A VC Fund must be a "private fund" – i.e., an entity that would be an investment company under the Investment Company Act of 1940 (the "Investment Company Act"), but for the exceptions provided under sections 3(c)(1) or 3(c)(7) of that act. The Final Rules do not include any requirement that the VC Fund's adviser be involved in the management of its portfolio companies.ĭefinition of VC Fund: For an adviser's client to fall within the definition of a VC Fund, it must meet all of the following requirements or be grandfathered. No Requirement for Management Involvement.The Final Rules include a 20% basket for non-qualifying investments held by a VC Fund, as discussed below ("20% Basket"). 5 In response to numerous comments received by the SEC, the definition of VC Fund in the Final Rules, 6 although narrow, is not as restrictive as the definition originally proposed, principally because of two changes: The Dodd-Frank Act provides an exemption from SEC registration for advisers that advise only venture capital funds, as defined by the SEC ("VC Funds"). The Final Rules extended until Mathe date by which advisers formerly relying on the "fewer than 15 client" exemption are required to register as investment advisers with the SEC, absent the ability to rely on another exemption. 3 Many of our private fund clients relied on that exemption. Effective July 21, 2011, the Dodd-Frank Act eliminated the exemption under the Advisers Act that generally exempts investment advisers with fewer than 15 clients from registration with the SEC. The following highlights selected provisions of the Final Rules most relevant to our private fund clients. On June 22, 2011, the Securities and Exchange Commission (the "SEC") adopted Final Rules (the "Final Rules") 1 implementing amendments to the Investment Advisers Act of 1940 (the "Advisers Act") 2 effected by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").
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