Accredited Investor vs Qualified Purchaser

Income & Net Worth for Individuals

When launching an investment, a Sponsor will determine whether to raise capital from accredited investors or qualified purchasers. This determination is based on a variety of reasons ranging from raise amount to the permission for general solicitation.

The Securities and Exchange Commission (SEC) determines the eligibility requirements for investors. An investor can qualify as both an accredited investor and qualified purchaser, though being recognized as a qualified purchaser has a significantly higher threshold than an accredited investor.

• An accredited investor has a net worth exceeding $1,000,000 individually or with their spouse.¹
• A qualified purchaser has to demonstrate having $5,000,000 in investable assets.

It is important to note that both accredited investor and qualified purchaser qualification requirements state a primary residence is to be excluded from net worth and investable assets calculations.

If an accredited investor does not meet the net worth requirement, they can show an income of more than $200,000 or $300,000 with a spouse in each of the prior two years. In addition, this investor should anticipate making the same for the current year.²

In 2020, the Securities and Exchange Commission (SEC) provided some wiggle room for those seeking to invest in accredited investor opportunities but did not meet the net worth or income requirements. If an investor demonstrated financial sophistication via their business and/or educational experience, then they are able to access accredited opportunities.³ To read in detail the SEC modifications on who qualifies as an accredited investor, please click here.

However, the Sponsor needs to reasonably believe this individual has knowledge and experience to evaluate the pros and cons of an investment opportunity. If intending to qualify based on knowledge and investment experience, a few of the questions an investor may be asked are:

1. What is the investor's employment history, most likely following college or in the past ten years in relation to financial and/or business?
2. How often do they make investments in alternative investments like a venture capital fund?
3. What do they as an investor bring to the table with their own knowledge in evaluating an investment opportunity?

If you're ready to invest, a Sponsor will request verification of your accredited investor status via licensed attorney, certified public accountant, investment advisor registered with the SEC or SEC registered broker-dealer. There are websites that perform verification services, such as Invest Ready or Accredited.am.

An investment's accredited or qualified purchaser exemption status can be checked via the NASAA's Electronic Filing Depository System.

Most importantly, investors should take the time to perform comprehensive due diligence, via resources such as Investment Adviser Public Disclosure and SEC Action Lookup—Individuals.