New Section 203(l) of the Investment Advisers Act exempts from SEC registration as an investment adviser those foreign and U.S. advisers who advise solely venture capital funds. If an investment adviser provides investment advice to clients other than venture capital funds, the exemption is not available.

The new exemption's application is narrowed through the definition of a “venture capital fund.” A venture capital fund is a private fund that (1) holds no more than 20 percent of its aggregate capital commitments (other than short-term holdings) in non-qualifying investments; (2) does not borrow or otherwise incur leverage, other than by engaging in limited short-term borrowings (excluding certain guarantees of qualifying portfolio company obligations by the fund); (3) does not offer its investors redemption or other similar liquidity rights except in extraordinary circumstances; (4) represents itself as pursuing a venture capital strategy to its investors and prospective investors; and (5) is not registered as a fund under the Investment Company Act, and has not elected to be treated as a business development company under the Investment Company Act.

The new rule grandfathers certain existing venture capital funds that would not otherwise qualify but (1) have pursued a venture capital investment strategy by representing themselves as being venture capital funds, (2) began raising capital prior to December 31, 2010, and (3) cease raising capital after July 21, 2011.

Investment advisers that qualify for this exemption still have public reporting requirements on Form ADV. See the discussion below under “Exempting Reporting Advisers and Form ADV.”