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New Rules for Investment Advisers: Does Your Venture Capital Fund Qualify Under the Grandfather Provision?

Investment adviser compliance attorneyThe new rules for investment advisers carve out an exception for pre-existing venture capital funds under a grandfather provision. Specifically, funds that meet the grandfathering criteria are not required to satisfy the other elements of the definition of venture capital fund outlined in yesterday’s post.

In order to qualify, the fund must meet the following criteria:

  • Venture Capital Strategy. A grandfathered venture capital fund must have represented to its investors at the time of the offering that it was pursuing a venture capital strategy. In general, the considerations applicable to this requirement are identical to those described in the general definition of venture capital fund.
  • Initial Closing. A grandfathered fund must have sold securities, prior to December 31, 2010, to one or more investors that are unrelated to the fund’s adviser.
  • Final Closing. A grandfathered fund must not issue securities to any per- son, including by means of accepting capital commitments, after July 21, 2011.
  • Private Fund. A grandfathered fund must be a “private fund,” as defined under the general venture capital definition.

How We Can Help Ensure Compliance

Of course, this post provides only a brief overview of the compliance issues facing advisers that manage venture capital funds. Moreover, it is important to note that fund managers relying on the venture capital exemption will still be subject to certain SEC requirements as exempt reporting advisors. Therefore, you should consult with experienced counsel to meet the new rules.

With the March 2012 deadline fast approaching, advisers to hedge and private equity funds should be beginning the registration process in earnest. If you are concerned about your company’s progress, please contact us to find out how we can help.

Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.

If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.