SEC Adopts New Rule Increasing Threshold for Venture Capital Funds
The Securities and Exchange Commission (SEC) has adopted a new rule that updates the dollar threshold for a fund to qualify as a “qualifying venture capital fund” under the Investment Company Act of 1940. This rule raises the threshold to $12 million in aggregate capital contributions and uncalled committed capital, an increase from the previous threshold of $10 million.
Exclusion from “Investment Company” Definition
Qualifying venture capital funds enjoy a significant benefit—they are excluded from the Act’s definition of an “investment company.” This exclusion provides certain regulatory reliefs, allowing these funds to operate with greater flexibility. The need to adjust the threshold for inflation was mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, which requires the SEC to update this dollar amount every five years.
Implementation of Rule 3c-7
To comply with this statutory requirement, the SEC has introduced Rule 3c-7. This rule increases the threshold to $12 million, based on calculations tied to the Personal Consumption Expenditures Chain-Type Price Index. In addition to setting the new threshold, the rule establishes a clear process for future adjustments. Every five years, the SEC will review and update the dollar amount to account for inflation, ensuring that the threshold remains relevant and effective.
Effective Date of the New Rule
The new rule will become effective 30 days after its publication in the Federal Register. This update reflects the SEC’s ongoing efforts to maintain the relevance of financial regulations in an evolving economic landscape.
For more information, stakeholders and interested parties are encouraged to review the full details of the rule in the Federal Register once it is published, or contact the attorneys at Sallah Astarita & Cox, LLC.
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