Subject: File No. DF Title IV - Exemptions
From: Law Professor

October 30, 2010

It looks like the NCVA is at it again trying to gain special favored exemptions from basic regulation and lobbying the SEC staff through in person meetings.

Here is their most recent statement on what is a venture fund (from a WSJ article):

In general, the NVCA wants to make sure the SEC considers that:

1. Investors in venture capital are already sophisticated qualified purchasers or accredited investors.
2. Investment in venture capital is for a fixed offering period and long term in nature.
3. Over time, venture investors hold a minority ownership in most of their portfolio companies.
4. There are significant limits on redemption for limited partners.
Venture capitalists purchase originally issued securities that are not publicly traded.
5. Only a fraction of any one firms portfolio is in public securities such as PIPEs.
Venture investment does not employ long term debt at the fund level.
6. VC firms themselves are not publicly traded entities.

This is a funny list of attributes for a venture capital fund because--

1. Every private fund of any type consists of such persons as required by law.

2. This excludes many hedge funds but not any other type of private fund with capital call/distribution structures, such as buyouts, mezz funds and others funds without redemption rights notwithstanding the asset class.

3/4/5. Also true of large buyout funds and debt funds.

6. Completely irrelevant--there are a handful of private fund firms that are public (Fortress, KKR, Blackstone, etc.). 99% of buyout fund, hedge fund and other private fund managers are private.

Venture funds invest in small and startup companies. Don't make the same mistake you did with your hedge fund rules by creating exemptions that are easily misused.