Quick definitional refresher: Individuals who have an annual income of $200,000 ($300,000 for couples) or a net worth of at least $1 million (not including their primary homes) are considered “accredited investors.” There’s A LOT more folks than ever before…my family included.

In 1983, just 2% of U.S. households (+/- 1.6 million or ) met this threshold, versus an estimated (2020) 13% today which amounts to over 13 million households! Two big factors drove the increase:

1) Inflation (SEC income and net worth thresholds established in 1982 were never updated with exception of removing home equity in net worth calculations in 2011).

2) Income acceleration and wealth accumulation by the Top 5% of households over the past 40 years far outpacing GDP growth.

3) 2020 SEC Accredited Investor definition changes which loosened the rules, adding a “financial sophistication” component to quality in absence of the net worth and income. This includes folks holding Series 7, 65, 82 brokers licenses and certain other “knowledgeable employees.”

So what you ask? Entities raising money from accredited investors are exempt from most SEC and state securities filing regulations meaning the vast majority of equity fundraisers limit their capital outreach to this universe, which continues to grow rapidly based on current projections.

What does this mean for newly minted accredited investors? In short, a lot or a little depending on your risk tolerance, networks and life circumstances. Being an accredited investor opens up many new potentially compelling opportunities but also risks requiring due diligence.

What does this mean for advisors, syndicators/founders/traditional VC and private equity shops? You have many new/excited (but possibly apprehensive/confused) prospective investors to educate, build trust and scale with outside of traditional avenues. But more competition too.

My wife and I became accredited investors in 2014 and began participating (as passive investors and occasional syndicators) across a variety of sectors and investment structures ranging from start-ups to real estate, PE funds, healthcare, cannabis, hospitality, etc.

Results thus far: Mixed. Some deals resulted in complete loss of all invested capital, which is actually OK because we were fully aware of the asymmetric nature of the investment. Others experienced relatively quick, profitable exits. Others are “steady as we go” (monthly distros), most are TBD.

A few (well 5) top line words of wisdom (none of this constitutes financial advice btw):

1) Don’t substitute private placements for your customary “mainline” investments such as 401, SEP, 529 etc. Vanguard and similar indexing is still a great strategy…

2) Do your friggin homework…just because a deal is restricted to accredited investors doesn’t mean its a winner. Share prospectuses with people you trust, asked tough questions and listen closely to the answers. There is no exception to the rule for family/friend deals.

3) Understand the risk reward. Many deals I see have two likely outcomes e.g. a 20–30X return or a full loss of capital. Treat such deals like a Vegas vacation. Write the check/wire the capital, enjoy the experience but expect to part with the money forever. Wins are a bonus.

4) Take it slow and learn to say no more often than yes. I’ve occasionally struggled with this problem mostly for the typical FOMO issues. Resist the desire to invest in every deal you see. There will be other deals. You’ll miss out on a few, that’s OK. It’s just money.

5) Unless you have complete financial freedom (sadly not us yet), no private placement deal is worth putting you, family, your lifestyle or primary earning abilities in jeopardy. Yes, short term sacrifice (skipping new car or vacay) is one thing, staying in a job you hate to do a deal is another.

Thanks for staying with me on my first essay, hopefully the first of many on subjects I know and care about, including Public Relations, investing, growing a business, fitness/Peloton. I’d appreciate feedback, retweets and follows at @jtunes1978!