U.S. laws regarding venture capitalism

[Steve Scheffler]

Hello everyone, I have a question about the laws that affect venture capitalists here in the U.S. as I am looking to start a business that will require in-depth knowledge about what laws affect them (I myself am not looking to be a VC). What are all the major legal restrictions that exist for them?

For example, I have heard that U.S. law requires that one have a certain amount of assets in order to be a venture capitalist. So does that mean that if you are below a certain threshold in terms of assets that you may not legally invest in a company in exchange for some equity in the business?

Thanks a lot in advance and I look forward to some good responses

[akula]

yeah...vc is regulated at the federal level
the relevant statutes are '33 and '40 acts..
essentially, it works like this..

1. vc firms are typically partnerships that sell a share in the partnership to "limited partners" (LPs)
typically, when securities are offered to the public, the offer and the securities have to be registered with the SEC pursuant to '33 and '34 Acts
however, vc partnerships enjoy an exemption from SEC registration requirements because their offer of securities to a small number of sophisticated investors does not constitute a "public" offer

2. likewise, what vc managers do is take money from LPs and invest it in securities.
people who do this are normally considered to be "investment companies" and are regulated under the '40 Act
however, vc funds enjoy an exemption because they keep the number of LPs under 100 members.

So yea, in a nut shell, vc funds are exempt from federal securities regulation because they enjoy exemptions from the '33 and '40 Acts

3. On your point, no...there is no regulation which requires venture funds to have certain levels of assets. These kinds of prudential regulation apply only to firms which are not exempt from fed securities law (or to insurance companies). Likewise, no, there are no legislative limits for VC activity.
VCs can do any thing that's permissible under their agreement with LPs.

do you need me to annotate the actual legislation or can you find it your self?