If you’ve ever thought about dipping your toes into tech investing, now just might be your moment.
For the first time in nearly 35 years, The Securities and Exchange Commission (SEC) has modified the definition of an accredited investor. This “modernization,” as the SEC calls it, could inject new life, and new capital, into the Southeast’s tech scene.
Overview of the changes to who qualifies as an accredited investor:
- An individual’s wealth and net worth are no longer defining factors
- “Knowledgeable employees” with Series 7, Series 65, and Series 82 licenses will now qualify to invest in private, unregistered, and illiquid securities
- LLCs and Native American tribes with $5M in assets may now be accredited investors
- Spouses may pool their finances to qualify
- SEC and state-registered investment advisers will now qualify
Essentially, the SEC is paving the way for the next generation of eager, financially-savvy investors across the country. Moving away from a strictly wealth-based investor definition could impact both funds and startups in traditionally overlooked markets.
John Dearie, Founder and President of DC-based Center for American Entrepreneurship, told Hypepotamus that the previous definition favored “investors in high-cost, high-salary coastal cities over investors that live in the lower-cost, lower-salary interior of the country,” Dearie said via email.
“The broadening of the definition of accredited investor is long overdue and very good news for startups – more accredited investors means a larger pool of available capital that can be tapped by young dynamic companies,” continued Dearie.
For Shila Nieves Burney of Zane Venture Funds, the change is about bringing more access and equitability to investing. “In my opinion, this opens the pool up for additional types of investing — primarily, for me, from African-Americans who have been left out of opportunities to invest into companies that scale and become IPOs, and have big returns.”
While there are still important safeguards in place to ensure both founders and investors avoid fraudulent or unfair deals, the changes do help younger investors enter the game earlier in their careers.
Graham Gintz, who founded the investor due diligence platform Knightley to help match early-stage founders with angels, believes this change is an important step for the Southeast startup scene.
“[Atlanta] has a ton of knowledge when it comes to the financial markets, but where we have struggled is the salaries above $200K. By dropping these wealth requirements, we can empower all these 20- and 30-somethings working in finance to be part of the venture ecosystem as an angel investor way sooner than ever before,” Gintz told Hypepotamus.
“This age class is far more open to risk and generally more knowledgeable about tech, which could have a compounding impact. This same thing could be said for Charlotte, Charleston, Nashville, Miami, and I expect this to be a big deal for Southerners who want to dabble in alternative asset classes like early-stage startups,” Gintz continued.
Leaders across Atlanta encourage those interested in such investment opportunities to do their homework. Launchpad2X’s President and Startup Atlanta board member Christy Brown told Hypepotamus that “investments can be complex no matter what level you are entering — angel investments, funds, etc.”
“Atlanta is a mecca for early-stage investments and I would recommend meeting with the Atlanta Tech Angels, The Angel Lounge based out of ATDC, or simply reviewing funds with a strong presence if you have interest to invest such as BIP Capital, Fulcrum and others, where investors are assisting you with the entry points,” said Brown.
Another important caveat: The change doesn’t immediately open the investing flood gates. There are still limits on the number of people who can be listed on any cap table. Because of this, Burney says to those who are looking to start a venture fund, remember that you don’t automatically get to have more investors on the table.
“It just means you can allow other people at lower amounts to invest,” she says.
While it is too early to see how many new investors spring up across the Southeast due to the definition change, tech startups in smaller markets may have more local opportunities to grow and scale while raising money in their own backyards.