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February 16, 2023 | Tom Ballard

New federal rules could bring more regulations to angel and venture funds

This proposal began to be considered long before the collapse of cryptocurrency exchange company FTX.

It may not have surfaced on the radar of entrepreneurs, but it is no doubt of some concern to those in the angel and venture capital world.

“The Securities and Exchange Commission (SEC) and venture capitalists (VCs) have traditionally lived in two different worlds, but if a new rule from the regulatory agency advances, VCs could find their world under increased scrutiny,” writes Chris Metinko in this article for Crunchbase News. Nearly a year ago – long before the collapse of crypto exchange FTX, the SEC started considering the addition of regulations around how private investors vet deals.

“The added scrutiny would also open the door for LPs (limited partners) to push litigation against an investor if proper due diligence was not followed in a completed deal — something VCs have not had to worry about before,” Metinko writes. The new possible oversight has drawn the attention of the National Venture Capital Association which described “the proposed rules are profoundly flawed” and noted that the change “represents a radical departure from Congress’s longstanding determination that private funds (including venture capital funds) . . . should not be subject to the type of granular and often intrusive regulatory requirements that generally apply to retail-level investment companies.”

You can find the article here.

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