An accredited investor is an important potential player when it comes to trying to raise capital from investors in New York. Accredited investors are not subject to many of the restrictions of ordinary investors and can be involved in a company earlier on.
The power of accredited investors
For a company that is early in its lifespan and has not yet gone public, there is a limit on who can invest in it. This is largely to prevent the general public from being lured or duped by scams. Since nonpublic companies are not required to report much information about their operations and finances, fraud is easier. Restricting early investment to accredited investors is a way to block off people who do not have the money to afford a bad investment or a scam from being at risk.
When it comes to capital raising, both individual people and entities like companies and banks can be accredited investors. For an individual, they need to make at least $200,000 with over $1 million in wealth, not including their primary home. They can also be licensed investment professionals with good standing, high-ranking corporate officers, insiders of the company, or other key personnel who would have much more knowledge than the average person about the company. Entities like companies need at least $5 million in assets, or they might be a bank or broker-dealer.
Restricting early investment to accredited advisors is a way to ensure only wealthy or knowledgeable investors can get into a company in the early stages before information is public and before the company is required to disclose their financials.