Texas State Securities Board

TxVCA monitors and tracks all rulemaking proceedings initiated by the State Securities Board to make certain no rules or regulations that are harmful to the venture capital industry are adopted.

When a rulemaing proceeding is initiated, TxVCA members will be alerted through the TxVCA UPDATE and all subsequent information will be posted here.

Below is a brief summary of some of the association's past accomplishments before the State Securities Board.

 Accomplishments

2005 - New Investment Advisor Registration Rule
In 2005, The Texas State Securities Board adopted a new rule requiring certain investment advisors to register with the State. Under the new rule, a venture capital fund is not required to register with the state unless it meets all three parts of the definition of a "private fund", which is defined as one that "permits investors who are natural persons to redeem their interests in the fund within two years of purchasing them." Therefore, if a venture capital fund does not allow redemption within two years by natural persons, it will not be required to register with the state.

Final Language - Rule §109.6
§109.6. Investment Adviser Registration Exemption for Investment Advice to Financial Institutions and Certain Institutional Investors.

(a) Availability. The exemption from investment adviser and investment adviser representative registration provided by the Texas Securities Act, Section 5.H, or this section is not available if the financial institution or other institutional investor named therein is in fact acting only as agent for another purchaser that is not a financial institution or other institutional investor listed in Section 5.H or this section. These exemptions are available only if the financial institution or other institutional investor named therein is acting for its own account or as a bona fide trustee of a trust organized and existing other than for the purpose of acquiring the investment advisory services for which the investment adviser or investment adviser representative is claiming the exemption. For purposes of this section, an investment adviser or investment adviser representative that is providing investment advisory services to a corporation, general partnership, limited partnership, limited liability company, trust or other legal entity, other than a private fund, is not providing investment advisory services to a shareholder, general partner, member, other security holder, beneficiary or other beneficial owner of the legal entity unless the investment adviser provides investment advisory services to such owner separate and apart from the investment advisory services provided to the legal entity.

(b) Investment advice rendered to certain institutional investors. The State Securities Board, pursuant to the Act, Section 5.T and Section 12.C, exempts from the investment adviser and investment adviser representative registration requirements of the Act, persons who render investment advisory services to any of the following:

(1) an "accredited investor" (as that term is defined in Rule 501(a)(1)-(3), (7), and (8) promulgated by the Securities and Exchange Commission (SEC) under the Securities Act of 1933, as amended (1933 Act), as made effective in SEC Release Number 33-6389, as amended in Release Numbers 33-6437, 33-6663, 33-6758, and 33-6825);

(2) any "qualified institutional buyer" (as that term is defined in Rule 144A(a)(1) promulgated by the SEC under the 1933 Act, as made effective in SEC Release Number 33-6862, and amended in Release Number 33-6963); and

(3) a corporation, partnership, trust, estate, or other entity (excluding individuals) having net worth of not less than $5 million, or a wholly-owned subsidiary of such entity.

(c) Investment advice rendered to natural persons and private funds. There is no exemption under this section for an investment adviser providing investment advisory services to a natural person or to a private fund, such as a hedge fund, that is composed partially or entirely of natural persons. A "private fund" is an entity that:

(1) would be subject to regulation under the federal Investment Company Act of 1940 but for the exceptions from the definition of "investment company" provided for:

(A) a fund that has no more than 100 beneficial owners, or

(B) a fund that is owned exclusively by qualified purchasers who acquired ownership through a non-public offering;

(2) permits investors who are natural persons to redeem their interests in the fund within two years of purchasing them; and

(3) offers interests in the entity based on the investment advisory skills, ability or expertise of the investment adviser.

(d) Financial statements. For purposes of determining an institutional investor's total assets or net worth under this section, an investment adviser or investment adviser representative may rely upon the entity's most recent annual balance sheet or other financial statement which shall have been audited by an independent accountant or which shall have been verified by a principal of the institutional investor.

2013 - Registration Exemptions for Investment Advisors To Private Funds
In 2013, TxVCA worked with the Securities Board on proposed rules concerning registration exemptions for investment advisors to private funds. Due to TxVCA's input during the drafting phase, the final rules track the new SEC filing requirements and do not present any significant burden on venture capital funds to comply.

Under the new rules, when filing the ADV Form with the SEC, venture capital firms can check the "Texas box" under the section entitled State Securities Authority Notice Filings and State Reporting by Exempt Reporting Advisers and a copy of the filing will be forwarded to the Texas State Securities Board.