An accredited investor is an individual, entity, or financial institution with a special financial status that enables them to invest in certain opportunities that are not legally available to ordinary investors. Across the world, and in Singapore, there are various regulations in place to protect both those who qualify for the status of an accredited investor, as well as businesses who may utilise their capital.
While accredited investors usually choose investment opportunities such as hedge funds, accredited investors can also invest in venture capital and angel investments. These are a unique type of investments for businesses that are starting or rapidly growing private companies that need to build their operations.
The role an accredited investor can play in the local economy, shaping businesses and providing capital for those who may not qualify for the traditional route, allows them both a range of risk and reward.
The details of an accredited investor
In Singapore, an accredited investor, or a MAS accredited investor, is someone who meets the requirements for one, and who has opted in to be treated as an accredited investor.
There are three key criteria to qualify as an accredited investor and a potential accredited investor only has to meet one of the requirements to qualify.
- Income earned in the previous 12 months is not less than SGD300,000 (or the equivalent in any foreign currency)
- The net personal assets of the potential accredited investor exceed SGD2 million (or its equivalent in any foreign currency) in value. That said, the net value of the investor’s primary place of residence can only contribute up to SGD1 million
- The net Financial Assets exceed SGD1 million (or its equivalent in any foreign currency) in value
In recent years the law in Singapore changed to refine, reflect and enhance regulation for accredited investors, this includes an opt in regime which allows investors the option to choose. The benefit of this is that they have access to a wide range of investment types and products that most don’t.
Why are accredited investors important?
A small business owner or entrepreneur might need to raise some capital in the form of an angel investment or venture capital investment at some point during the course of running a business – which is typically in the high-growth phase. In this case, funding usually comes from an accredited, or angel, investor.
Accredited, or angel, investors typically have a range of interests and portfolios to look after. While they may have a higher level of investment and financial acumen than most, it is important to understand the risk and reward for both the investor and business owner.
Because of this, it may be wise for the small business owner to learn more about this type of investor and these types of investments. While it may increase the chances of obtaining a much needed investment, both parties should undertake due diligence.
Taking on funding from accredited investors puts a business in a very different position, with many more responsibilities in terms of reporting, structure and most critically, being profitable. For those considering becoming an accredited investor, choose wisely and the same can be said for those choosing to raise capital and work with one.
Overall, accredited, or angel, investors, can assist in helping grow local economy, shape businesses and provide capital to those who may be in need. Their importance is clear for both businesses and stakeholders and should be maximised wherever possible, and suitable, after due diligence and a culture fit is concluded by all parties.