This article originally appeared in the Oct. 17, 2023, issue of Teknovation, a service powered by PYA for those interested in advancing the Southeast’s economy through technology, innovation, and entrepreneurship.
PYA’s Brad Leskoven provides context and shares other thoughts on the possibilities.
A bill passed earlier this year by the U.S. House of Representatives would require the Securities and Exchange Commission (SEC) to alter the way it defines an accredited investor, those individuals who are eligible to invest in start-ups, particularly those at the early stage.
Under long-standing rules, the SEC defines an accredited investor as having a net worth of at least $1 million, excluding a primary residence, or an annual income of at least $200,000 for an individual or $300,000 jointly with a spouse for each of the two previous years.
At those levels, it is assumed that the individual has a level of financial and business sophistication to appreciate the risks associated with making investments in what could be considered high-risk ventures. It also means an entrepreneur can accept the investment without being unnecessarily concerned about being sued should the venture go out of business.
In August 2020, the SEC adopted amendments to expand the accredited investor definition to include individuals with certain professional certifications or credentials from accredited educational institutions.
H.R. 2797, officially known as the “Equal Opportunity for All Investors Act of 2023,” passed the House on May 31. If passed without changes by the Senate, it would require the SEC to establish an examination that would open the door for those who do not meet the net worth or annual income levels to become accredited. Separately, as noted by David Gardner, founder of Cofounders Capital, in this recent article in WRAL TechWire, some are pushing to raise the net worth threshold to $5 million.
The bill was referred to the U.S. Senate Committee on Banking, Housing, and Urban Affairs where it currently awaits action.
We asked Brad Leskoven, a Principal with PYA who also is Director of Tax Operations in the Atlanta office, for his thoughts on the proposed updating. His work for the firm includes the investment advisory space.
Leskoven said it was important to confirm there is some level of understanding of the risk that investors face.
“It is an and/or,” he said, meaning there should be education along with some financial threshold, either in terms of assets or income. “It’s important to weed out any groups taking advantage of individuals.”
Leskoven also noted two other House bills. One—H.R. 835—would codify the current rules about individuals with a net worth exceeding $1 million or an annual income exceeding $200,000 in the definition of accredited investors. In addition, the bill would expand that definition to include individuals with education or experience related to a particular investment.
H.R. 1579 would expand the definition of an accredited investor under the Securities Act of 1933 to include individuals with certifications, designations, or credentials that the SEC determines are in the public interest. The bill would require the SEC to establish and review a list of accepted certifications, designations, and credentials once every five years and make amendments when necessary.
Both were introduced in late April and assigned to the House Committee on Financial Services. No further action has been taken on either bill.
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