What is an accredited investor?

An accredited investor is either an individual or a business entity that trades securities that are not necessarily registered with financial authorities. Such Investors are granted an accredited status due to their income, net worth, asset size, governance status, or professional experience. Therefore the accredited Investors become privy to privileged deals.



How do I prove my accredited status?

For publicly investing in a fund, you need to provide adequate authentic documentation to verify your accredited status as an investor under the US securities law. There are various ways by which you can qualify for accreditation. Therefore, you must provide relevant documentation to prove on which basis you are accredited.

 

  • Income: More than $200,000 individually and $300,000 together with the spouse consecutively for the last two years.

 

  • Assets: Must have a net worth of over 1 million individually or jointly with a spouse, which won’t include the value of your primary residence.

 

  • Verification by licensed professional: Besides adequate documentation that corroborates your accredited status, you can also provide an acknowledgment from any licensed third-party entities such as attorneys, investment brokers or advisors, and CPA.

 

  • If you are an accredited investor based on your income you will need to provide documentation in the form of tax returns or other prevalent documents that proves your accreditation status in the past two years.

 

  • If you are accredited based on assets, you must present documents that relate to your recent brokerage and a bank account that clearly shows your name, the date, and the total value of your accounts. In this verification method, we would need to access your credit report and deduct any mortgage debts from the value of your assets that would enable us to calculate your net worth.  

Why do I need to prove my accredited status?

 

From September 2013 the SEC has instructed the companies that are publicly marketing for financing, to verify the accreditation status of their Investors. 

 

506(c) funds like the Lilypads Venture Funds are examples of such companies that publicly discuss fundings, and must obligate their Investors to verify their accreditation status when investing. Therefore, the Investors must provide documentation that meets at least one of the several accreditation thresholds. 

 

On the contrary, the funds that do not publicly discuss their financing are exempted from verifying the accreditation status of their Investors. In such cases, the Investors simply state accurately that they are accredited when they are invited to invest in such funds.



Can my accreditation expire?

The SEC has set the expiration period of your accreditation to 5 years. However, this applies only if you self certify via relevant documentation that you still satisfy the accreditation criteria and retain your status as an accredited investor.

What is a Qualified Purchaser (QP)?

A Qualified Purchaser (QP) is an investor that meets one of the following criteria:

 

  • An individual or family-owned business that is not formed for the specific purpose of acquiring an interest in the fund that owns $5,000,000 or more in investments

 

  • A trust that is not formed for the explicit intention of acquiring an interest in the fund which is sponsored and managed by qualified purchasers

 

  • An individual or entity that is not formed for the specific purpose of acquiring the interest which owns and invest at least $25,000,000 in investments

 

  • An entity whose owner is a qualified purchaser

What is a Qualified Client (QC)?

A qualified client is an individual or an entity that meets any of the following criteria:

 

  • They have a net worth of $2,200,000 excluding the value of their primary residence, before their investment in the fund.

 

  • They have $1,100,000 or more worth of assets under management with an investment advisor after their investment in the fund.

 

  • They are a qualified purchaser

 

  • A qualified individual client is an officer or director who has been participating in the investment activities of the investment advisor for 12 months.



This help page and the information contained herein is provided for informational and discussion purposes only and is not intended to be a recommendation for any investment or other advice of any kind, and shall not constitute or imply any offer to purchase, sell or hold any security or to enter into or engage in any type of transaction.

Investing in venture capital funds is inherently risky and illiquid. It involves a high degree of risk and is suitable only for sophisticated and qualified investors.