The SEC’s Division of Investment Management (the Division) recently released guidance regarding the registration exemption for investment advisers to venture capital funds (as defined in Rule 203(l)-1) of the Advisers Act (the VC Exemption). The guidance highlights five scenarios illustrative of the inquiries the Division has been receiving with respect to reliance on the VC Exemption and is generally helpful to investment advisers and sponsors.

In one scenario, the Division noted it would not object to an investment adviser relying on the VC Exemption if an intermediate holding company exists in the venture capital funds’ structure, so long as the intermediate holding company is wholly owned collectively by one or more venture capital funds advised by the same investment adviser. The Division further clarified that for purposes of the definition of a “qualifying portfolio company,” a venture capital fund may disregard such an intermediate holding company formed solely for tax, legal or regulatory reasons to hold the fund’s investment in a qualifying portfolio company.

In another scenario, the Division clarified that it would not object if an investment adviser relying on the VC Exemption disregarded an alternative investment vehicle when determining if it could meet the requirements of the VC Exemption so long as such alternative investment vehicle was formed solely to address investors’ tax, legal or regulatory concerns, and the sole purpose of the alternative investment vehicle is to invest in a venture capital fund.

In the other scenarios, the Division addressed issues regarding warehoused investments, side funds and liquidating trusts. The full text of the guidance is available here.

Investment Advisers relying on the VC Exemption should review the guidance to ensure they are treating all entities within their venture capital structure appropriately for purposes of the VC Exemption.