3(c)(1) fund

Example

A pre-seed fund raises $9M from 180 angels at $50,000 each. Under the plain 100-owner limit that is impossible. Because the fund meets the qualifying venture capital fund definition and its contributions plus uncalled commitments total $9M, under the $12M ceiling, it may have up to 250 beneficial owners. If the GP later reopened the fund and took it to $14M, the fund would no longer qualify for the 250 cap and would be over the 100 limit by 80 investors. The ceiling is checked before the final close, not after.

Confused with

3(c)(7) fund. No statutory cap on numbers, but every investor must be a qualified purchaser. A fund choosing between them is trading investor count for investor wealth.

Accredited investor limit. 3(c)(1) counts owners; it does not itself require them to be accredited. That requirement comes from the Rule 506 offering the fund runs alongside.

In practice

Counting is the work. The count is of beneficial owners, and certain investing entities are looked through to their own owners: a vehicle formed to invest in the fund, or an investment company holding a significant stake. Knowledgeable employees of the manager are excluded from the count. Transfers and feeder vehicles can push a fund over the line years after the close, which is why the LPA conditions transfers on GP consent.