Equity education

What is an accredited investor?

March 28, 2022
The Carta Policy Team

An accredited investor is an individual or entity that meets certain wealth or income thresholds, or holds relevant professional certifications. Federal U.S. law restricts most private market investment to two categories of investors: accredited investors and qualified purchasers. A qualified purchaser is an individual or entity with at least $5 million in investments. Because private markets are less transparent and less liquid than their public counterparts, people and institutions who want to invest must show that they have sufficient financial resources or training to take the risk.

Over the past several decades, private markets in the U.S. have experienced tremendous growth, reaching an estimated $18 trillion in value as of February 2022. However, most Americans aren’t able to invest in private market assets because they don’t meet the accreditation criteria. (The qualified purchaser criteria are even narrower, requiring an individual investor to own at least $5 million in investment assets to qualify.) As of 2022, only 13% of U.S. households qualified as accredited investors.

Why does accreditation exist?

The accreditation requirement is meant to make sure that investors have enough financial sophistication to evaluate the risks and merits of an investment, or sufficient wealth to bear the economic consequences of a loss.

Investing in a public company in the U.S. is a simple, straightforward process. You identify a business, buy shares through a brokerage account, and sell them back into the market whenever it suits your needs. Virtually everyone is eligible to buy public company shares. In exchange for this broad access to investors, public companies have to go through a rigorous registration process and regularly provide robust disclosures to the public. As an investor, you can use these disclosures to inform your decisions. In other words, public markets are transparent and liquid.

Since private companies aren’t required to make the same disclosures as public companies, investors lack visibility into their finances and business practices. This puts investors who don’t have special insight into a company or industry at a disadvantage. And because private investments are illiquid—meaning they can’t always be sold right away—they may pose extra risk to investors who don’t have large reserves of cash to cover unexpected expenses.

For these reasons, the SEC restricts investment in certain private assets to accredited investors. These include shares of private companies and private funds, such as private equity funds, hedge funds, and venture capital funds.

How have the accredited investor rules changed?

The Securities and Exchange Commission (SEC) originally established the accreditation criteria as a response to the Great Depression, and the concept dates back to The Securities Act of 1933.  The last substantial refresh of those rules occurred in 1982, when private funds were relatively new types of assets and represented a much smaller fraction of the U.S. economy than they do today.

For decades, the SEC used only two criteria to determine who qualifies as an accredited investor: either income or net worth. Those financial thresholds have remained steady since 1982, despite inflation. With the exception of a provision in the 2010 Dodd-Frank Act that excludes an investor’s primary residence from their net worth, not much has changed since 1982—until recently.

In 2020, the SEC broadened access to private investments by recognizing criteria based on financial experience and sophistication.

Who counts as an accredited investor?

Individual people

For an individual, accreditation is based on wealth, income qualifications, or financial expertise demonstrated through specific credentials or certifications. To be accredited, individual people must meet one of the following criteria:

  • Net worth over $1 million, not including primary residence (individual or joint with spouse or partner)
  • Income over $200,000 (individually) or $300,000 (jointly with spouse or spousal equivalent) for at least the past two years
  • Financial professionals who hold in good standing a securities representative license (Series 7), an investment adviser representative license (Series 65), or private securities offerings representative license (Series 82)
  • For investments in private funds, “knowledgeable employees” of the fund


For an institution, accreditation is determined by institution type and the amount of assets the institution has under management. A few examples of accredited institutions include:

  • Entities with more than $5 million in assets, including corporations, partnerships, LLCs, trusts, charitable organizations, family offices, and employee benefit plans. Certain financial entities, including banks, insurance companies, registered investment companies, and business development companies
  • SEC-registered broker-dealers, investment advisers that are registered with the SEC or a state, and exempt reporting advisers
  • An entity owned by accredited investors

The rest of the required qualifications for individuals and institutions can be found on the SEC’s website.

What’s next for the accredited investor rule?

SEC Chair Gary Gensler, who sets the Commission’s regulatory agenda, is focused on finding ways to increase regulatory oversight of private funds and companies, which he and others believe will encourage more companies to go public and submit to the corresponding disclosures. While the SEC opened the door to further expand the criteria in 2020 by adding additional professional certifications, designations, or credentials for individuals to qualify, such an expansion seems unlikely under the Biden Administration, which has expressed no interest in opening up the private markets to more investors.

However, changes to the criteria are likely on the horizon. In 2021, the SEC announced that it may be reconsidering the financial thresholds for individual investors. Many expect the Commission to raise the net worth thresholds set in 1982 to account for inflation. Doing so would reduce the number of accredited investors.

The announcement drew a rebuke from Republican SEC commissioners Hester Peirce and Elad Roisman. Though they support the possibility of indexing on a going-forward basis, the SEC’s Small Business Advisory Committee has recommended leaving the current thresholds in place. They and other critics claim that higher thresholds would have a disproportionate impact on communities with lower median household incomes and costs of living—which could lead to fewer investment opportunities and reduced access to capital for emerging funds and entrepreneurs in those regions, as well as raise new barriers to capital for entrepreneurs from underrepresented populations.

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DISCLOSURE: This publication contains general information only and eShares, Inc. dba Carta, Inc. (“Carta”) is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This publication is not a substitute for such professional advice or services nor should it be used as a basis for any decision or action that may affect your business or interests.  Before making any decision or taking any action that may affect your business or interests, you should consult a qualified professional advisor.  This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security.  Carta does not assume any liability for reliance on the information provided herein.