Accredited Investors vs Qualified Purchasers: What’s The Difference?

The difference between accredited investors and qualified purchasers in the United States is regulatory, and it relates to the investment opportunities each of them has access to, by meeting certain criteria.

In this article, we'll explain what accredited investors and qualified purchasers are, according to the US Securities and Exchange Commission (SEC) definition, and how Boopos specifically defines a qualified buyer.

If you are looking to buy a business, you'll discover if you are ready to do so and how we can help you; if you are selling your business, you'll get a sense of the types of investors you need to target. Keep reading!

What is an accredited investor?

Accredited investors, whether individuals or entities, must meet certain income, net worth, and licensing requirements. This makes them eligible to participate in private offerings not registered with the SEC. Getting these credentials allows them to invest in 3(c)(1) funds.

“Accredited investors have enough business knowledge to make sophisticated investment decisions, and so all the regulation for marketing of retail financial opportunities is not applicable to them,” explains Juan Ignacio García Braschi, Boopos CEO.

What is a qualified purchaser?

Qualified purchasers, on the other hand, are investors who “meet financial and sophistication standards, as defined in the Investment Company Act and its rules,” according to the SEC definition.

Unlike an accredited investor, you need an investment value threshold rather than net worth and income. Achieving qualified purchaser status involves meeting specific financial criteria, such as owning $5 million in investments, which unlocks access to a broader range of investment opportunities and benefits not available to the general public.

What is a qualified buyer at Boopos?

At Boopos, we define a qualified buyer as someone who can buy a company by meeting two basic requirements: financial capacity and operational capability.

"It is a person with the financial capacity to buy a company. And even if you don't have 100% of the price of the business you are looking to buy -because you can get a loan with Boopos or an SBA- you need to have the resources and the capacity to manage a buying-selling process. This is not difficult, but it has its details.

"Secondly, you need to be able to operate and manage the company; you need to have some knowledge about the type of business you are buying so it doesn't fail. We want people to be successful in their investment projects."

At a high level, this categorization is mostly about the investor's experience and sophistication. Here are the specifics:

Qualified purchasers, accredited investors, and Boopos qualified buyers: Key differences

Accredited investors

1. Annual income exceeding either $200K (individually) or $300K (with a spouse or spousal equivalent) in each of the two most recent years, and expecting around the same the next year.
2. More than $1 million in net worth, excluding the primary residence (singly or with spouse or spousal equivalent).
3. Hold financial professional credentials such as:some text
   1. General securities representative license (Series 7)
   2. Investment adviser representative license (Series 65)
   3. Private securities offerings representative license (Series 82)
4. Directors, executive officers, or general partners (GP) of the company selling the securities (or of a GP of that company).
5. Any “family client” of a “family office” that qualifies as an accredited investor.
6. For investments in a private fund, “knowledgeable employees” of the fund.

Depending on the structure of the entity or its assets, entities may also qualify as accredited investors. You can read the regulation or refer to the Securities and Exchange Commission definition, for detailed information.

Qualified purchasers

• Individuals and family-owned businesses that own at least $5 million in investments.
• Has substantial investment knowledge.
• Trusts sponsored and managed by qualified purchasers, or those that have at least $5 million in investments and are not formed specifically to purchase the securities offered.
• Any person acting for their own account or for other qualified purchasers, who manages at least $25 million in investments.
• Any investment company under the Investment Company Act of 1940 that is owned exclusively by qualified purchasers.

For details see the Investment Company Act of 1940.

Boopos qualified buyers

• LinkedIn profile
• Proof of funds of $20K USD
• +670 credit score (*Only applicable for US Citizens)

Disclaimer: These criteria are specific to Boopos and not part of broader SEC regulations. Learn more on How to qualify as a Boopos buyer.

Advantages and disadvantages of qualified purchasers vs. accredited investors

Qualified purchaser

Advantages

• Have access to hedge funds and private equity funds not available to the general public.
• They may gain higher returns due to the potential of private equity funds they manage compared to traditional investments.
• Qualified purchasers generally have fewer protections under securities laws because they are deemed to be more sophisticated and financially capable of bearing higher risk.

Disadvantages

• Requested criteria of matching higher investment thresholds holding them from accessing other smaller investment opportunities and public markets.
• Limited liquidity which makes it harder for them to access their funds by selling their investments.
• Regulated investments may charge higher fees, affecting total returns.
• The regulatory framework for these types of investments assumes a level of sophistication and financial resilience, meaning they come with less investor protection compared to more regulated investments.

Accredited Investor

Advantages

• Accredited investors actually have access to a broad array of investment opportunities not available to the general public.

• The possibility of applying diversification strategies with broader investment opportunities, therefore lowering general risks.
• As with qualified purchasers, accredited investors have access to nontraditional private investments, which usually offer higher returns.

Disadvantages

• While accredited investors have more options, they still operate within a regulatory framework. This can limit investment choices compared to someone with no such designation.
• Higher returns inherently mean higher investment risks of loss compared to traditional investments.
• Private market investments have fewer disclosure and regulatory requirements, making estimating potential gains and risks more difficult.

Qualifying as a Boopos buyer

By qualifying as a Boopos buyer, individuals get access to our marketplaces and guidance from advisors for the acquisition process, from deal sourcing to closing.

The process to join our marketplace is secure, easy to follow, and fast. Learn more about becoming a Boopos buyer or list your business today!