It's not quite that black and white: essentially, the laws around "accredited investors" are there to clearly delineate professional investors from more casual

It's not quite that black and white: essentially, the laws around "accredited investors" are there to clearly delineate professional investors from more casual investors so that the person receiving the money can be sure that it will count as a private placement exempt from SEC registration requirements. That, in turn, is to prevent scam artists from inducing people to part with their money by "investing" in a private investment that's totally free of SEC registration and oversight. If you wanted to invest in your friend's startup, you could, but if you wanted to fund other third-party startups with which you had no pre-existing relationship, you'd need to register as an accredited investor. See grellas's excellent summary from a few days ago: http://news.ycombinator.com/item?id=1221387 http://news.ycombinator.com/item?id=1221387 As absurd as it seems, laws like this don't come out of nowhere just to make people's lives complicated and miserable: the SEC registration requirements are there to prevent scam artists (of which the 20th century that saw rise to these laws saw plenty), and the accredited investor regulations are a way to clarify the exemptions to those requirements.