February 18, 2019

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New Beneficial Owner Threshold Eases VC Fundraising

Small venture capital funds and special purpose vehicles, which otherwise qualify as “venture capital funds,” can now raise money from up to 250 beneficial owners and remain within the 3(c)(1) exemption of the Investment Company Act of 1940 (the “Investment Company Act”).

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”) was signed into law. Among the financial industry reforms included in the Act is a modification to Section 3(c)(1). Section 3(c)(1) is a common exemption used by funds and special purpose vehicles to avoid registering as an investment company with the Securities and Exchange Commission. While previously limited to 100 beneficial owners, “qualifying venture capital funds,” those venture capital funds that do not have more than $10 million in aggregate capital contributions and uncalled committed capital, can now take advantage of the Section 3(c)(1) exemption if they have no more than 250 beneficial owners. 

Prior to the passage of the Act, the 100-owner limit presented fundraising challenges for smaller venture capital funds and special purpose vehicles, which tend to attract investors that invest relatively smaller amounts of capital. We believe the increase of the beneficial-owner threshold will allow asset managers, angel groups, and online platforms greater flexibility to access capital for their qualifying venture capital funds and special purpose vehicles by allowing them to raise capital from a larger number of investors. This additional flexibility is one more step forward in facilitating the raising of capital for emerging companies. 

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About this Author


Talia has a general corporate and transactional practice with an emphasis on investment management, venture capital, and emerging companies.

She has counseled the advisers of private investment vehicles, including private equity and hedge fund managers, on a wide range of matters including fund formation, ongoing operations, and compliance. Talia has also advised clients on securities regulations, including Dodd-Frank, the Investment Advisers Act, the Investment Company Act, the Securities Act, the Securities Exchange Act, and federal agency...

Rachel Gholston, Mintz Levin, Corporate Securities Lawyer, Finance regulation Attorney

Rachel rejoins the firm in Mintz Levin’s Corporate and Securities group after having served as a Summer Associate and a Law Clerk.

Before joining the firm, Rachel gained legal experience as a Judicial Extern for the Honorable Margo K. Brodie in the US District Court for the Eastern District of New York. As a Summer Associate in Mintz Levin’s New York office, she worked on assignments in corporate transactions, health care law, employment litigation, and real estate. In addition to her experience at Mintz Levin, Rachel spent a summer with another top law firm in New York working in the areas of asset management and bankruptcy.

Committed to pro bono initiatives throughout her legal career, Rachel contributed substantial research and writing to multiple applications for asylum through Mintz Levin’s pro bono program. She also worked on pro bono projects with the New York Charter School Incubator and the Reset Foundation.

Daniel I. DeWolf, Mintz Levin, Emerging Companies Lawyer, Venture Capitalism

Daniel is Co-chair of the firm’s Venture Capital & Emerging Companies Practice. In addition to his active legal practice, he is an adjunct professor of law at the NYU Law School and he has a wealth of experience in private equity and venture capital, having co-founded Dawntreader Ventures, an early stage venture capital firm based in New York.

Daniel's practice focuses on representing emerging technology companies, venture capital, private equity, sports and entertainment, corporate governance, and general corporate law.

Before joining Mintz Levin, Daniel was head of...