In a long overdue decision, the U.S. Securities and Exchange Commission expanded its definition of accredited investor this week.

The accredited investor status represents one of the principal tests in the U.S. to determine who is eligible to participate in private capital markets. Historically, individual investors who did not meet specific income or net worth tests were excluded from investing private companies. By consequence, individual investors, regardless of their financial sophistication, were denied the opportunity to invest in tech startups. The framework thus favored the wealthy and hampered financial mobility.

A step in the right direction

Although the SEC’s current amendment does not appear to dramatically widen the net of eligible investors, it’s certainly a step in the right direction. It’s hard to argue that an incremental measured approach is not the most appropriate when it comes to regulation and financial protection of its citizens.

The SEC’s announcement references suggests that academic credentials and certificates will also factor in to the expanded definition of accredited investor, and this could become meaningful over time. Even more meaningful, and what I would like to see, is in a path to accreditation for even those individuals lacking the financial net worth or academic pedigree. For instance, an accreditation exam much like individuals of a certain age in the United States are eligible to take a rigorous exam for a drivers license or a real estate license could be a compelling alternative.

Perhaps even some inspiration can be drawn from practices in other developed countries, which allow individuals of all income levels to participate in private investment opportunities but whose participation is capped as a percent of their total household income (FCPI structures in France, VCT structures in the UK, the Angel Tax program in Japan, etc.).

True, the SEC’s current expansion of accreditation does not yet move the needle for most people, it’s a step in the right direction. Democratizing access to innovation for all of its citizens strikes me as a worthwhile goal for any democratic government.