Sources: MillionaireDoc.com and Wikipedia

If you meet an accredited angel investor, you know they have the funds to invest in your company or startup.  Although they usually are, angels do not have to be accredited investors as designated by the Securities and Exchange Commission (SEC). Accredited individual investors, as defined by the SEC, have to make at least $200,000 in income for two years, and have at least $1 million in assets (exclusive of their home residence).  The broader definition of an investor is loosely defined as a person that allocates capital with the expectation of a future financial return.  An angel investor is known as an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

How does one become an accredited investor?  There is no exam. In the United States, the definition of accredited investor is put forth by SEC in Rule 501 of Regulation D. An entity is an accredited investor if it is a private business development company or an organization with assets exceeding $5 million.

Accredited investor types generally look for higher rates of return in private placements and want diversification on their portfolios.  This can shield the investor from market swings, offering lower volatility, and a solid upside.

The term “accredited investor” is defined in Rule 501 of Regulation D of the U.S. Securities and Exchange Commission (SEC) as:

1. a bank, insurance company, registered investment company, business development company, or small business investment company;
2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
4. a director, executive officer, or general partner of the company selling the securities;
5. a business in which all the equity owners are accredited investors;            
6. a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, or has assets under management of $1 million or above, excluding the value of the individual’s primary residence;
7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year
8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.