Accredited investor

An accredited investor is a person or institution that the Securities and Exchange Commission (SEC) defines as being qualified to invest in unregistered securities, such as privately held corporations, private equity investments, and hedge funds.

The qualification is based on the value of the investor's assets, or in the case of an individual, annual income.

Specifically, to be an accredited investor you must have a net worth of at least $1 million or a current annual income of at least $200,000 with the anticipation you'll earn at least that much next year. If you're married, that amount is increased to $300,000.

Institutions are required to have assets worth $5 million to qualify as accredited investors. The underlying principle is that investors with these assets have the sophistication to understand the risks involved in the investment and can afford to lose the money should the investment fail.