Last week, NVCA sent a letter to the Securities and Exchange Commission (SEC) offering recommendations for how the agency could modernize the definition of “venture capital fund” to more accurately reflect the industry as it looks today. Why is this important? Because this definition governs which private funds can be Exempt Reporting Advisors (ERAs) and which must register with the SEC as Registered Investment Advisors (RIAs).
The issue of private fund registration arose during the Dodd-Frank regulatory reform bill. At the time, there was significant pressure for hedge funds and private equity funds to register with the SEC. In one of NVCA’s most significant policy accomplishments in recent memory, and in recognition of both the plain-vanilla venture capital fund model and the critical job creation and competitiveness impact of the industry, Congress agreed to exempt venture capital funds from the registration requirements. The legislation directed the SEC to craft a definition of a venture capital fund to govern who could be eligible for this exemption. Lacking a clear-cut definition of either the nature of a VC fund or a VC portfolio, the SEC came up with a multi-factor test that required private funds to meet each parameter. Read the full blog post here.