Angel Investors and Accredited Investors An accredited investor is an individual that has a net worth of $1 million or more excluding their primary residence. Almost all Accredited Investors are considered to be accredited as it relates to regulations set forth by the Securities and Exchange Commission. An angel investor may also fall into this definition if they have a yearly income of $200,000 per year or more. Although not every private funding source is considered to be accredited, you may be able to solicit capital investment from individuals that are very well versed in business and can make an appropriate decision in regards to placing money with a small business investment. In all transactions that are related to raising new capital for your business going to need to have a business plan that showcases the business, its anticipated profits, and exit strategies. Investors are going to want a significant amount of control of your business, and this is something that should be included in your business plan for when it comes time to negotiate with an angel investor or accredited investor. As we have discussed before, in almost all instances, venture capital firms are considered to be accredited investors. There are number of differences between working with angel investors versus working with venture capital firms. In some instances, you may be able to sell preferred shares of your company rather that selling a direct equity stake in the business. Most accredited investors prefer these types of shares as it provides them with a recurring stream of income coupled with the ability to participate in the capital appreciation of the business. In most instances, your attorney will provide you with a questionnaire that determines whether or not an individual can qualify as a funding source for your business based on their net worth, business experience, and income. This type of documentation is often found in a private placement memorandum as it relates to obtaining a capital investment from an individual investor. As we have mentioned many times before through these series of articles, it is imperative that your attorney assist you through the process of raising capital and working with angel investors. This is primarily due to the fact that there are varying laws on a state by state basis that you must comply with as you go through this process. In conclusion, any party that you work with as it relates to having an equity capital injection for your business should be an accredited investor as you will fall under the safe harbor rules outlined by the Securities and Exchange Commission. Individual investors that are considered to be qualified may present problems for you when you seek to obtain capital from these parties.
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