Are you eligible?

Why there is a test at all

Venture funds sell interests to investors without registering them with securities regulators the way public stocks are registered. In exchange for that exemption, the law limits who can buy. The idea is that people with enough income or assets can absorb a total loss and afford advice. Whether or not you agree with the logic, the test decides who can be an LP.

The accredited investor test (United States)

You are an accredited investor if any one of these is true:

• Your income was above $200,000 in each of the last two years, and you expect the same this year.
• Your joint income with a spouse or partner was above $300,000 in each of the last two years, with the same expectation.
• Your net worth, alone or with a spouse or partner, is above $1 million, not counting your primary residence.
• You hold certain financial licenses in good standing, currently Series 7, Series 65 or Series 82.
• You are a knowledgeable employee of the fund itself.

Entities have their own version. A trust or company generally qualifies with more than $5 million in assets, or if every owner is individually accredited.

The qualified purchaser test

Some funds go further and accept only qualified purchasers. For an individual, that means owning at least $5 million in investments. This is a higher bar and it exists because it lets a fund take more than one hundred investors. A small first fund will usually accept accredited investors and cap the number of LPs instead.

How the fund checks

Depending on how the fund is offered, you will either sign a questionnaire confirming which test you meet, or you will be asked for evidence such as a tax return, a brokerage statement, or a letter from your accountant or lawyer. Neither is unusual and neither is a judgment about you. It is a legal requirement the fund cannot waive.

If you do not qualify yet

You are not alone, and there are ways to learn the craft without writing a fund check. Angel groups and syndicates sometimes accept smaller amounts, and many funds run communities that are open to anyone. Keep going with the course. The knowledge is the same either way.

Before you move on

Which test do you meet, if any? Would you rather self-certify or provide documents, and does that change which funds you would consider?