Many people thinking or reading about startups and crowdfunding come across the phrase “accredited investors,” but it’s not always explained.
The Securities Act of 1933 regulated public offerings after the 1929 stock market crash scared, well, everyone. However, the definition of accredited investor appears in Rule 501 of Reg D originally adopted in 1982. It provides a safe harbor exemption from registration. “Safe harbor” means that if an offering complies with the specified requirements in a rule, the SEC deems it to not be a public offering and exempt from registration.
Registration, briefly, means the filing of a vast amount of information with the SEC that has to be provided to prospective investors. It must include all information required by the SEC and any information needed to make the materials not misleading. This is essentially “going public” and is an expensive and time-consuming process.