The Securities and Exchange Commission (the “SEC”) has recently adopted final rules, pursuant to the Investment Advisers Act of 1940, clarifying the venture capital exemption to registration. Generally, investment advisers to venture capital funds must register with, and submit detailed information to, the SEC. The new rule however exempts advisers to qualified venture capital funds. The new rules define a qualified venture capital fund as a private fund that holds no more than 20% of its aggregate capital commitments in “non-qualifying investments.” Qualifying investments are those equity securities issued by a qualifying portfolio, which is a portfolio that is not traded internationally, does not issue debt obligations and is not a pooled investment.

In addition, to qualify for the exemption, the venture capital fund cannot be leveraged, registered as a business development company, or offer redemption rights to investors. The rules also require that the fund pursue a venture capital strategy.

Sec. Exch. Press Rel. No. 2011-133 (June 22, 2011)