3(c)(1) Fund

Jurisdiction and status

US federal law: section 3(c)(1) of the Investment Company Act of 1940. It is an exclusion from the definition of investment company, not an exemption from registration: a fund within it is not an investment company for the Act's purposes.

The qualifying venture capital fund (QVCF) variant, added by Pub. L. 115-174 in 2018, raised the owner limit to 250 for such funds. The statute set the QVCF size cap at $10 million of aggregate capital contributions and uncalled committed capital, indexed every five years. SEC Rule 3c-7 raised it to $12 million effective 30 September 2024; the next adjustment is due by order on or about 1 November 2029.

The conditions

Counting beneficial owners

The count is of beneficial owners, not investors of record, and several rules change it:

• Entity investors generally count as one owner. Under section 3(c)(1)(A), however, if an investing company owns 10% or more of the fund's outstanding voting securities and is itself an investment company, or would be but for 3(c)(1) or 3(c)(7), its own holders are counted instead. Fund-of-funds and feeder investors near 10% therefore need attention.
• Knowledgeable employees of the fund or its manager are disregarded (Rule 3c-5).
• Short-term paper is not counted.

Managers track the count at every close and on every transfer, and limited partnership agreements restrict transfers that would breach the limit.

Investor eligibility layered on top

Section 3(c)(1) sets no investor-wealth test, but three other rules usually do. The offering itself usually relies on Rule 506 of Regulation D, so investors are usually accredited investors: Rule 506(c) admits only accredited investors, and Rule 506(b) allows no more than 35 purchasers who are not accredited investors in offerings under the rule in any 90-calendar-day period, each of whom must meet a financial-sophistication condition. If a registered adviser charges a performance fee or carried interest, Rule 205-3 treats each investor in a 3(c)(1) fund that is charged the fee as a client who must be a qualified client. And under the US Employee Retirement Income Security Act (ERISA), the fund's assets become plan assets if benefit plan investors hold 25% or more of the value of any class of its equity and no other exception applies.

When managers use 3(c)(1)

3(c)(1) suits smaller funds, emerging managers and funds with individual investors who are accredited but not qualified purchasers. Venture capital funds with no more than $12 million of aggregate capital contributions and uncalled committed capital can use the 250-owner QVCF variant. A manager that outgrows the 100-owner limit typically launches a parallel 3(c)(7) fund; see 3(c)(1) vs 3(c)(7).

Worked example

Examples are illustrative; figures are not market data.

Not the same as

• 3(c)(7) Fund: A 3(c)(7) fund has no statutory owner cap but admits only qualified purchasers.
• Regulation D (Reg D): Regulation D exempts the offering from Securities Act registration; 3(c)(1) excludes the fund from the Investment Company Act. A private fund normally needs both.

Common mistakes

• Calling 3(c)(1) an exemption. It is an exclusion from the definition of investment company.
• Omitting the second condition: no public offering.
• Using the statutory $10 million QVCF cap. The cap has been $12 million since 30 September 2024.
• Counting every fund-of-funds investor as one owner regardless of its stake.
• Assuming accredited status is the only investor test when a registered adviser charges carried interest.

Edge cases

• A QVCF must meet the Rule 203(l)-1 venture capital fund definition (for example, at most 20% of capital in non-qualifying investments).
• Owners counted under the 10% look-through can push a fund over the limit at a later close without any new direct investor.

Questions

Sources

1. 15 U.S.C. 80a-3 - Definition of investment company (Investment Company Act sec. 3, incl. 3(c)(1) and 3(c)(7)). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01). Status: in force (checked 2026-10-01). 15 U.S.C. 80a-3(c)(1), (c)(1)(A), (c)(1)(C)(i); Amendments note: 2018, subsec. (c)(1) (Pub. L. 115-174, sec. 504) — supports: 100/250 owner limits, no public offering, 10% look-through, statutory QVCF definition; 2018 insertion of the 250-person QVCF limit and subparagraph (C)
2. 17 CFR 270.3c-7 - Inflation-adjusted definition of qualifying venture capital fund. U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), Adopted 89 FR 70479 (2024-08-30); effective 2024-09-30. Status: in force (checked 2026-10-01). 17 CFR 270.3c-7(a)-(b) — supports: QVCF cap $12,000,000 effective 2024-09-30; next adjustment by SEC order on or about 2029-11-01
3. Qualifying Venture Capital Funds Inflation Adjustment (final rule), 89 FR 70479. U.S. Securities and Exchange Commission (Federal Register via govinfo), Published 2024-08-30; effective 2024-09-30. Status: in force (checked 2026-10-01). 89 FR 70479 — supports: Adoption of the QVCF inflation adjustment
4. 17 CFR 270.3c-5 - Beneficial ownership by knowledgeable employees and certain other persons. U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; unchanged since 1997 adoption (62 FR 17529). Status: in force (checked 2026-10-01). 17 CFR 270.3c-5(b) — supports: Knowledgeable employees excluded from the 3(c)(1) count
5. 17 CFR 275.205-3 - Exemption from the compensation prohibition of section 205(a)(1) for investment advisers (qualified client). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 86 FR 62475 (2021-11-10). Status: in force (checked 2026-10-01). 17 CFR 275.205-3 — supports: Look-through to equity owners of a 3(c)(1) fund for performance fees
6. Order Approving Adjustment for Inflation of the Dollar Amount Tests in Rule 205-3 under the Investment Advisers Act of 1940, Release No. IA-6961. U.S. Securities and Exchange Commission, Issued 2026-04-28; effective 2026-06-29. Status: in force (checked 2026-10-01). Release IA-6961 — supports: Current qualified client amounts
7. 17 CFR 275.203(l)-1 - Venture capital fund defined. U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2018-03-12. Status: in force (checked 2026-10-01). 17 CFR 275.203(l)-1 — supports: Venture capital fund definition used by the QVCF test
8. 17 CFR 230.506 - Exemption for limited offers and sales without regard to dollar amount of offering (Rule 506(b) and 506(c)). U.S. Securities and Exchange Commission (CFR text via eCFR; LII mirror), eCFR current as of 2026-09-29; last amended 2021-06-09. Status: in force (checked 2026-10-01). 17 CFR 230.506(b)(2)(i), (c)(2)(i) — supports: Rule 506(b) limit of 35 non-accredited purchasers; Rule 506(c) all purchasers accredited
9. 29 U.S.C. 1002 - Definitions (ERISA sec. 3, incl. 3(34), 3(35), 3(42)). U.S. Congress (United States Code; LII mirror), Current US Code text as published by LII (accessed 2026-10-01); para. (42) added by Pub. L. 109-280, sec. 611(f) (2006). Status: in force (checked 2026-10-01). 29 U.S.C. 1002(42) (ERISA sec. 3(42)) — supports: Plan assets where benefit plan investors hold 25% or more of any class of equity

• 3(c)(7) Fund
• Accredited Investor
• Qualified Client
• Regulation D (Reg D)
• Venture Capital (VC)
• Emerging Manager
• Plan Assets

• Beneficial Ownership
• Form ADV
• Fund of Funds (FoF)
• Limited Partnership (LP)
• Rule 506(b) vs Rule 506(c)
• Special Purpose Vehicle (SPV)