Accredited Investors are the most sought after yet highly scrutinized individuals when it comes to their profile for participation within public and private equities as well as providing access to private capital. The statistics and research on the distribution of wealth across the U.S. varies according to source however Accredited Investors or “millionaires” for the most part make up the top 4%-5% of affluent society (5.1 Million Households) and control around 50-55% of all the stocks, bonds, and private real estate in the U.S. That figure increases to 75% when you include the top 10% of affluent society.1
Accredited Investors are usually sophisticated, well educated, investment savvy and have a net worth that exceeds $1,000,000. But more importantly, they participate within the financial marketplace in a way that truly provides the monetary fuel for the U.S. financial and economic engine and in particular, new job creation.
So who are these wealthy investors and what makes them Accredited? Most are doctors, lawyers, white collar executives, small business owners and entrepreneurs with equity in their firms as well as other companies. Up until a few years ago being Accredited meant having $1 million of net worth or more…but that definition has been modified somewhat.
According to the Securities and Exchange Commission (SEC) the definition of an Accredited Investor is “a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; or a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.” 2
An Accredited Investor’s unique classification as a financially qualified individual investor enables that person to participate in a variety of financial opportunities and investment vehicles that are, for the most part, unavailable to the rest of the investing public.
Examples of these investment vehicles include Hedge Funds, Independent Tax Advantaged Oil and Gas deals, Limited Partnerships, Angel Investor Networks, Seed Capital Investing and Private Placements. All of these require a significant understanding of those particular investments themselves, plus the ability to assess the risks and potential for future return.
Crowdfunding sites are also competing for the Accredited Investor’s investment dollars as well.
2012 saw the signing of the JOBS Act by President Barack Obama which officially set in motion a completely new way for companies, entrepreneurs, political campaigns and even artists to raise up to $1 million a year from non-accredited investors.
However, the presenting entities that offer an equity stake and/or profit sharing can only connect Accredited Investors (as of now) with companies seeking capital. The SEC is still trying to figure out how to solve the issues of general solicitation, debt, equity stakes and profit sharing concerning the non-Accredited investor.
Furthermore, on March 6, 2013 Bruce Aust, EVP of NASDAQ OMX, just announced a Joint Venture with SharesPost, LLC to create The NASDAQ Private Market or NPM. The NPM is positioning itself as the preeminent marketplace for private growth companies that will “provide improved access to liquidity for early investors, founders and employees while enabling the efficient buying and selling of private company shares. The NASDAQ Private Market will…bring the investment community unique opportunities…scale, efficiency and transparency to this marketplace.” 3
This ‘new kind of private market’ is only available to…yes, you guessed it, Accredited Investors. So why do current U.S. securities laws lock out the rest of the investing public? Does being an Accredited Investor make you part of some exclusive investor class that ‘qualifies’ the top 4%-5% and shuns the rest of the investment community? The short answer is yes but there are some good reasons for this exclusivity.
First of all, most of the investment vehicles that are listed above require a significant initial investment in order to participate. Some Hedge Funds for example require a minimum investment of $250,000, $500,000 or even $1,000,000+ to participate where as Independent Oil and Gas Exploration companies selling Private Placements or Joint Venture Partnerships typically list their minimum investment amounts at $100,000. The point being is you have to have a substantial net worth or a significant amount of cash (liquidity) in your investment portfolio in order to participate in these investment opportunities.
A second reason for this stratification of investor classes is to protect the unsophisticated investors (or in this case, the non-Accredited investors) from themselves. Let’s be realistic, an 80 year old single retiree living off social security income and a $100,000 retirement fund shouldn’t be participating in highly speculative or high risk oil and gas deals. That individual probably should be considering a more conservative income producing investment vehicle that is more focused towards capital preservation.
At the other end of the spectrum are young adults, growing families and others that probably have financial needs more pressing than a private equity investment. The SEC wants to make sure that an investor who willingly participates within these investment vehicles not only has the money to do so, but their entire life savings and kid’s college education fund won’t be wiped away if that investment doesn’t pan out.
Lastly, the Private Equity Industry generally perceives non-Accredited Investors as unsophisticated investors who lack a fundamental understanding of the risks associated with Private Equity Investments. Most of these investment vehicles are complex, illiquid and provide limited transparency. Given the current securities regulatory paradigm and the assumptions concerning the non-Accredited Investor, it’s not surprising why they’ve been excluded albeit at the expense of the investor’s experience necessary to understand them in the first place.
Regardless, the main intent of these securities laws seems to be for fraud prevention. To reiterate, most Accredited Investors are college grads, self made millionaires and in their 50’s or older. So the thinking is, if an investor has the ability to acquire the minimum net worth or income to be considered “Accredited” in the first place, then that same individual has the wherewithal to determine if a particular investment vehicle is a good investment for them based upon their own due diligence.
If you’re a startup looking for seed capital or expanding your business or are actively looking for alternative sources of capital, Accredited Investors could provide a viable solution to your fundraising efforts. Furthermore, if you’re considering equity crowdfunding and waiting on the SEC to finalize their rules for non-accredited investors, you might be waiting until 2014 for their answers. As a result, targeting Accredited Investors for your fundraising efforts might take these variables concerning investor qualification (as defined by the SEC) out of the equation.*
So if you are executing a direct mail, email or even telemarketing campaign in order to establish an initial rapport with an Accredited Investor, American Direct Marketing Services, Inc. has nearly 40 years experience in targeting, acquiring and delivering quality Accredited Investor prospects to the financial services community for your marketing and fundraising endeavors.
Below are a few of ADMS’ flagship Accredited Investor leads and Accredited Investor lists:
Accredited Investor Leads: https://www.dmlist.com/investor-leads/accredited-investor-leads
E-mails: Accredited Investors: https://www.dmlist.com/email-multi-channel-marketing-lists/e-mails-accredited-investors
ADMS’ Accredited Investors: https://www.dmlist.com/direct-mail-telemarketing-lists/adms’-accredited-investors
*Just to be perfectly clear about the above discussion, American Direct Marketing Services, Inc. is not offering legal, financial, or consulting services whatsoever…you should consult with and seek advice from your own advisors regarding the ways to achieve your personal, business and financial goals. Furthermore, database development is an inexact science and, as such, when we refer to Accredited Investor prospects, we are specifically stating that we are attempting to identify to the best of our ability an individual who would meet such definition, but we can’t guarantee that they do.
1) [SOURCE: Center on Budget and Policy Priorities] http://www.cbpp.org
2) [SOURCE: SEC] http://www.sec.gov/answers/accred.htm
3) [SOURCE: Nasdaq OMX Group, Inc.] http://www.nasdaq.com/article/nasdaq-omx-and-sharespost-to-form-private-market-20130306-00168