Raise the Bar in Targeting Accredited Investors

Monday, June 30th, 2014
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Target high net worth in marketing to accredited angel investors.

Time to raise the bar in marketing to high net worth, accredited investors.

As the Dow, S&P and Nasdaq steam ahead, consumer confidence is actually at its lowest point since 2008. The recession has proven to have a lasting impact by showing people, the rich included, what’s essential and what’s not. It appears that the wealthy today are focused on acquiring more stocks, not buying more fancy material possessions.

I suspect that those powering the markets forward are quite financially sophisticated, many of whom could be considered accredited investors with access to investment opportunities that others are barred from. Based on proof that such an investor earns at least $200M or has a net worth above $1MM, they can fund private ventures considered as possibly too risky for those with lower household income or net worth.

The rule (#504 of Regulation D) designating this income level was made decades ago. And only just a year ago did the SEC begin allowing public advertising and solicitation of Regulation D offers (private securities) to accredited investors based on those figures. So while it is legal to pitch private business investment opportunities to individuals earning $200,000, it would be wiser to target those with very high net worth and the liquid capital to put some skin in the game.

A six-figure income is nowhere near what it used to be when rule 504 established the necessary income level to be deemed “accredited.” To keep it simple, let’s use $100,000 for example. In the 80’s that would buy you a very nice house, college education for the kids and leave enough leftover for family vacations. Today, you’d need $279,000 to enjoy the same purchasing power that  $100,000 afforded in 1980.

Investors with less than a million in the bank, but earning $200,000 are probably not in position to provide seed money for the next big thing. To be willing to stake a new business startup, most investors have a sizeable, well-balanced portfolio with liquid capital. In other words, very high net worth.

Meanwhile, beginning this year the SEC is required to review the “accredited investor” definition in its entirety and consider raising the bar as it views appropriate for the current economy. That’s a strong indicator that marketers seeking accredited investors should raise their bar staring now.

 

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