M) thresholds.
Taking money from non-accredited investors can invalidate your fundraise and deter future VCs.Choose your path: a private 506(b) round or a public 506(c) round with general solicitation.For 506(c) rounds, you MUST take 'reasonable steps' to verify investor status. Don't just trust them.Use a third-party service or ask for a letter from an investor's CPA/lawyer to verify status.Never discuss your fundraise publicly unless you are formally running a 506(c) offering.
Not Understanding This Rule Can Kill Your Company
As a founder, securities law isn't optional. The term "accredited investor" isn't just jargon—it's a legal line in the sand drawn by the Securities and Exchange Commission (SEC) that forms the bedrock of every startup fundraise in the United States.
Getting this wrong isn't a slap on the wrist. It can invalidate your entire fundraise, force you to return capital you've already spent, trigger SEC penalties, and—most terrifyingly—create a legal poison pill that kills a future financing round or acquisition. A clean cap table isn't about looking professional; it's a non-negotiable requirement for experienced VCs and acquirers.
This isn't just about downside protection. Understanding the accredited investor rules dictates your fundraising strategy: who you can target, how you can talk about your round, and how much legal overhead to expect. Get it right, and you run a clean, fast process. Get it wrong, and you're dead on arrival for your Series A.
The SEC Definition: What Is an Accredited Investor?
The SEC created this designation to ensure that people participating in private, high-risk investments like startups are financially equipped to handle the risk and can afford to lose their entire investment. Both individuals and entities can be accredited.
For Individuals
An individual must meet at least one of these criteria. It's not a judgment of character or intelligence; it's a clear financial or professional test.
- The Income Test: An individual income over
