When does a person or entity classify as a Wholesale/Eligible Investor?

Understand the criteria behind wholesale investor / eligible investor requirements.

Background

Investing in financial products (including equity securities) in New Zealand is regulated by the Financial Markets Conduct Act 2013 (FMCA), which requires an entity offering such securities or products to comply with substantial disclosure obligations. These obligations automatically apply unless subject to an exclusion.

Startups will typically only make offers of securities to investors who qualify for an exclusion to avoid the time and cost involved with the FMCA’s full disclosure requirements. The exemptions startups typically rely on are: (i) offers to relatives or close business associates; (ii) small offers; and (iii) offers to wholesale investors.

Similarly, Icehouse Ventures currently only offers financial products to wholesale (or other qualifying) investors. Icehouse Ventures does not currently hold a Managed Investment Scheme (MIS) license.

What is a Wholesale Investor?

Wholesale Investor is a term defined in section 5(1) of the FMCA, it broadly means a person (or company, trust or partnership) that has sufficient previous investing experience that means they don’t require disclosure. Wholesale investors are legally allowed to invest in opportunities like startups or venture capital funds which would not otherwise be available to the public or "retail" investors without complying with the appropriate disclosure regime. This restriction is designed for investors' protection. Typically, investments like startups and venture capital funds are higher risk and have less information or other protective rights than those offered to the public or retail investors. 

Do Wholesale Investors have the same protections as retail investors?

It is important to be aware that wholesale investors do not have the same protections as retail investors, investing in an investment opportunity as a Wholesale Investor may mean you:

• do not receive a product disclosure statement (PDS) for the offer. The PDS sets out the key characteristics, risks and features of the investment, in clear, concise and effective language that is aimed at a prudent but non-expert investor. A PDS is not required for wholesale offers;
• are not dealing with a firm licensed and regulated by the FMA;
• do not have access to a free independent dispute resolution scheme if things go wrong;
• do not receive information about the investment’s ongoing performance; and
• won’t have a licensed supervisor (an entity that looks after the interests of investors) in the case of debt securities such as bonds and managed investment schemes.

While offers to Wholesale Investors are not regulated in the same way as offers to retail investors, the offeror must still comply with ‘fair dealing’ requirements. This means the person making the offer cannot:

• engage in misleading or deceptive conduct in relation to the offer
• make false or misleading statements in their offer documents or advertising
• make unsubstantiated representations
  
  

There are two primary pathways to meet this compliance requirement - 

Pathway 1: Self-declare as a Wholesale Investor

To qualify as a wholesale investor, our investors will typically qualify under one (or more) of three different qualification categories.

Those categories broadly fall within two investor types:

1. Investors that have appropriate experience to understand and accept the risks involved in the investment they are making; or
2. Investors that have sufficient wealth to either afford appropriate professional advice or to withstand the losses they could incur.

The three qualifications our investors typically rely on are:

• They are a “Large Investor”, meaning the investor (and the entities they control) has net assets or turnover exceeding $5m in each of the last two completed financial years.
• They are an “Investment Business”, meaning the investor’s main business is one or more of a specified list of categories which include investing in financial products (i.e. fund managers), providing financial advice, or trading in financial products on behalf of others (i.e. brokers or wealth managers).
• They meet “Investment Activity” criteria specified in the FMCA to essentially qualify as a habitual or experienced investor, meaning the investor is either; (1) an investor that owns, or has owned in the last 2 years, a portfolio of specified financial products (i.e. shares, bonds, derivatives etc) in excess of $1m in value; or (2) an individual that works in an investment business and materially participates in that business' investment decisions and has done so for at least 2 years within the last 10 years.

Pathway 2: Self-certify as an Eligible Investor

If the three qualification categories above (i.e., Large Investor, Investment Business and/or Investment Activity) do not apply to you, you are still able to self-certify as an Eligible Investor. This is particularly relevant for investors who have previous experience with the specific financial products they are looking to invest in, and have an advisor that can confirm their experience.

To self-certify as an Eligible Investor, you will need to complete an Eligibility Certificate that will ask you to:

1. Provide eligibility grounds that demonstrate a connection between your prior relevant experience and early stage venture as an asset class (more on this below); and
2. Have your certificate signed off by a third-party advisor that falls under one of the below professions. 
   1. Chartered accountant
   2. Solicitor
   3. Financial advisor

1. You have, in relation to an offer of financial products, previous experience in acquiring or disposing of financial products, that allows you to assess:
   1. The merits of the transaction or class of transactions (including the value and the risks of the financial products involved);
   2. Your own information needs in relation to this transaction or those transactions; and
   3. The adequacy of the information provided by any person in the transaction or those transactions; and
2. You understand the consequences of certifying yourself to be an eligible investor.

• Earlier investments you've made in startups directly or via funds
• Earlier investments you've made in adjacent retail opportunities (i.e. via Snowball Effect, or other platforms)
• Other general investment experience you have
• Jobs you've had at companies of a type found in this asset class (i.e. early-stage or growth-stage startups)
• Advisory, consultancy, or governance roles you've had at similar companies
• ESOP/options you've been granted

Renewing your Wholesale Investor Status:

Your Wholesale Investor status must be renewed every 2 years (as is required by the FMCA). If you plan on making regular investments with Icehouse Ventures, then we must have a valid Wholesale Investor Declaration/Eligibility Certificate from you on file at all times. 

We will contact you to let you know when your Wholesale Investor status has expired and will send you a link/document to renew it. You can also check/renew your status by yourself on our Investor Portal. Do this by navigating to the Investor Portal > Settings > Entity Compliance Details > New Wholesale. 

For information on how to complete a Wholesale Investor Declaration or Eligibility Certificate via Icehouse Ventures, please feel free to email operations@icehouseventures.co.nz.

Disclaimer: Please note that this guide has been prepared and provided by Icehouse Ventures for informational purposes only. Nothing in this guide constitutes legal or professional advice regarding whether or not you are a wholesale investor or otherwise and is not guaranteed to be accurate, complete, reliable, current or error-free. We recommend that you work with your accountant, lawyer or financial advisor to determine whether or not you qualify as a wholesale investor and to understand the implications for you.