SEC eases regulations for smaller venture capital firms

Table of Contents

A Routine Update with Timely Relief

Posted: 10:20 AM PDT · August 27, 2024

Image Credits: BRENDAN SMIALOWSKI / Staff / Getty Images

Julie Bort

The Securities and Exchange Commission (SEC) has made a crucial update to the dollar threshold for a vehicle to be considered a "qualifying venture fund." This adjustment increases the threshold from $10 million to $12 million, providing much-needed relief to smaller Venture Capital (VC) firms.

A Subset of Venture Funds with Unique Status

Qualified venture funds are a subset of VC funds that can raise up to $250 million from accredited investors. These funds are exempt from registering with the SEC as an investment company and are not required to adhere to the financial burdens associated with such registration. However, they must still comply with major regulations governing VC funds.

The Only Other Exemption

The only other way a private fund can remain exempt from registering with the SEC as an investment company is if it has no more than 100 investors. This exemption is crucial for smaller VCs that often rely on a larger number of investors to raise sufficient capital.

Smaller VCs Struggle Amidst the VC Bear Market

Emerging funds, which are typically newer and less established VC firms, have been particularly affected by the VC bear market that began in 2022. This downturn has led to smaller checks from investors, making it even more challenging for these emerging funds to raise capital.

A Routine Inflation Adjustment with Timely Relief

The SEC’s update of the dollar threshold is a routine inflation adjustment that the agency revisits every five years. However, given the current challenges facing smaller VCs, this update comes at an opportune time. By increasing the threshold to $12 million, the SEC has provided much-needed relief to these struggling firms.

The Impact on Smaller VCs

This change will have a significant impact on smaller VC firms, allowing them to raise more capital from accredited investors while avoiding the financial burdens associated with registering as an investment company. This increased flexibility will enable these emerging funds to continue operating and investing in promising startups.