D.C. cuts red tape for smaller venture capital funds

Friday, February 5, 2016

Washington Business Journal by Andy Medici

Smaller venture capital funds in the District will no longer have to follow strict licensing rules meant for financial advisers — a change that proponents say will make D.C. more tech friendly.

Since 2012, the D.C. Department of Insurance, Securities and Banking (DISB) has issued temporary licensing waivers for funds with more than $100 million under management. The latest move permanently extends those waivers and applies them to funds with less than $100 million under management.

Tech incubator 1776, co-founded by Evan Burfield and Donna Harris, closed its first seed…more

JOANNE S. LAWTON

DISB issued the order under its own regulatory authority Jan. 28 after a review. The order is retroactive to Jan. 1.

Without the permanent exemption, smaller venture funds would be burdened with extensive filing requirements and paperwork as well as training and certification mandates originally designed for personal financial and investment advisers, not venture funds.

DISB Commissioner Stephen Taylor said the permanent exemption from the regulations will help foster business growth and demonstrates the city's efforts to create a friendly business environment.

“This is an example of our commitment to provide modern regulation that protects consumers, promotes innovation, and does not unduly burden our small and local business community,” Taylor said.

David Zipper, managing director of the D.C.-based tech incubator 1776, which helped push for the change, said the regulations had put a burden on venture funds that does not exist in Virginia or Maryland. 1776 closed its first seed fund round in September, raising $12.5 million to back about 20 companies.

“Really what the previous policy did was put an undue regulatory burden [and funds] and frankly a very expensive one to handle,” Zipper said. “Having that burden removed is something that is great for the city’s tech ecosystem.”

Zipper said he was aware of several micro-funds, which he declined to name, that deliberately located outside the District in part to avoid that burden. He also declined to specify how much it costs 1776 to comply with the regulations but said it put 1776 at a competitive disadvantage.

Aaron Velli, a partner at law firm Cooley LLP, said the original regulations were a drag on the formation of new funds. The District, however, worked quickly to craft a new permanent exemption once officials learned about the issue.

“The initial investment sizes are not that big. It really did hamstring those smaller managers who wanted to establish a presence in D.C.,” Velli said.

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D.C. cuts red tape for smaller venture capital funds

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