What is a Venture Capital Fund?
As with many different areas in securities law and securities regulation, this question is difficult to answer. In general, a Venture Capital Fund is exempt from registration with the Securities and Exchange Commission (SEC) under the 1933 Securities Act and the 1934 Securities and Exchange Act. In addition, the Dodd-Frank Regulatory Reform Bill determined a multi-factor test on what qualifies as a venture capital fund.
These factors include a private fund that:
(1) Represents itself as pursuing a venture capital strategy
(2) Does not pursue a leverage buy-out (LBO) strategy
(3) Does not offer investors immediate redemption rights
(4) Holds no more than 20% of its total capital commitments in non-qualifying investments
This is the technical definition, but there is much more that goes into the determination of what qualifies as a Venture Capital Fund. When determining the offering and formation of a private fund of any type, there are several offering documents that should generally be included with every private funding including:
- Private Placement Memorandum
- Limited Partnership Agreement or Operating Agreement
- Subscription Agreement
- Investor Questionnaire to Determine Investor Qualification
- Investment Management Agreement
- Operating Agreements
- SEC and State Form D Filings
- Investment Adviser Registration
- Registration with Commodities Futures Trading Commission (CTFC) if applicable
These are just a few of the required documents when establishing and operating a private fund in addition to the ongoing legal compliance needs for the private fund operators. Some clients will seek to “recycle legal work” to save on costs. Contrary to popular belief that all you need are form documents, this is rarely, if ever true, in any area of the law, let alone securities registration and private fund formation. In addition, recycling legal work can lead to tens of thousands of dollars in damages and costs. Therefore, we tell our clients to always speak with our office and engage our counsel about private fund formation and ongoing regulatory compliance with their private equity fund needs.
For more information
If you have questions about your private fund or you have legal questions regarding the Securities Act, Securities and Exchange Act, and compliance related to your private fund, please contact our office at (513) 241-0400. You can also fill out the contact form on our website and one of our attorneys will respond shortly.