Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups.

Not All Investors Are Created Equal

Here's something most people don't realize: there's a hierarchy in the investment world that goes beyond just having money. You've probably heard of "accredited investors" (need $1 million in assets or $200k yearly income). But there's another tier above that, one that most people never even know exists.

It's called being a qualified purchaser. It matters way more than people think.

The bar is higher here. We're talking $5 million in investments. Not net worth. Not your house. Not your car collection. Actual investable assets. For institutions, it's $25 million.

Why does this matter? Because qualified purchaser status unlocks a completely different world of investment opportunities.

The Real Difference Between Accredited and Qualified

Look, accredited investor status is great. It gets you into most angel deals, lets you invest in startups, puts you on the cap tables of exciting companies. That $1 million threshold (or $200k income) opens a lot of doors.

But qualified purchaser? That's the VIP room.

The SEC created this designation under the Investment Company Act of 1940. The thinking was simple: if you have $5 million to invest, you're sophisticated enough to handle riskier, more complex investment structures without as much regulatory oversight.

What does this actually unlock?

• Hedge funds (most won't talk to you without QP status)
• Private equity funds with better terms
• Exclusive VC funds that limit their investor count
• 3(c)(7) funds (which can have unlimited qualified purchasers vs the 99 investor limit for accredited folks)

That last point is huge. Most VC funds are structured as 3(c)(1) funds, meaning they're limited to 99 accredited investors max. But if you're a qualified purchaser? Funds can be structured as 3(c)(7)s with unlimited QP investors. This flexibility lets fund managers raise bigger pools of capital and often provide better economics.

Why Fund Managers Love (and Need) Qualified Purchasers

From a fund manager's perspective, qualified purchasers solve a massive problem.

When you're raising a fund, you're constantly doing math on how many investor slots you have. With only 99 spots in a 3(c)(1) fund, every single LP commitment matters. If you want to raise a $20 million fund, your average check needs to be around $200k. That's a pretty big commitment for most people, even accredited ones.

But if you structure as a 3(c)(7)? Suddenly you can accept unlimited qualified purchasers. Your $20 million fund can come from 200 investors writing $100k checks each. Or 50 writing $400k. The math just works better.

The Path to Qualified Purchaser Status

Getting to $5 million in investable assets isn't easy. But it's also not impossible, especially in tech.

We've watched countless founders and early startup employees cross this threshold through a combination of:

• Equity from successful exits
• Smart reinvestment of proceeds
• Building diversified portfolios over time
• Sometimes just getting lucky with one big bet

The interesting thing? Once you hit QP status, your investment opportunities expand dramatically. You're suddenly getting inbound from fund managers. People want your capital because you can participate in structures that other investors can't.

But here's what nobody tells you: qualified purchaser status also comes with different expectations. Fund managers assume you understand complex structures, that you can read an LPA (limited partnership agreement) without handholding, that you grasp concepts like carry, hurdle rates, and waterfall structures.

What About SPVs and Syndicates?

Special purpose vehicles (SPVs) operate under slightly different rules. Most SPVs are structured as 3(c)(1) entities, meaning they can have up to 99 accredited investors. But if you want to create an SPV with more investors? You need them all to be qualified purchasers to use the 3(c)(7) structure.

This is why you'll sometimes see syndicates with minimum investments of $100k or more. The lead is trying to keep investor counts manageable within that 99-person cap.

At Angel Squad, we help investors understand these structures and find opportunities that match their qualification level. Whether you're accredited or a qualified purchaser, knowing which doors are open to you changes how you build your portfolio.

The Downsides Nobody Mentions

Being a qualified purchaser sounds great, right? Exclusive access, better funds, more opportunities.

But there are tradeoffs most people don't talk about.

First, the investments available to QPs are often less liquid. Hedge funds might have better returns, but they also have lock-up periods. Private equity funds tie up your capital for 7-10 years. You need to be comfortable with illiquidity.

Second, the fee structures can be gnarly. Just because you can access elite funds doesn't mean they're cheap. Many charge 2% management fees plus 20% carry. Some go even higher. Do the math on what that actually costs over a decade.

Third, and maybe most important: having access doesn't mean you should deploy everywhere. We've seen qualified purchasers spread themselves too thin, chasing every "exclusive" opportunity that comes their way. Just because you can invest in something doesn't mean you should.

Building Toward QP Status

If you're not a qualified purchaser yet but you're working toward it, here's what actually matters:

Focus on building investable assets, not just net worth. Your primary residence doesn't count. That vintage car collection? Nope. It's about liquid or semi-liquid investments.

For founders: think carefully about how you're converting equity to cash. Lots of people hit paper millionaire status but stay cash poor. You need actual investable capital to reach QP status.

For operators: negotiating equity compensation matters more than you think. Those early-stage stock options can become the seed capital that gets you to qualified purchaser status.

The Bottom Line

Qualified purchaser status is one of those things that separates casual investors from people building serious wealth through alternative investments. It's not just about having money. It's about having enough investable capital to access opportunities that can genuinely move the needle.

Most people will never reach this threshold. That's just reality. But for those who do, it opens up a completely different world of investing.

Whether you're building toward QP status or you're already there, the key is understanding what doors it opens and being strategic about which ones you walk through. Not every exclusive opportunity is worth it. But the right ones? They can change everything.

Ready to level up your angel investing game? Angel Squad connects investors with deal flow, education, and a community of operators who understand how to navigate these complex investment structures. Whether you're accredited or a qualified purchaser, there's room at the table for smart capital and even smarter collaboration.