The Venture Alley - A blog about business and legal issues important to entrepreneurs, startups, venture capitalists and angel investors.

CONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

This article is appearing simultaneously on The Venture Alley and on Startup Law Blog. Readers may feel free to re-post this content elsewhere as well.

The world is changing for venture funds and similar funds in Washington State, and not necessarily for the better.  It used to be the case that managers of venture or other private funds did not need to file anything with the SEC or state securities regulators (other than Forms D incident to their fundraisings).  Dodd-Frank changed all that – but provided that investment advisers solely to venture capital or other small private funds may be exempt (based on Congress’ belief that these funds posed no systemic risk to the nationwide financial system). 

There are now SEC regulations that define the new exemptions for the managers of venture funds (discussed in more detail here) and for the managers of private funds with less than $150M management (discussed in more detail here).  Even if exempt, however, managers of venture funds and private funds with AUM of less than $150M now must publicly report certain high-level information, which becomes publicly available.  For example, here is the exempt reporting adviser Form ADV for Union Square Ventures.

These rules settled out a few years ago.  Right now, the bigger issue is with state regulators.  State regulatory regimes need to be updated in order to conform to Dodd-Frank.  The North American Securities Administrators Association (NASAA) created model rules for state regulators to follow, which adopted the same venture capital and private fund exemptions.  Many states, including California, have now adopted the NASAA model rules.

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Article prepared by and republished courtesy of Alan Granwell and Witold Jurewicz of DLA Piper; originally published here http://www.dlapiper.com/the-final-fatca-regulation-highlights/.

The US Treasury Department has issued the final FATCA regulations.

Although simplified and clarified, the Regulations are lengthy (544 pages) and more than 150 pages longer than the Proposed Regulations.

In drafting the Regulations, the US Treasury Department adopted a targeted, risk-based approach to implement FATCA by balancing policy considerations and administrative burdens and more fully incorporating local AML/KYC documentation practices. The Regulations detail the operational aspects of implementing FATCA – to reduce administrative burdens and clarify the interaction of the unilateral regulatory regime with the bilateral intergovernmental (IGA) regime.

Of particular importance is that the Regulations fill in many of the gaps that foreign financial institutions (FFIs) had as to how to implement FATCA. Nevertheless, FFIs, particularly global financial institutions, will have continuing challenges implementing the rules under the Regulations and IGAs within the current timelines among geographies, lines of business, clients and products.

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CONTRIBUTED BY

Rachel M. Perkins
rachel.perkins@dlapiper.com

We often receive questions about the application of the “accredited investor” definition (copied at the end of this post) in Rule 501(a) of Regulation D, and one that’s come up from time to time is how trusts generally qualify as “accredited investors.”  Whether a trust is an “accredited investor” is a fact-specific determination, but generally speaking, the SEC has provided some guidance on trusts in the form of no-action letters and the Compliance and Disclosure Interpretations (“C&DI”).

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CONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

As anticipated in our previous blogs, the SEC yesterday proposed rules to permit general solicitation and general advertising in Rule 506 and Rule 144A offerings.  The release proposes to create a new Rule 506(c), in which the prohibition against general solicitation would not apply to offers and sales of securities, provided that:

• The issuer takes reasonable steps to verify that the purchasers are accredited investors;
• All purchasers of the securities are accredited investors, either because they come within one of the enumerated categories or the issuer reasonably believes that they do, at the time of the sale of the securities; and
• All terms and conditions of Rule 501 (definitions), Rule 502(a) (integration) and Rule 502(d) (limitations on resale) are satisfied.

Effectively, the SEC has proposed a new exemption that would permit sales of restricted securities to accredited investors, without any manner of sale limitations or specified information requirements. 

The main issue in the proposal is what issuers must do to “take reasonable steps to verify” that purchasers are accredited investors.  The model the SEC has proposed would neither mandate specific verification steps nor assure issuers and investors that adequate steps have been taken.  The model will likely require issuers to obtain reliable third party information most of the time, rather than relying on questionnaires, contractual representations, or similar confirmations from a purchaser.

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CONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

The National Venture Capital Association (NVCA) recently published an article that may indicate an increasing role of Corporate Venture Capital in the startup investments arena, as reflected in Money Tree's Investment Analysis Report issued for Q2 2012.  The data from Money Tree's report shows that participation by corporate VCs rose to 16.3 percent during the first half of 2012, up from 14.7 percent in 2011.  Dominant sectors were software (27.1 percent of CVC invested dollars) and industrial/energy (18.8 percent of CVC invested dollars).

The NVCA further details the current atmosphere surrounding CVC investments in its July 16, 2012 survey prepared jointly with Deloitte: Global Trends in Venture Capital: How Confident Are Investors?

Bruce Jenett, a partner at DLA Piper, recently discussed the survey with NVCA's current head, Mark Heeson, in a podcast.