What is an Accredited Investor?
According to the SEC, an accredited investor must meet one of the following criteria:
1) Have an annual income for the past 2 years of $200,000 ($300,000 if married) or more and have a reasonable expectation that it will continue
2) Have a personal net worth of $1,000,000+ either individually or joint with spouse that does NOT include your primary residence
There are two primary type of offerings that take place in the syndication world, and claiming an accredited status differs between the two:
1) 506(b) – in SEC 506(b) offerings, the accredited status is self-certified by the individual investor. You would typically check a box in the Private Placement Memorandum (PPM) claiming you are an accredited investor per the rules above.
2) 506(c) – in SEC 506(c) offerings, the accredited status must be verified, usually by a third party. You would need to prove you are accredited by providing tax returns, bank statements, financial statements, etc. showing you either meet the income or net worth requirements.
We typically have 506(b) offerings but may come across opportunities to invest in 506(c) as well. It’s helpful to know the difference between the two when classifying yourself as an accredited investor. In 5o6(b), you simply check a box. In 506(c), you’ll have to do a bit more heavy lifting by getting some paperwork together and sending to 3rd party verification company.