Qualified Purchaser

A Qualified Purchaser (QP) is a higher-tier SEC investor classification defined under the Investment Company Act of 1940. It requires substantially more wealth than accredited investor status (typically $5 million+ in investments for individuals, $25 million+ for entities), and is used as the eligibility threshold for participation in private investment funds structured under Section 3(c)(7). The structure allows funds to have more LPs than the 100-investor limit of Section 3(c)(1) funds. It is the higher wealth gate that distinguishes participation in larger private investment funds from participation in smaller venture funds.

The thresholds:

• Individual: owns at least $5 million in "investments" (not including primary residence; specific definition under SEC rules covers securities, real estate held for investment, commodities, certain financial contracts).
• Family-owned company: owns at least $5 million in investments.
• Trust: at least $25 million in investments if trust is the type that excludes statutory trusts, or in specific other configurations.
• Entity owned by qualified purchasers: where each beneficial owner is themselves a qualified purchaser.
• Institutional investor with at least $25 million in investments managed on a discretionary basis.

The structural relevance: Section 3(c)(1) funds can have up to 100 investors (or 250 for "qualifying venture capital funds" since 2018 expansion); investors must be accredited but not necessarily QPs. Most early-stage venture funds are 3(c)(1). Section 3(c)(7) funds can have up to 1,999 investors (the SEC-registration threshold), but all investors must be Qualified Purchasers. Used by larger venture funds and most hedge funds where they want to admit more LPs than 3(c)(1) allows. The distinction between accredited investor ($200K income / $1M net worth) and qualified purchaser ($5M+ investments) is roughly 25x in wealth threshold and significant in practice. The 2020s reality: most venture-fund LPs in larger funds are QPs (pension funds, endowments, sovereign wealth funds, large family offices). Individual investors typically don't qualify as QPs and therefore can't participate in 3(c)(7) funds.

What founders get wrong: Confusing accredited investor with qualified purchaser status. They're different SEC categories with very different thresholds ($1M net worth for accredited; $5M+ in investments for QP). The categories matter primarily for fund structuring, not for direct startup investing, but founders raising from larger funds should understand the LP-base implications.

Related: Accredited Investor · Limited Partner · Venture Capital Fund · Regulation D

FAQ

What is a Qualified Purchaser?
A higher-tier SEC investor classification defined under the Investment Company Act of 1940, requiring substantially more wealth than accredited investor status (typically $5 million+ in investments for individuals, $25 million+ for entities). Used as the eligibility threshold for participation in private investment funds structured under Section 3(c)(7).

What's the difference between Accredited Investor and Qualified Purchaser?
Accredited Investor: $200K income or $1M net worth excluding primary residence. Qualified Purchaser: $5M+ in investments (a much higher wealth threshold, roughly 25x). Different SEC categories used for different purposes: accredited status gates Reg D offerings; QP status gates participation in 3(c)(7) funds.

Why does the QP classification exist?
Because Section 3(c)(7) of the Investment Company Act allows private funds to have up to 1,999 investors (vs the 100-investor limit for 3(c)(1) funds), but requires all investors to be Qualified Purchasers. Larger venture funds and most hedge funds use 3(c)(7) structure; the QP requirement gates out smaller individual investors from those funds.