Crypto funds looking to transition into #RIAs:
• @a16z, @Sequoia & other VCs have gone from ERA to RIA
• Registration is costly & time consuming but not end-all
• If your fund is valued >$150m this year, you must register by March/June next year.
More on this issue 🧵 1/x
• @a16z, @Sequoia & other VCs have gone from ERA to RIA
• Registration is costly & time consuming but not end-all
• If your fund is valued >$150m this year, you must register by March/June next year.
More on this issue 🧵 1/x
2/ Crypto fund formations are often costly because of compliance
• In CA, the 'retail buyer fund' exception requires qualified clients—$2.2m net worth—to charge carry
• Federally, if your funds grow >$150m you must register.
But how does it work?
• In CA, the 'retail buyer fund' exception requires qualified clients—$2.2m net worth—to charge carry
• Federally, if your funds grow >$150m you must register.
But how does it work?
https://twitter.com/ChrisHarveyEsq/status/1412490535541956609?s=20
3/ As a CA-based investment adviser, your crypto fund will have regs you won't know about.
CA State non-VC ERAs require:
• PPM/disclosures
• Audits
• Qualified Clients
These regs won't bite until an LP receives a distribution YEARS down the road.😳
CA State non-VC ERAs require:
• PPM/disclosures
• Audits
• Qualified Clients
These regs won't bite until an LP receives a distribution YEARS down the road.😳
https://twitter.com/ChrisHarveyEsq/status/1412491239572709378?s=20
4/ Federally, crypto fund regs come at you fast.
• Every year you need to make a filing with FINRA—the Form ADV. As an ERA, this isn't too bad.
• But in year 1 if your $50m crypto fund did 3x, you're looking at federal registration in year 2 ($150m).
• Every year you need to make a filing with FINRA—the Form ADV. As an ERA, this isn't too bad.
• But in year 1 if your $50m crypto fund did 3x, you're looking at federal registration in year 2 ($150m).
https://twitter.com/ChrisHarveyEsq/status/1479940701697634305?s=20
5/ #VCs are exempt from these silly rules!
• But to qualify, your funds must each meet the legal definition of a 'VC fund' (see attached)
• The vast majority (80%) of your fund's AUM must be tied up in CASH or EQUITY SECURITIES for PORTFOLIO COMPANIES, not crypto tokens
• But to qualify, your funds must each meet the legal definition of a 'VC fund' (see attached)
• The vast majority (80%) of your fund's AUM must be tied up in CASH or EQUITY SECURITIES for PORTFOLIO COMPANIES, not crypto tokens
6/ So, what if your crypto fund has to register?
Here are the relevant deadlines for ERAs/RIAs:
• Assume you file your Form ADV Annual Amendment on March 31, 2022 (due)
• ERAs who must register as RIAs will submit final reports generally within 90 days EOY, by June 30, 2022
Here are the relevant deadlines for ERAs/RIAs:
• Assume you file your Form ADV Annual Amendment on March 31, 2022 (due)
• ERAs who must register as RIAs will submit final reports generally within 90 days EOY, by June 30, 2022
7/ But the REAL issue is what happens if you don't qualify as a venture fund & you are required to register as an RIA?
• What are the consequences to your LPs?
• Must you accept only 'qualified clients' & kick out your accredited investors who you can't legally charge carry?
• What are the consequences to your LPs?
• Must you accept only 'qualified clients' & kick out your accredited investors who you can't legally charge carry?
8/ Long story short, you're entitled to charge carried interest to your non-qualified investors.
That's because of the Transition Rule—quoting Rule 205-3(c)(2) (see image).
In other words, you can keep accredited investors, even if they aren't qualified clients at registration.
That's because of the Transition Rule—quoting Rule 205-3(c)(2) (see image).
In other words, you can keep accredited investors, even if they aren't qualified clients at registration.
9/ Addendum
• How to Calculate "Regulatory AUM"
• Foreign adviser exception
• What is the 20% Basket?
• How to Calculate "Regulatory AUM"
• Foreign adviser exception
• What is the 20% Basket?
https://twitter.com/ChrisHarveyEsq/status/1481831893804847104?t=l6po5FIANI3EJ2JyFYvMpg&s=19
https://twitter.com/ChrisHarveyEsq/status/1481860122129227780?t=l6po5FIANI3EJ2JyFYvMpg&s=19
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