Qualified purchaser
A higher investor standard needed for funds that admit more than one hundred investors.
Individuals generally need at least five million dollars in investments. Funds that rely on the 3(c)(7) exclusion can only take qualified purchasers, while 3(c)(1) funds are limited to one hundred beneficial owners.
Entities generally qualify with at least $25M in investments, and family companies with at least $5M. 3(c)(7) funds can in principle have many more investors than 3(c)(1) funds, but usually stay below about 2,000 holders of record to avoid registration under the Securities Exchange Act.
A 3(c)(1) fund is limited to 100 beneficial owners, and smaller qualifying venture funds can have up to 250. Choosing between the two shapes who can invest, how many investors the fund can take and how much paperwork each investor completes.
Worked example
A GP expects about 150 investors, more than the 100 a 3(c)(1) fund allows. Counsel structures the fund under 3(c)(7), so every investor must be a qualified purchaser. Forty interested individuals with $1M to $3M of investments do not qualify and are turned away, and the fund closes with 110 qualified purchasers.
Common questions about qualified purchaser
What is the difference between an accredited investor and a qualified purchaser?
A qualified purchaser is a higher standard. Individuals generally need $5M or more in investments to be a qualified purchaser, while an accredited investor can qualify on $1M of net worth or on income.
When does a fund need qualified purchasers?
When it relies on the 3(c)(7) exclusion, which allows more than 100 investors but requires that every investor be a qualified purchaser.