This bill changes how Venture Capital (VC) funds are defined. Specifically, it increases the number of investors that a VC fund can have before being classified as an investment company from 100 to 500. Investment companies are required to register with the Securities and Exchange Commission (SEC) and are subject to numerous regulations under the Investment Company Act of 1940.
Additionally, the bill redefines VC funds as groups that invest less than $10 million in a single company. Funds that invest more than $10 million in a company aren’t exempt from regulations and registering with the SEC.
The Investment Company Act of 1940 requires investment companies to do 5 things:
Register with the SEC;
Have a board of directors, of which 75% of the members are independent from the company;
Limit their use of certain investment strategies;
Maintain a certain percentage of their money for investors who want to leave the company;
Disclose their structure, financial condition, investment policies, and objectives to investors.