Accredited investor status: what it means and why it matters

Interested in the First Mover Fund?

The term 'accredited investor' is used frequently in private markets — but its precise definition, and the legal framework it rests on, are less widely understood. For investors considering participation in private funds operating under Regulation D, Rule 506(c), understanding accredited status is foundational.

The SEC definition

Under Rule 501 of Regulation D, an individual qualifies as an accredited investor if they meet at least one of the following criteria: a net worth exceeding $1,000,000 (excluding the value of their primary residence), either individually or jointly with a spouse; annual income exceeding $200,000 in each of the past two years (or $300,000 jointly with a spouse) with a reasonable expectation of the same in the current year; or a Series 7, Series 65, or Series 82 license in good standing.

Entities — including trusts, corporations, and certain investment vehicles — may also qualify as accredited investors under separate criteria, typically based on total assets under management or the accredited status of all equity owners.

Why 506(c) requires verification

Regulation D offers two principal exemptions from SEC securities registration. Rule 506(b) prohibits general solicitation but allows issuers to accept self-certification of accredited status from investors they have a pre-existing relationship with. Rule 506(c) — the framework under which the First Mover Fund operates — permits general solicitation and advertising, but imposes a corresponding obligation: the issuer must take reasonable steps to verify that every participating investor is, in fact, accredited.

This means that self-certification alone is not sufficient under 506(c). Verification is typically conducted through review of tax returns, brokerage statements, a letter from a licensed attorney, CPA, or registered investment adviser, or a third-party verification service. The standard is 'reasonable steps' — which the SEC has defined with reference to the nature of the investor and the means of solicitation.

What it means for investors

For investors, the verification requirement is a one-time administrative step before receiving offering documents or participating in a 506(c) offering. It is not onerous — and it carries a corresponding benefit: 506(c) funds may be publicly marketed, which means investors have access to more information about the offering before making a commitment decision than they would in a 506(b) context.

At VanderStyn, we guide investors through the verification process directly. If you believe you qualify and are interested in learning more about the First Mover Fund, the right first step is simply to submit an enquiry.