including:

  • Personal Information.  Create a form to capture their name, birth date, social security number, address, phone number, email, occupation, and work contact information.
  • Accreditation Form.   Have them fill out a form with their assets on one column and their liabilities on the other.  Calculate their total net worth by subtracting their total liabilities from their total assets.  Their primary residence is not included on either side of the form, unless they owe more than their home is worth.  In another area of this form, have them list how much money they made individually and with their spouse over the past two years along with what they anticipate their income to be this year. Include a line at the bottom where they can say that they are (or aren’t) an accredited investor.  The form needs to be signed and dated.
  • Investment Information.  This form should identify the first day that they received information about the offering, when they completed their accreditation form, how much they invested, when they invested it, and the corresponding number associated with their shares.  This form should also state that they received all of the information they needed in order to make an informed investor decision.  Have them sign and date it.  You can also have them initial each line.

Verifying accredited investors for Rule 504 and Rule 505 is fairly simple.  These forms should be sufficient for staying in compliance.  For further information or tips, contact your securities attorney.

Rule 506

Under Rule 506, you are not allowed to accept investment dollars from non-accredited investors.  They must be either “sophisticated” or accredited.  Sophisticated means that they must have sufficient financial knowledge to make the decision of whether or not to invest, even though they do not have the capital to do so.  In order to document this, adjust the personal information form to include a section for their investor history and why they are a sophisticated investor.  In addition, you will need the following:

  • Personal Information.  See above.
  • Investment Information.  The data you need to collect for this is the same as above.
  • Accreditation Information. This is where the process differs greatly.  They are not allowed to self-certify under Rule 506(c).  There assets, liabilities, and income needs to be verified either by you or a third party.  Include sections on the form to reference the documents that were viewed to verify the information and attach a copy of them.  This can be tax returns, W2s, bank statements, credit reports etc.  If a third party is providing the verification that they are accredited, they need to provide a signed and dated letter attesting to that fact.  The third party can be their CPA, a licensed broker dealer, or financial adviser.

Keep all of this information on file for the duration of their investment.

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Benefits of Using Regulation A to Raise Money

Regulation D is the most common SEC exemption used to raise capital, however, Regulation A has distinct advantages.  The best way to describe Reg A is as a bridge between Regulation D and a public offering.  It gives you advantages from both.  You are limited to raising 5 million in a twelve month period so if you need a larger amount, Reg D Rule 506 is still your best bet.  The SEC is considering raising that amount to 50 million and once they do, Regulation A will become a more viable option for large raises as well.

Why you should consider using Regulation A to raise money.

With Reg A you do not have to complete an official filing registration with the SEC, as you would when going public.  Instead, you need to file a Form 1-A that includes the offering circular, disclosures, and addendums.  The SEC has a provision in Regulation A that allows you to “test the waters” to see if investors are interested in your offering before filing the paperwork.  This is a distinct advantage for companies that are working with limited resources.  As long as you don’t accept any capital prior to filing the forms, you can promote your offering and see if investors are interested in participating.

In Regulation A you are allowed to raise capital from non-accredited investors. This is a huge advantage for companies that don’t have an investor network or feel their company or product would appeal to the masses, rather than a set group of investors.  You can still accept capital from accredited investors but are no longer limited to working with them only.

You are also able to advertise your offering with Regulation A.  You can do so on the radio, print, television etc.  The advertisements should conform with ones from a public offering.  This is a distinct advantage over Regulation D, which only allows advertising in Rule 506 (c) and you are only allowed to advertise to accredited investors.

The securities are not restricted so investors can sell them and liquidate at any time.  This gives investors more flexibility and the option to either hold their shares long term or sell them as needed. One concern investors often have with Regulation D offerings is when and how they will be able to liquidate.  This provision within Reg A eliminates that concern.

There are three formats companies can choose from when completing their offering and disclosure documents, including a question and answer format.  This makes the process of preparing a Reg A offering fairly straightforward.  Since you don’t have to file until you know people are interested, you can save a lot of time while perfecting your offering statement.

If you are looking to raise capital there are multiple exemptions from registration that you should explore.  The decision on which one to use should be based on your strategy for marketing the offering, how much you want to raise, where your investors are located, and the amount of time you have to complete paperwork.  Understanding your goals and capabilities prior to issuing a private offering will help you to be more successful.

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