BUSINESS FUNDING

What an Accredited Investor Actually Is, and Why It Decides Your Whole Raise

By Baruch Mackliff, the Capital Commander · PRBE Capital

Topic: Business funding and what it costs you

Before anyone tells you what a private raise costs, someone should tell you who you are legally allowed to ask. That question has an answer, it is older than any deck you will ever build, and it quietly sets the shape of everything that follows.

The answer is the accredited investor.

The category, in one sentence

An accredited investor is a person or an entity that federal securities rules treat as able to participate in an offering that was never registered with a regulator and never reviewed by one.

Read that again with the emphasis in the right place. The rule is describing the offering, not flattering the investor. A public offering carries mandatory disclosure that gets filed and examined. A private offering skips that, and in exchange it is restricted to a narrower audience. This is not a judgement about who is clever. It is a rule about who is allowed to be sold something nobody checked.

Once you see it that way, the rest of the logic follows, and so does the reason your lawyer will be strict about it.

The two tests most people qualify under, or fail

There are two familiar routes. Both are tests rather than a single number to memorise.

The income test. It looks at individual income sustained across recent years, with a reasonable expectation of the same in the current year. Two features matter more than the figure itself. It is sustained income, so one exceptional year usually does not carry it. And there is a separate joint threshold for a married couple, set higher than the individual one.

The net worth test. It looks at what a person owns minus what they owe, with the home they live in treated separately from that calculation. That single carve-out is why someone who feels wealthy on paper can fail the test, and why someone with a modest house and a large brokerage account can pass it.

The actual dollar figures move. They have been revisited before and they can be revisited again, and a blog post is the worst possible place to learn them. Get the current numbers from the regulator or from counsel on the day you need them.

The third route has nothing to do with money. Certain professional licences and credentials qualify a person on the basis of demonstrated knowledge. Certain people inside a fund qualify because of the role they hold there. Entities have their own routes, generally turning on total assets or on every owner of the entity being accredited individually.

What general solicitation actually means

General solicitation is advertising an offering to the public. It is far broader than most owners assume.

A public post describing your terms is general solicitation. So is a webinar anyone can register for. So is a cold email to a purchased list, a billboard, a newsletter blast, or a podcast appearance where you name the raise and invite people in. The medium is irrelevant. What matters is that you reached people you had no prior relationship with.

This is decisive because the exemptions available to you treat solicitation very differently. Some forbid public advertising outright. At least one permits it and pays for that freedom by requiring you to verify that every purchaser really is accredited, rather than accepting a signed statement saying so.

The practical consequence is sharper than it first appears. The moment you describe your offering in public, you may have chosen your exemption for yourself, and you may have chosen the one whose conditions you are not set up to satisfy. That is a compliance problem created by a social post, weeks before a lawyer was ever involved.

The pre-existing relationship, and why timing decides it

Underneath all of this sits a concept owners rarely hear about until they have already broken it: the pre-existing substantive relationship.

The idea is that you knew the person well enough to form a view about their circumstances and their sophistication, and you knew them before the offering existed. Substantive means you actually know something about them. Pre-existing means the relationship came first.

A relationship formed after you started raising, formed for the purpose of raising, is a different animal. Collecting contacts at an event last month and calling it a network does not make it one. The clock here runs backwards from the offering, and you cannot reset it once the raise is live.

The bad actor question nobody warns you about

One more gate sits in front of the exemption, and it has nothing to do with your investors.

Anyone who controls the company gets checked. In practice that means a holder of more than a tenth of the company, and anyone sitting on the board. A record of financial crime attached to a controlling person can disqualify the offering itself. Not slow it down. Disqualify it.

Find this out about your own cap table and your own board before an investor's counsel finds it out for you, because they will look.

What you can safely do before you have counsel

You are allowed to build a business and talk about a business. That is not an offering.

• Describe what your company does, publicly and often.
• Talk about your industry, your customers and what you have actually built. Do not describe an investment.
• Build real relationships with people who invest, long before you need one of them to write anything.
• Keep a written record of who you met, when you met them, and how the introduction happened.

What waits for counsel is everything that sounds like terms:

• a valuation stated in public
• a projected return of any kind
• a public description of the instrument, the minimum cheque or the allocation
• accepting money in any form, including a deposit someone offers to leave with you informally

The distance between those two lists is the distance between marketing and a securities offering. It is thinner than it looks on the page.

What this changes about your plan

Most owners arrive at a raise with the order reversed. They build the deck, they announce the round, and then they go looking for a lawyer to bless what they have already said.

Run it the other way. Work out who you are permitted to approach. Work out how you are permitted to reach them. Then build material that fits inside that answer, and let counsel confirm it before a single term goes anywhere public.

The raise gets slower by a few weeks. It gets safer by a few years.

Where PRBE fits

We sit with owners at the stage this article describes, before the deck exists and before anything has been said publicly, and work through what the structure would have to look like for a raise to be possible at all. That is a conversation rather than a product, and it commits you to nothing.

This is a plain-English explanation, not legal or investment advice. Securities rules carry conditions and exceptions, and they carry current figures this page deliberately does not state. Have a securities attorney review your own situation before you describe an offering to anyone.

Common questions

What is an accredited investor?

A person or entity that securities rules treat as eligible to buy into an offering that was never registered or reviewed by a regulator. Qualification usually runs through an income test, a net worth test, or a professional credential.

Do I have to be accredited to invest in a private company?

For most private offerings, yes. The exemption the company is relying on generally limits who may purchase, which is why an issuer asks about your status before it will take your money.

What counts as general solicitation?

Advertising an offering to people you have no prior relationship with. Public posts, open webinars, cold email lists, billboards and podcast appearances that name the raise all qualify.

Can I post about my raise on social media?

It depends entirely on which exemption you are using, and posting publicly can effectively choose that exemption for you. Settle this with counsel before the first post, not after.

Can a company be an accredited investor?

Yes. Entities have their own routes to accreditation, generally based on total assets or on every owner of the entity qualifying individually.

Do I need a lawyer before I talk to investors?

You can talk about your business at any time. The moment you describe terms, a valuation or a return, you are in securities territory and you want counsel in front of it.