The SEC’s new definition of accredited investors includes knowledgeable employees of private funds without regard to assets or income. Qualified professionals also can qualify without actually being accredited.
In other words, income and net worth are no longer exclusively necessary to qualify as an accredited investor. This is a big deal, reminiscent of the SEC telling us a few years ago that Rule 506(c “private” placements are in fact “public” placements.
Further, spousal equivalents or cohabitants with similar relationships — and how will SEC staff and state regulators actually know about that? — will now qualify for spousal inclusion. Finally, LLCs and family offices with $5 million or more in assets will now be allowed to get into the “accredited investor” scene without having any accredited investors.
This will be a big deal for many prospective private equity issuers. They will soon learn how much this could help them raise early-stage capital.
Practice note: These new definitions do not become effective until mid-November 2020.