In this conversation from the show, the hosts delve into the topic of IPOs (Initial Public Offerings), with a specific focus on the concept of accredited investors. The discussion is sparked by News Max’s announcement of its plans to go public, initially through a private offering available only to accredited investors. An accredited investor is defined as a person or entity permitted to invest in securities not registered with the SEC (Securities and Exchange Commission), contrasting with public companies that are required to have transparent reporting every three months.
Accredited investors are considered more sophisticated than average investors and must meet specific financial criteria. These include having an income of $200,000 or more for the past two years (or $300,000 if married) or a net worth of at least a million dollars, excluding the primary residence in most cases. Additionally, individuals with certain professional certifications or securities licenses, knowledgeable employees of private funds, and registered investment advisors can also qualify as accredited investors. This qualification implies they possess a higher level of financial acumen and understanding of investment risks compared to typical retail investors.
We had mentioned earlier in the show about getting back to this conversation about IPOs and different things like that. And one of the terms that we have been talking about is this idea of an accredited investor. Can you tell us what that is? What is an accredited investor? Yeah, so for maybe those of you first tuning in, we had a question earlier in the show about News Max announcing that they are going to do an IPO. They’re going to go public. They’re going to start to allow public investors to buy their shares. But for right now, they are doing a private offering for accredited investors only. So, quite simply, an accredited investor is a person or an entity that is allowed to invest in securities that are not registered with the SEC.gov. Publicly traded companies are registered with the SEC. They have reporting requirements. They’ve got to report their results in a certain format every three months to the public, so the public can get a sense of transparency about the health of the company and whether they want to be an investor. So, private companies do not have some of those same requirements, and so they are considered to have more risk, less transparency, so on and so forth. So, you have to be a more sophisticated investor than just, you know, the average mom and pop investor. So, an accredited investor, to be considered accredited, you have to meet certain income and or net worth guidelines. So, if you’ve earned $200,000 or more for the last two years, then you can be considered an accredited investor. If you’re married, you have to have $300,000 or more, or you can be an accredited investor if you have a net worth of at least a million dollars. This category of accredited investors excludes, in most cases, the value of your primary residence. So, there are situations where you can include it, like if you have negative equity in your mortgage, or you have a home equity line of credit. The SEC some years ago added another category for accredited investors as well. If you have certain professional certifications, designations, or credentials, like let’s say that you have a securities license, then you’re considered to have a much better understanding than the average person for financial investments. Individuals who are knowledgeable employees of a private fund, and SEC and State registered investment advisors are also considered to be accredited investors. So, a startup has a little bit better understanding than just the average Joe, about investments.
