Subject: File No. DF Title IV - Exemptions
From: Keith P Bishop

July 28, 2010

Section 407 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Securities and Exchange Commission (the "Commission") to issue rules defining "venture capital fund" for purposes of new subsection (1) of Section 203 of the Investment Advisers Act of 1940 (the "IA Act").

In implementing this requirement, the Commission should consider the definition of "venture capital company" adopted by the California Commissioner of Corporations in 10 CCR Sec. 260.204.9. That rule, among other things, exempts from registration as an investment adviser under the California Corporate Securities Law of 1968 any person that provides investment advice only to "venture capital companies" provided certain other conditions of the rule are satisfied. The Commissioner adopted this rule after giving notice and receiving public comment, including from the Investment Company Institute and the National Venture Capital Association. The Commissioner's final statement of reasons (including comment summaries is available at

Historically, venture capital companies have been characterized by the fact that they provide management assistance to their portfolio companies. See, e.g., National Venture Capital Association, Frequently Asked Questions about Venture Capital ("Venture capitalists provide great value by providing capital and management expertise.") available at To the extent that the Commission incorporates the concept of management rights in its definition of "venture capital fund", I recommend that the Commission use the term "making available significant managerial assistance" as defined in Section 2(a)(47) of the Investment Company Act of 1940 so that it is clear that (i) it is sufficient for the venture capital fund to offer to provide (and, if accepted, provide) significant guidance and counsel to its portfolio companies and (ii) when the investment in a portfolio company is made as part of a group, the requirement is satisfied when at least one of the persons in the group makes available significant managerial assistance. In addition, the rule should make it clear that guidance and counsel may be provided by directors, officers, employees, managers, members or general partners of the adviser to the venture capital fund, an affiliate of that adviser, or the venture capital fund itself. In other words, the Section 2(a)(47) definition should be expanded to include managers and members and should be changed to refer to the adviser, an affiliate thereof, or to the venture capital fund.

Advisers to venture capital funds should not use this exemption as a means to provide other investment advisory services without registration. Thus, in defining "venture capital fund", the Commission should require that adviser not hold itself out generally to the public as an investment adviser unless the investment adviser is registered as an investment adviser under the IA Act or, if not permitted to register under the IA Act, under the laws of the state in which the venture capital fund maintains its principal place of business.

As a result of the repeal of Section 203(b)(3) of the IA Act, the Commission should repeal Rules 203(b)(3)-1 and 203(b)(3)-2. However, Rule 222-2 should be amended to incorporate the definition of "client" provided by Rule 203(b)(3)-1 (not including paragraph (b)(6)).

By way of background, I previously served as California's Commissioner of Corporations, Interim Savings Loan Commissioner and Deputy Secretary and General Counsel to the California Business, Transportation Housing Agency. I have also served as a member of the California Senate Commission on Corporate Governance, Shareholder Rights and Securities Transactions.