Thread by @JeffFarrah

#CFIUS GUIDANCE: @USTreasury recently updated their FAQs on the FIRRMA pilot program. @nvca has asked for additional guidance since the pilot went into effect in November and there has been very limited clarity. Read on to hear what Treasury said (1/12) tinyurl.com/yccp4ne7

Most interesting FAQ is #22 which pertains to how the pilot rules deal with a foreign person that does a indirect investment via a fund but ALSO a direct investment into a US company. This is something NVCA asked about in our Nov. filing. (2/12) tinyurl.com/yytuwpgk

We asked: "If a foreign limited partner in a fund makes a direct investment in one of the fund's portfolio companies, without coordination from the fund, will that direct investment be treated in isolation from the fund's investment?" (3/12)

This is a big issue in #VC given the prevalence of direct investments by LPs--including some foreign LPs--into startups. It's important to understand the situations when those direct investments by LPs will implicate the venture fund in the CFIUS process. (4/12)

Treasury's response: "CFIUS will consider the totality of the particular facts and circumstances of the transaction in determining whether a transaction is subject to its jurisdiction. Even if an indirect investment through an investment fund, standing alone, does not. . ."(5/12)

". . .constitute a pilot program covered investment, the direct investment by the foreign person may nevertheless be covered. . ." Let's unpack this. Direct investments by a foreign person could be covered if it gets, e.g., a board seat or material non-public tech info. (6/12)

That much is obvious. More interesting question is the one we posed: would the foreign person's investment in a VC fund trigger a mandatory filing under the pilot because of the foreign person's direct investment? Treasury appears to give itself maximum flexibility here. (7/12)

If you're conducting this analysis in market, all you have to go off is that Treasury will look at "particular facts and circumstances." A situation like we asked about where the foreign LP makes a direct investment "without coordination with the fund" is the easiest case (8/12)

But Treasury did not answer that seemingly easy case. Other cases are more complicated, such as situations when the direct investment springs from the foreign person's status as an LP in a US fund. In our view, the final FIRRMA rules should be a lot more specific here (9/12)

The new FAQs also touch on fund specific issues but don't break new ground. One asks whether the pilot applies to investments thru funds, which was clear before hand as the statute deals with "direct or indirect" investments plus (as Treasury notes) there is LPAC language (10/12)

Speaking of LPACs, the new FAQs provide a little insight into the analysis of foreign LP participation on an LPAC (#20) and that the exception to mandatory declarations for investment funds does apply during the pilot (#21). (11/12)

Nothing groundbreaking in these FAQs but interesting read for those navigating rules. Still too many Qs unanswered under pilot rules and hopefully Treasury will clarify in final rules; gov't wants flexibility but that comes at a price for market players shooting in dark! (12/12)

Should have clarified that the new FAQs are 19-22 but others are still worth a read like #17 which discusses pro rata investments (answer one piece of NVCA question in our November filing) and #18 which provides guidance on determining what is a "critical technology".