Venture capital advisors who are not registered or are not to be registered in accordance with Section 203 of the ILO are not subject to Rule 206(4)-2 (the “Custody Rule”).  As set out in section 203(1) to 1(c)(3), qualified investment is the investment directly acquired in equity securities of private companies (generally companies, which did not make a public offer at the time of the investment and which do not have leverage or borrowing in connection with the investment of venture capital funds and which pay the Fund the proceeds of those loans (i.e. were not acquired under a risky buyback operation). 100% subsidiaries and similar controlled structures, common in venture capital vehicles, are also considered qualified investments. See IM Guidance Update 2013-13 (December 2013). (Note that the 20% bucket excludes cash and some short-term stocks).  “Third Party Expenses” include:  Bartlett, “From the Embryo to the IPO, Courtesy of the Conveyor Belt (Plus a Tax-Efficient Alternative to the Carried Interest)” The Journal of Private Equity Winter 2011, Copyright (c) 2011, Institutional Investor, Inc. You comment with your WordPress.com account. (Logout / Modification) The good news is that, provided that this structure does the job both from the point of view of the Chaperone and the investors, it fulfills two functions by navigating between the classic rock and the hard place. Really interested in how to apply it to a “test” investment fund for start-ups in the start-up phase.
P.S. The second piece of the puzzle is whether the Chaperone should register as an executive member (or the SPV itself) as an investment advisor.. . . .