Learn who qualifies as an accredited investor under Regulation D, what the benefits are, and how to access private market deals through exemptions and platforms.
Regulation D is the backbone of private markets: it enables early-stage companies to raise money without registering with the SEC. Otherwise, they'd have to go through an expensive and complicated process to issue publicly traded shares. Many smaller companies and startups simply don't have the cash or time to navigate that much red tape.
On the investor side, qualifying as an accredited investor can unlock a host of opportunities. It's a way to access private markets, pre-IPO companies, and other early-stage businesses with strong growth potential. The high-risk, high-reward approach can be extremely lucrative, particularly when it's part of a balanced portfolio.
Read on to find out how Regulation D impacts private market investors — and how to get that all-important accredited investor badge.
Regulation D, or Reg D, is an exemption to the Securities Act of 1933 that allows companies to issue private securities. It is one of the only ways for private companies to sell equity to certain investors. That makes it particularly important for private market and pre-IPO investors, venture capitalists, and hedge funds. If you're new to investing in private companies, this guide breaks down the fundamentals and what to expect.
At the risk of oversimplifying, Regulation D is the grease that keeps the private equity market moving. While there are some rules to follow, Reg D is nowhere near as onerous or costly as a public listing. The process and requirements may differ, depending on a company's size and capital requirements, as well as the type of investor it hopes to attract.
For investors, Regulation D makes diversification into private equity, hedge funds, and venture capital possible. Accredited investor status is like a golden ticket that opens the door to a host of non-public investments.
According to the Chicago Booth Review, roughly 99% of U.S. companies are privately held. Around 80% of those are single-person businesses. But within the remaining 20%, there are increasing numbers of sizeable private companies with serious potential. Fewer than ever are going public, meaning qualified investors may want to turn their sights away from the stock market to build fully diversified portfolios.
There are three ways individuals can qualify as an accredited investor: through income, net worth, or investor certifications. The idea is to show that you're financially able and/or knowledgeable enough to handle more sophisticated investments that may carry higher risks.
Accredited investors need to meet one of the following criteria:
Certain entities can also qualify, but the requirements are slightly different. To count as an accredited investor, an entity must meet one of the following criteria:
Companies have different obligations in terms of proving whether an investor is accredited.
Without going too far into the weeds, if it is raising funds via Rule 506(b), it only needs a reasonable belief that you're accredited. But many top pre-IPO companies will use Rule 506(c), the route that allows advertising and doesn't require a pre-existing relationship. In that case, the business may ask you to prove your income, net worth, or professional status, which may involve providing a W2 form, bank statements, or other documentation. Once you’re verified, it's crucial to evaluate each investment carefully — especially in later-stage deals where valuations and liquidity windows vary.
The private stock marketplace has transformed in recent years, with technological developments and investor demand driving the growth of private secondary markets. Accredited investors can use platforms like Augment* to connect with early-stage and pre-IPO companies.
This means that you no longer need to go through a venture capital firm to invest in startups. As long as you meet the criteria to become a qualified investor, you can use Augment's pre-IPO investment platform to access real-time pricing data, evaluate opportunities, and negotiate directly with verified sellers.
Here's what to look for when choosing the right pre-IPO platform to meet your investing goals.
On top of that, the rules to qualify as an accredited investor are looser than ever before. Once you do, platforms like Augment can help you get in on the ground floor and access companies before they go public.
Don't dismiss Regulation D as a stuffy piece of legal text. If you’re still comparing Reg D with other exemptions, this breakdown of Reg A vs. Reg D can help you decide which path fits your strategy. It’s the key to unlocking opportunities that most investors never see.
*Securities transactions are executed on Augment Capital, LLC's ATS and offered through Augment Capital, LLC (member FINRA/SIPC).
Important Disclosures: Investing in private securities involves substantial risk, including the potential loss of principal. Private securities are typically illiquid, have limited pricing transparency, and often require longer holding periods. These investments are available exclusively to qualified accredited investors and offer no guarantee of returns. Additionally, past performance of private securities does not indicate or predict future results.