Investors welcome new SEC accreditation rule — whether it expands capital remains unclear

Securities regulators hope a change in the federal definition of accredited investors brings more people into the investor pool for startups and other companies seeking private capital, although it remains unclear whether it will significantly affect the flow of capital. The U.S. Securities and Exchange Commission’s new rule that takes effect this fall broadens the definition of an accredited investor who can participate in private offerings to include people who hold certain financial professional accreditations or certifications and “knowledgeable” employees at private investment funds. Rather than rely on an income and wealth threshold in place for nearly four decades, the rule modernizes the definition by opening accredited investor eligibility to people who are financially sophisticated enough to understand the inherent risks of investing in private offerings.

“While the actual numbers of those affected by this rule change is small in comparison to the investing populace, I do think this signals a small step forward by the SEC in using something other than net worth as an indicator of accreditation. This takes into account personal experience and sophistication and sets it on par with net worth,” said Dale Grogan, Managing Director at Grand Rapids venture capital firm Michigan Accelerator Fund I.

Even in issuing the new 166-page regulation Aug. 26, the SEC said it was unable to estimate how many more people could become accredited investors, although commissioners “are confident that the final amendments will cause some modest increase in the number of individual accredited investors.” Read more at MiBiz

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