The SEC has increased the dollar threshold for a vehicle to be classified as a “qualifying venture fund” from $10 million to $12 million
Qualified venture funds are a subset exempt from the financial burdens of being an investment company and are not required to register with the SEC. They can raise funds from up to 250 accredited investors. However, they must still comply with the major regulations of being a VC fund. The sole alternative method by which a private fund can avoid registration with the SEC as an investment company is if it has a maximum of 100 investors.
The VC bear market that commenced in 2022 has had the most severe impact on emerging funds, which are most likely to receive smaller payments from investors and, as a result, require additional investors. Although the new SEC rule is a routine inflation adjustment that the SEC reviews every five years, it is implemented at a time when smaller VCs could benefit greatly from such assistance.