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Accredited investing: supporting the state's startups.

While the term "accredited investing" may sound rather vague, becoming an accredited investor within the investment community can lead to many profitable opportunities. It can open doors to large returns from high risk ventures that are successful. It also continues to foster the state's spirit of entrepreneurship by providing capital to start up companies that are not ready for larger venture firm investments. And, accredited investing can expose investors to deals they otherwise wouldn't have been privy to.


To be recognized as an accredited investor, the U.S. Securities and Exchange Commission requires a person to have a minimum net worth of $1 million or a minimal annual income of $200,000 for the past two years. This number can be $300,000 a year if a spouse's income is included.

Endowments, corporations and employee benefit plans can also qualify for accredited investor status if the plan has at least $5 million in assets; that number drops to $3 million for charitable organizations. If all owners of a company individually qualify as accredited investors, the corporation itself may also be granted the same standing.

By becoming an accredited investor, the individual is certifying that he or she has enough assets and reserves to invest in high risk ventures without the possibility of becoming a burden on the economy. The official law, called the Securities Act of 1933, was enacted following the Stock Market Crash to ensure investors could actually back high risk investments. Currently, about 8.5 percent of households in the U.S. meet accredited investor requirements, according to the U.S. Securities and Exchange Commission.

Many accredited investors form groups of angels to provide capital to startup companies. Typically, angel investors look for companies that can have a national footprint with a compelling product that has the potential to generate $10 million or more in annual revenue.

Without this continued investment, the formation and success of many Utah small businesses would not have been possible. Being part of an angel investing group allows members to have access to more deals and to glean from the expertise and background of other members. Nationally, angel investing groups have increased by 67 percent to 10,000 investors since 1999. In Utah, about 80 angels are currently active in groups looking for deals across the state.

An accredited investor is also qualified to put money into hedge funds. Usually a potential investor will have to detail holdings for a hedge fund manager such as stocks, real estate and physical commodities, occasionally including a financial reference such as a broker. Such information is necessary as hedge funds are not scrutinized by the U.S. Securities and Exchange Commission. The typical minimum investment in a hedge fund is between $500,000 and $1 million, with highly successful funds requiring even higher initial investments. To remain exempt from direct regulation, an investment fund must be restricted to a number of accredited investors.

Of course, some accredited investors decide to pursue their own investing strategies. Whatever you choose, qualifying as an accredited investor can open up a wealth of investment occasions.
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Title Annotation:Financial Services & Taxes
Comment:Accredited investing: supporting the state's startups.(Financial Services & Taxes)
Publication:Utah Business
Date:Oct 1, 2008
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