This is the second post in a series exploring recent SEC regulations which define the term “venture capital fund” for the purposes of determining whether a fund’s manager is exempt from SEC registration requirements under the Dodd-Frank Act.
In my previous post, I provided a general overview of how the SEC has defined the term “venture capital fund.” A private fund manager that solely advises venture capital funds (as defined in SEC regulations) qualifies for an exemption from investment adviser registration under the Investment Advisers Act of 1940. There are five elements to the definition. This post discusses the first element: that the fund must represent to its investors and potential investors that it pursues a venture capital strategy.
As I discussed in my previous post, the requirement that a fund holds itself out as pursuing a venture capital strategy can be problematic for some funds that choose to identify themselves as pursuing a “multi strategy” or “growth capital” model. The standard for determining whether a fund is actually holding itself out as pursuing a “venture capital strategy” is a subjective one, depending on particular facts and circumstances. A fund is not necessarily required to use the words “venture capital” in the name of the fund. Rather, the SEC looks at the fund manager’s statements to investors and prospective investors as a whole. Nonetheless, in order to have a reasonable assurance that a fund manager is exempt from investment adviser registration, offering materials of the fund should clearly and unambiguously state that the strategy being pursued is a venture capital strategy.
As always, you should consult an attorney who is familiar with securities regulatory issues in assessing whether your particular fund management business is required to register with the SEC.
© 2011 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.