The Investment Advisers Act of 1940 requires anyone in the business of providing investment advice about securities for compensation to register with the SEC unless an exemption applies. Before Dodd-Frank, most venture managers relied on the old "private adviser exemption" for fewer than 15 clients, but Dodd-Frank eliminated it and replaced it with narrower exemptions. A manager that neither qualifies for an exemption nor registers is in violation of the Act — a serious enforcement risk. I advise every new manager to run a formal registration analysis before taking advisory fees or making investment decisions, because starting advisory activity before confirming exempt status is itself a compliance failure.
The Investment Advisers Act of 1940 requires any person or firm that, for compensation, is in the business of providing investment advice regarding securities to register with the SEC as an investment adviser — unless an exemption applies. Prior to the Dodd-Frank Act of 2010, most venture fund managers were exempt from registration under the "private adviser exemption" (fewer than 15 clients). Dodd-Frank eliminated that exemption and replaced it with more targeted exemptions, requiring most previously exempt managers to register or qualify for a new exemption. A fund manager that fails to qualify for an exemption and fails to register is in violation of the Advisers Act — a serious enforcement risk. Gurpreet Bal advises every new fund manager to conduct a formal registration analysis before accepting advisory fees or making investment decisions on behalf of a fund, because beginning advisory activity before confirming exempt status is itself a compliance failure.
Section 203(l) exempts an adviser that solely advises "qualifying venture capital funds" — private funds that represent a venture strategy, don't offer ordinary-course redemptions, invest primarily in equity of private operating companies, avoid fund-level leverage beyond short-term borrowing, and aren't registered under the Investment Company Act. Critically, this exemption has no AUM cap, so even a multibillion-dollar manager can rely on it indefinitely if every fund qualifies. I warn managers that the "solely advises" requirement is a structural trap: advising any non-qualifying fund — a hedge fund, a liquid fund, even an opportunity fund taking liquid positions — can eliminate 203(l) eligibility entirely.
Section 203(l) of the Advisers Act exempts from registration any investment adviser that solely advises "qualifying venture capital funds." A qualifying venture capital fund is a private fund that: (1) represents to investors that it pursues a venture capital strategy; (2) does not offer redemption rights or other liquidity in the ordinary course; (3) invests primarily in equity securities of qualifying portfolio companies (private operating companies); (4) does not use leverage at the fund level beyond short-term borrowing; and (5) is not registered under the Investment Company Act. Critically, the Section 203(l) exemption has no AUM cap — a $5 billion venture fund manager can rely on it indefinitely, provided all managed funds qualify as venture capital funds. Gurpreet S. Bal advises fund managers that the "solely advises" requirement is a structural trap: if the manager also advises a hedge fund, a liquid fund, or any other non-qualifying private fund, it loses eligibility for the 203(l) exemption entirely and must register or rely on a different exemption. Managing a secondary fund or an opportunity fund that takes positions in liquid securities alongside a flagship venture fund is a common scenario that can inadvertently eliminate 203(l) eligibility.
Section 203(m) exempts advisers that solely advise private funds and have aggregate regulatory AUM under $150 million in the U.S. It works regardless of fund strategy, but the $150 million threshold counts all U.S. private fund assets, including SPVs and co-investment vehicles. Advisers relying on either 203(l) or 203(m) must still file as Exempt Reporting Advisers using a truncated Form ADV, updated annually within 90 days of fiscal year-end and amended promptly when material information changes. I advise ERA clients that this filing is not a mere formality — the SEC uses ERA data to monitor the industry and may open an inquiry based on what's reported, such as AUM nearing thresholds or ownership changes.
Section 203(m) exempts advisers that solely advise private funds and have aggregate regulatory AUM (RAUM) of less than $150 million in the United States. This exemption is available regardless of fund strategy — hedge funds, credit funds, and venture funds can all qualify — but the $150 million threshold applies to all private fund assets managed in the U.S., including SPVs and co-investment vehicles. Advisers relying on either the 203(l) or 203(m) exemption are still required to file as Exempt Reporting Advisers by submitting a truncated version of Form ADV (Parts 1A and 2A are abbreviated for ERAs) with the SEC. The ERA Form ADV filing must be updated annually within 90 days of the adviser's fiscal year-end and promptly amended if material information changes. Gurpreet Bal advises ERA clients that the filing obligation is not merely a formality — the SEC uses ERA filings to monitor the private fund industry and may initiate examination or inquiry based on information reported, including AUM levels approaching thresholds, changes in ownership, or disciplinary history.
A manager that loses 203(l) eligibility by launching a non-qualifying fund, or whose RAUM exceeds $150 million under 203(m), must register as a full SEC RIA within 90 days of the disqualifying event. Full RIA status brings far heavier obligations — a Form ADV Part 2 brochure, a designated CCO, written compliance policies, annual reviews, books and records under Rule 204-2, and ongoing examination exposure. Below the SEC's mid-sized threshold of $25–100 million in RAUM, an adviser may instead register with its home-state regulator; California managers below the relevant thresholds register with the DFPI. I advise running a threshold analysis before each fund close, since new capital can cross AUM lines and the transition must be managed proactively.
A venture manager that loses eligibility for the 203(l) exemption — by launching a non-qualifying fund — or whose RAUM exceeds $150 million — while relying on 203(m) — must register as a full RIA with the SEC within 90 days of the disqualifying event. Full RIA status carries significantly greater compliance obligations: a comprehensive Form ADV Part 2 brochure disclosure document, Chief Compliance Officer designation, a written compliance policies and procedures manual, annual compliance reviews, books and records obligations under Rule 204-2, and ongoing SEC examination exposure. Below the SEC's mid-sized adviser threshold of $25–100 million in RAUM, advisers may be required to register with the state securities regulator in the state where the adviser's principal office is located rather than with the SEC — California-based fund managers below applicable thresholds register with the Department of Financial Protection and Innovation (DFPI). Gurpreet S. Bal advises fund managers to conduct a registration threshold analysis before each fund close, because capital raised in a new fund can cross AUM thresholds that trigger the obligation to register at either the state or federal level, and the transition must be managed proactively rather than reactively.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises venture funds, fund managers, founders, and investors on fund formation, venture financings, M&A, and corporate governance. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology.