To invest in the pre-IPO companies listed on P2P Shares’s platform, you must understand the regulatory distinctions between “accredited investor” and “qualified purchaser.” These designations are established by the U.S. Securities and Exchange Commission (SEC), and make sure that those making certain investments, especially in private capital markets, can understand and handle their potential risks. Once you’ve identified your investor status, you can determine which private market opportunities you may be eligible to explore.
Why the designations exist
The SEC created the categories of accredited investor and qualified purchaser to limit participation in private markets to individuals and institutions who are financially sophisticated and able to handle higher levels of risk. Unlike publicly traded stocks, private company shares are typically:
- Illiquid: They can be difficult to sell quickly, meaning your money might be tied up for years.
- Less transparent: Private companies don’t have the same public reporting requirements, making it harder to find detailed financial information.
- Higher risk: Early-stage companies have a higher failure rate than established public companies.
By limiting access to those who meet specific financial thresholds, the SEC assumes that these categories of investors are sophisticated enough to understand and bear these risks.
What is an accredited investor?
Meeting the criteria of an accredited investor is the most common entry point to the private market. As someone who reaches appropriate thresholds, you might be able to buy shares of private companies directly through private placements, secondaries, or platforms, as well as invest in private funds. The criteria for accredited investor status are defined under Rule 501 of Regulation D of the Securities Act of 1933.
For an individual to be considered accredited, you must meet one of the following standards:
- Income test: Earn an individual annual income of over $200,000 USD (or $300,000 USD when combined with a spouse or spousal equivalent) in each of the two most recent years, with a reasonable expectation of reaching the same income level in the current year.
- Net worth test: Possess a net worth exceeding $1 million USD, either individually or jointly with a spouse or spousal equivalent, excluding the value of your primary residence. This means you can count assets like investment accounts, real estate (other than your main home), and other valuables, but not the equity in your primary home.
- Professional certifications: Hold in good standing certain professional certifications, designations, or credentials recognized by the SEC. Qualified individuals include licensed securities representatives, investment adviser representatives, or private securities offerings representatives.
- Knowledgeable employees: A “knowledgeable employee” of a fund can count as an accredited investor in that particular fund.
For an institution to qualify as an accredited investor, it must fall into a specific category and have a certain amount of assets under management. Some examples include:
- Entities with an excess of $5 million in total assets, including organizations under section 501(c)(3) of the Internal Revenue Code, partnerships, LLCs, employee benefit plans, family offices and any family client of that office, not formed for the specific purpose of acquiring the securities offered.
- Certain financial entities, including banks, savings and loan associations, insurance companies, registered investment companies, business development companies, and small business investment companies.
- SEC-registered broker-dealers, SEC- or state-registered investment advisers, or exempt reporting advisers.
- An entity owned by accredited investors, where all equity owners individually qualify as accredited.
A more detailed list of what individuals and institutions qualify as an accredited investor can be found on the SEC’s website.
What is a qualified purchaser?
Although qualified purchasers and accredited investors can both invest in certain private funds and companies, they are not the same. Every qualified purchaser is also an accredited investor, but not every accredited investor is a qualified purchaser. The difference lies in the higher investment thresholds required to reach qualified purchaser status.
As defined under Section 2(a)(51) of the Investment Company Act of 1940, the criteria for qualified purchasers is based on the value of investments owned, whereas accredited investors must reach specific income or net-worth levels or qualify through certain professional certifications.
To be considered a qualified purchaser, you must generally meet one of the following requirements:
- Individuals and married couples: Individuals or married couples must have $5 million or more in investments or joint investments, excluding their primary residence or business property. “Investments” in this case includes public and private stocks and bonds; investment real estate; cash for investments (not for day-to-day expenses); and digital assets like cryptocurrencies, commodities, and swaps.
- Family offices: A family office can count if it has at least $5 million in investments, and was not formed for the purpose of acquiring the securities offered.
- Investment managers: An investment manager qualifies if they manage at least $25 million in investments on behalf of qualified purchasers.
- Trusts: A trust (not formed for the specific purpose of acquiring the securities offered) in which the trustee and all settlers are qualified purchasers fulfils the requirements. Specific trusts with at least $5 million in investments also qualify.
Investments listed on P2P Shares
Direct investment
Both accredited investors and qualified purchasers (unlike the general public) are able to buy shares in private companies on the P2P Shares platform. These companies are typically venture-backed, late-stage companies. Sellers — typically employees, early investors, or founders — list their shares on the platform, and accredited investors or qualified purchasers can place bids. P2P Shares has a minimum transaction size of $25,000 USD.
SPV investments
For some of the most sought-after private companies, P2P Shares also offers access to private company stock through single-issuer SPVs (Special Purpose Vehicles). When investing in SPVs, you don’t directly own shares in the private company. Instead, you own a membership interest in the SPV, which gives you exposure to shares of the company. SPVs allow accredited investors and qualified purchasers to gain exposure to businesses that might otherwise have very high minimums for direct share purchases. Other benefits of investing through a P2P Shares SPV include diligence on the underlying security, annual financial statements, and the potential to sell your stake on the P2P Shares platform after a minimum holding period.
Verifying your status
In order to determine whether you are an accredited investor or qualified purchaser, when you sign up to trade on the P2P Shares site you’ll be asked about your immediate net worth, your approximate gross household income, and whether you own more than $5 million in investments. Completing these questions is important both for adhering to government regulations, and for accessing the private market opportunities that are right for you.
For some investments on the P2P Shares platform, you’ll be able to rely just on the statements you make during this signup process. Other investments will require P2P Shares to verify your status with documents such as paystubs, W2s, statements of net worth, or a letter from your advisor or CPA. P2P Shares will let you know if you need to provide any extra information.
Understanding your investor status — whether as an accredited investor or a qualified purchaser — is the first step to compliantly navigating the private markets. These SEC designations are designed to ensure that you have the financial capacity to engage with the unique risks of private investments, including illiquidity and reduced transparency. By identifying your status, you unlock a range of opportunities on platforms like P2P Shares, from direct share purchases to participation in its funds. This knowledge not only adheres to regulatory requirements but also empowers you to make informed decisions and build a diversified portfolio that aligns with your financial capabilities.
P2P Shares is a leading provider of managed liquidity solutions for private companies and their shareholders. If you need help investing in private stocks, P2P Shares has information about thousands of private companies. For more information, visit the P2P Shares homepage.
Final thoughts
Securities listed on P2P Shares are for accredited investors only. The information presented is provided for informational and educational purposes only. Investments in private companies are speculative, illiquid, and carry a high degree of risk, including the loss of the entire investment. Not all private companies will go public or get acquired, and not all IPOs and acquisitions will result in successful investments. P2P Shares does not provide financial, business, investment, legal, tax or other professional advice nor should this article be the basis for making any decision that may affect your financial or other interests.
Before making any investment decisions, you should conduct your own due diligence, including verifying any information that is important to your investment decision and obtain independent professional advice. P2P Shares does not charge commissions. We are not a Broker-Dealer. We are a technology pre-IPO listing company. We charge technology escrow fees after a buyer and seller match on the platform saving both parties up to 90% transactions fees.