venture capital fund

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The proper treatment of angel investing groups under the Federal securities laws can be a vexing question. If it were appropriate to describe the angel investing group as a “company” as defined in Section 2(a)(8) of the Investment Company Act of 1940, and if the “company” were appropriately viewed as issuing interests or shares, then the angel investing group would have to seek to rely on Sections 3(c)(1) or 3(c)(7) of the Investment Company Act and comply with the requirements of Regulation D under the Securities Act of 1933. Yet these views seem to beg the questions of who is giving investment advice to the “company” and who is acting as a broker in offering and selling interests in the “company.”…

Late last fall, Congress faced a serious crisis in trying to pass a comprehensive transportation bill, designated as the Fixing America’s Surface Transportation (FAST) Act.  Amendments to various Federal securities and banking laws were added to the FAST Act during the reconciliation process. These amendments had not been the subjects of serious hearings in either house of Congress and were such narrow, rifle-shot changes as to deserve to be considered special pleading. Some commentary has already been published regarding amendments to  the Securities Act of 1933, which included codification in Section 4(a)(7) of what had been previously referred to as the Section 4(1½) exemption: a long-standing interpretation permitting the resale of unregistered securities to sophisticated investors without causing the seller to be an underwriter. Certain Silicon Valley investors apparently considered Section 4(1½) too delimiting, leading to the statutory changes that should facilitate greater liquidity for those investors, hopefully making it easier for early state start-ups to raise additional capital.

The FAST Act also amended two provisions of the Investment Advisers Act of 1940 (“Advisers Act”).  Readers will recall that the Dodd-Frank Act included exemptions from SEC registration for venture capital advisers, family offices and certain hedge fund advisers. The SEC promptly adopted regulations to implement these exemptions. Section 203(l) exempts investment advisers whose only clients were one or more “venture capital funds” as defined in Rule 203(l)-1. Rule 203(m)-1 exempts investment advisers solely to private funds that had assets under management in the United States of less than $150 million.…