What is an ACCREDITED INVESTOR?

An accredited investor is an individual, entity, or financial institution with a special financial status that enables them to invest in certain opportunities that are not legally available to ordinary investors. These investment opportunities are typically hedge funds, which are similar to private mutual funds with various investment requirements. Also, accredited investors can invest in venture capital and angel investments, which are special types of investments that starting or rapidly growing private companies need to build their operations.

In Canada, the details of the official definition of an accredited investor and who qualifies as one can be found in section 1.1 of the National Instrument 45-106. There are over 20 situations in which a person or entity is considered an accredited investor, but the most commonly used cases include:

• An individual, alone or with a spouse, who has net assets of more than $5 million
  
  
• An individual who has a before tax income of over $200,000 for at least two years in a row ($300,000 if combining income with a spouse) and expects to exceed that income the current calendar year
  
  
• A person registered in Canada, under securities legislation, as a dealer or an adviser
  
  
• Many types of investment funds distributing funds to, or advised by, accredited investors
  
  

A small business owner or entrepreneur might need to raise some capital in the form of an angel investment or venture capital investment at some point in their business’s lifetime. In that case, with limited exceptions, the funding likely comes from an accredited investor. While accredited investors objectively have more wealth than the average person, they tend to also have a higher level of investment and financial acumen. Because of this, it may be wise for the small business owner to learn more about these types of investments and this class of investors. This may increase the chances of obtaining a much needed investment.