Small Block

Capital Deployment Opportunity · Funds and pooled vehicles

Private Equity and Venture Capital Funds (PE and VC)

Definition

Private equity and venture capital funds are privately offered pooled vehicles, usually limited partnerships, that buy stakes in companies and stay outside investment-company registration by having no more than 100 beneficial owners[1] (250 for a qualifying venture capital fund of up to $10,000,000[3]) or only qualified purchasers.[2] An adviser solely to venture capital funds is exempt from investment adviser registration,[4] under an SEC definition of venture capital fund that limits non-qualifying assets and leverage.[5]

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

  1. Investment Company Act of 1940, Act of Aug. 22, 1940, ch. 686, title I, § 3(c)(1), 54 Stat. 789, 798. Investment Company Act of 1940 § 3(c)(1) (15 U.S.C. § 80a-3(c)(1)): excludes from the investment company definition issuers beneficially owned by not more than 100 persons that make no public offering. Official text: govinfo.gov, U.S. Government Publishing Office.
  2. National Securities Markets Improvement Act of 1996, Pub. L. 104-290, § 209, 110 Stat. 3432. Added Investment Company Act § 3(c)(7) (15 U.S.C. § 80a-3(c)(7)): excludes issuers owned exclusively by qualified purchasers. Official text: govinfo.gov, U.S. Government Publishing Office.
  3. Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. 115-174, § 504, 132 Stat. 1362. Raised the § 3(c)(1) owner limit to 250 persons for a qualifying venture capital fund with not more than $10,000,000 in capital contributions and uncalled committed capital (inflation-indexed). Official text: govinfo.gov, U.S. Government Publishing Office.
  4. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, § 407, 124 Stat. 1574. Added Investment Advisers Act § 203(l) (15 U.S.C. § 80b-3(l)): exempts advisers solely to venture capital funds from registration and directs the SEC to define 'venture capital fund'. Official text: govinfo.gov, U.S. Government Publishing Office.

Federal regulations

Rules issued by federal agencies under the laws above.

  1. Venture capital fund defined, 17 CFR 275.203(l)-1 (Securities and Exchange Commission). SEC definition of 'venture capital fund' for the Advisers Act § 203(l) exemption. Official text: govinfo.gov, U.S. Government Publishing Office.