SEC Proposes Adjustments to Venture Capital Fund Thresholds 

In a concerted effort to adhere to the mandates outlined in section 504 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018, the Securities and Exchange Commission (SEC) has recently set forth a proposal for a rule amendment aimed at refining the definition of a “qualifying venture capital fund.” This strategic move seeks to address inflationary pressures by revising the monetary threshold that delineates a fund as “qualifying.” 

Presently, according to section 3(c)(1) of the Investment Company Act of 1940 (“Act”), a fund must possess aggregate capital contributions and uncalled committed capital totaling $10 million to qualify as a “venture capital fund.” The newly introduced rule amendment seeks to elevate this financial bar, raising the threshold to $12 million. Notably, this adjustment, tethered to the Personal Consumption Expenditures Chain-Type Price Index (PCE Index), is accompanied by a provision enabling the SEC to periodically reassess and recalibrate the threshold figure every five years.

According to the SEC, the proposed rule is intended to provide greater flexibility for venture capital funds and promote capital formation. The rule would also ensure that the definition of a qualifying venture capital fund remains up-to-date and relevant in the face of inflation. By adjusting the dollar threshold to $12 million, the SEC aims to provide greater clarity and certainty for funds seeking to qualify as venture capital funds.

This proposed rule amendment is currently subject to public scrutiny, with the comment period ending by March 22, 2024. This pivotal regulatory change underscores the SEC’s commitment to adaptively safeguarding the integrity and efficacy of the financial landscape in line with evolving economic dynamics.

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