# Qualifying venture capital fund

Author:

The Carta Policy Team

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Read time:

2 minutes

Published date:

April 11, 2023

A qualifying venture capital fund is private fund with no more than 250 beneficial owners and $12 million in assets. It also must meet the statutory definition of a venture capital fund.

## What is a qualifying venture capital fund?

Qualifying venture capital funds are a subset of all [venture capital funds](/content/learn/private-funds/venture-capital/index.html). Generally, venture capital funds are limited to 100 [beneficial owners](/content/learn/private-funds/regulations/index.html). Qualifying venture capital funds, however, have the opportunity to raise money from more investors (up to 250 beneficial owners) if they manage less than $12 million.

## Qualifying venture capital fund requirements

Under [Section 3(c)(1) of the Investment Company Act](/content/learn/private-funds/regulations/3c1-3c7/index.html) of 1940, a “qualifying venture capital fund” is a [private fund](/content/learn/private-funds/index.html) that remains exempt from registering with the SEC as an investment company by meeting three criteria:

- It has no more than 250 beneficial owners
- It manages no more than $12 million in assets
- It meets the definition of a “venture capital fund” stipulated by the [Investment Advisers Act of 1940](https://www.govinfo.gov/content/pkg/COMPS-1878/pdf/COMPS-1878.pdf) (Advisers Act).

## Definition of a venture capital fund

A fund meets [the definition of a venture capital fund](https://www.law.cornell.edu/cfr/text/17/275.203(l)-1) under the Advisers Act if it:

- Does not invest more than 20% of the fund’s committed capital in non-qualifying investments, such as debt, secondaries, public issuances, fund-of-fund investments, or [digital assets](/content/learn/private-funds/venture-capital/taxes/crypto-digital-asset-taxes/index.html)
- Restricts borrowing and all other leverage to 15% of the fund size, and repays any related debts within 120 days
- Limits [limited partner (LP)](/content/learn/private-funds/structures/limited-partner/index.html) redemption rights (their ability to cash out of the fund) to “extraordinary circumstances”
- Represents to investors and potential investors that it pursues a venture capital strategy

### Venture fund strategy

[Venture fund strategies](/content/learn/private-funds/management/portfolio-management/portfolio-construction/index.html) can include characteristics such as industry and stage of investment. While there are exceptions, the typical lifecycle of a venture fund (the total period the fund will hold investment assets) is 10 years.

### Other fund exemptions

Other venture capital funds may use the [Section 3(c)(7) exemption of the Investment Company Act](/content/learn/private-funds/regulations/3c1-3c7/index.html), which allows a fund to have up to 1,999 investors as long as they’re all [qualified purchasers](/content/learn/private-funds/regulations/qualified-purchaser/index.html)—a higher bar than [accredited investors](/content/learn/private-funds/regulations/accredited-investors/index.html).