Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

You've probably heard about the incredible returns from early-stage startup investing. Someone invested $25k in Uber's seed round and turned it into millions. Angels who backed Airbnb early made fortunes.

Sounds great, right? Except there's a catch. Unless you're an accredited investor, you can't participate in most of these deals.

What "Accredited" Actually Means

The SEC created accreditation requirements to protect retail investors from risky investments. The theory goes that if you're wealthy enough, you can afford to lose money on speculative bets like early-stage startups.

To qualify as an accredited investor, you need to meet one of these criteria:

• Net worth of at least $1M, excluding your primary residence
• Annual income of $200k+ as an individual (or $300k+ with your spouse) for the past two years, with expectation of the same this year

There are other ways to qualify, like holding certain professional certifications, but those are the main paths.

Notice what's missing? There's nothing about investment knowledge or experience. You could be a terrible investor who inherited money and still qualify. Meanwhile, someone who spent 10 years studying startups but doesn't hit the income threshold can't invest.

It's a blunt instrument.

Why This Matters for Startup Investing

Most startup investments require accredited investor status. When you raise a VC fund, your LPs need to be accredited. When founders raise from angels, they typically only accept accredited investors. Platforms like AngelList have accreditation requirements.

This creates a massive bottleneck. At Hustle Fund, we've talked about this constraint frequently. It limits the pool of potential investors, which means less capital flowing to startups and fewer people building wealth through early-stage investing.

Think about the numbers. If you're trying to raise a $20M fund and you're limited to 99 investor slots (another SEC rule), you can't just collect $10k checks from people who want to participate. You need investors who can write $200k+ checks. That's a big commitment, even for someone worth $1M.

So fund managers end up chasing wealthy individuals or institutions. The barrier isn't just about being accredited. It's about having enough capital to write meaningful checks.

How People Actually Get Accredited

Most people who become accredited investors do it through one of three paths:

First, they make money in tech. Startup exits create wealth. Engineers at successful companies end up with stock worth millions. Founders who sell their businesses suddenly qualify.

Second, they build wealth through traditional careers. Doctors, lawyers, consultants. Hit $200k in annual income and keep it there for a few years, and you're in.

Third, they inherit wealth or marry into it. Not the most accessible path, but it's how plenty of accredited investors qualify.

There's also a quirky workaround: if you've raised money for your startup at a high enough valuation and own enough equity, you might be worth $1M on paper even if you have no cash. 

You're technically accredited. This is how lots of founders become angel investors while still running their companies.

The Real-World Impact

These rules reshape the entire startup ecosystem.

Emerging fund managers struggle to raise capital because they can't tap into smaller investors. They need to find 99 people who can each invest hundreds of thousands. That's hard.

Founders often face a similar challenge. If you're raising $500k and the average angel can only invest $25k, you need 20 investors. That's a lot of conversations, a lot of coordination, and a crowded cap table.

The rules also create inequality. People who already have wealth get access to high-return investment opportunities. Everyone else gets locked out. Over time, this compounds. The wealthy get wealthier through startup investments while others miss out.

Changes Are Coming (Slowly)

The SEC has made some tweaks. They increased the number of investors allowed in smaller funds. They modified the accredited investor definition slightly. They enacted new crowdfunding rules that let non-accredited investors participate in some deals.

Platforms like Republic and Wefunder enable regular people to invest smaller amounts in startups through Regulation Crowdfunding. It's a start.

But there are still massive limitations. You can't crowdfund a $10M Series A. You can't have 2,000 people in your cap table. The rules protect later-stage investors from true market competition.

As more people make money from startup exits and crypto, we're seeing more accredited investors enter the ecosystem. This is good. More capital means more funding for startups, which means more innovation.

But the fundamental structure still favors the already-wealthy.

What This Means for You

If you're not accredited yet but want to invest in startups, you have a few options.

Work on hitting those thresholds. Focus on your career or business. Get to $200k in annual income or build assets worth $1M.

In the meantime, look for opportunities that don't require accreditation. Some equity crowdfunding platforms let you invest smaller amounts without being accredited, though the deal quality varies.

You could also build a track record by advising startups or joining an accelerator as a mentor. This gets you exposure to early-stage companies and helps you learn before deploying capital.

If you're already accredited, the world of startup investing opens up. You can write angel checks, join syndicates, or even raise your own fund.

But just because you can invest doesn't mean you should jump in blind. Angel investing is risky. Most startups fail. You need to build a diversified portfolio and be prepared to lose everything you invest.

The Bigger Picture

These SEC regulations exist for a reason. Early-stage investing is genuinely risky. Most people probably shouldn't put their life savings into startups.

But the current system is imperfect. It keeps out sophisticated investors who don't meet arbitrary wealth thresholds. It concentrates wealth-building opportunities among people who are already wealthy.

As the startup ecosystem matures, we'll likely see continued evolution in these rules. More ways for everyday people to participate. More competition among investors. More transparency.

Until then, accreditation remains the gate you need to pass through. If you're serious about startup investing, work toward meeting those requirements. And once you're through, make the most of it.

For those navigating the path to angel investing and looking for community, deal flow, and mentorship, Angel Squad provides resources to help you build your track record and make smarter investment decisions. Whether you're newly accredited or still working toward it, having experienced investors in your corner makes all the difference.