SEC Proposes Update to Definition of Qualifying Venture Capital Fund

Who may be interested: Boards of Directors, Investment Advisers, Compliance Staff

Quick Take: The SEC proposed Rule 3c-7 under the 1940 Act, which would inflation adjust the dollar threshold for a fund to meet the definition of a “qualifying venture capital fund” and thus be exempt from “investment company” status under the 1940 Act. The proposed rule increases the dollar threshold of aggregate capital contributions and uncalled committed capital that a fund may raise to $12 million, up from the current threshold of $10 million.


As originally defined in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, a qualifying venture capital fund is a venture capital fund (as defined under Advisers Act Rule 203(l)-1) that has not more than $10 million in aggregate capital contributions and uncalled committed capital. The Act requires the SEC to index the dollar figure for this threshold to inflation once every five years. Proposed Rule 3c-7 would provide such an inflation adjustment allowing qualifying venture capital fund managers to raise additional capital within the limit of the proposed threshold and would establish a process for future inflation adjustments every five years.

The proposed rule will be open for public comment until March 22, 2024.

The SEC’s proposed rule can be found here.

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