As “investment advisers,” venture capital firms are subject to varying requirements at state, federal and international levels. At the federal level, the Securities and Exchange Commission (SEC) regulates venture capital as either Registered Investment Advisers or, as for most NVCA members, Exempt Reporting Advisers. In addition, IRS and Treasury Department rules apply to funds as partnerships and under some broad definitions of “financial institution.” In addition, each state government can create new compliance challenges such as open records laws that risk exposing sensitive portfolio company data.
As the universe of private investment funds – private equity, hedge funds, sovereign wealth funds – have grown to take a more significant role in the global economy, venture capital funds have been drawn into a higher level of regulatory scrutiny and a greater compliance burden. U.S. law, EU regulations and foreign tax complexities present a steady stream of challenges.
The variety of private investment funds along with the sophistication of private fund investors present a new context for legislators and regulators. Even where they seek to write nuanced rules, they need education on the special circumstances of venture capital funds and the impact their impact on innovation and entrepreneurship.
In addition to regulation directly impacting funds, the trickle down impact of regulations on banks, intermediaries and limited partners, and the heightened awareness of venture capital funds’ obligations as responsible stewards of capital, the complexity of fund operations has increased. This challenges the ability of venture capitalists to continue as the lean, laser-focused organizations that venture investors expect them to be. Venture firm administrative partners and CFOs need a forum for information exchange and dialogue to ensure each fund’s focus developing and maintaining and efficient infrastructure.
NVCA encourages federal, state and international organizations to scrutinize private funds and understand the characteristics of each. The goal should be a level of regulation that ensures integrity in assets management and provides clarity as to the relationship between investors and private funds, transparency in reporting and appropriate third-party validation. Representing venture capital, NVCA supports federal state and local efforts to protect the global financial system against abusive practices like money laundering, financing illegal activities, etc.
NVCA supports cost-effective fund operations in several ways, acting as a repository of information on opportunities for firm and individual professional development. NVCA provides several ways for members to share knowledge and experience in the operation of venture funds. We provide a number of forums in which members can interact in a practical way. In addition to the CFO Task Force and VCGC, we have co-sponsored a number of leadership and professional development events together with industry service providers in order to help enhance the dialogue among industry professionals. These groups convene periodically to discuss current operational challenges and informally share information regarding best practices and organizational development.