An exempt reporting adviser, often shortened to ERA, is an investment adviser that does not have to register with the SEC or a state securities regulator as a full investment adviser, but still has to file limited reports. Most emerging fund managers who form SPVs and small private funds qualify as exempt reporting advisers under one of two exemptions in the Investment Advisers Act: the venture capital fund adviser exemption and the private fund adviser exemption.
Both exemptions let a manager avoid the cost and disclosure burden of full SEC registration, which includes a detailed Form ADV brochure, a written compliance program, and regular examinations. In exchange, an ERA still files part of Form ADV, remains subject to the Advisers Act’s antifraud rules, and in many states has to make a separate state notice filing.
This guide covers who qualifies for each exemption, what an exempt reporting adviser has to file, and where managers most often trip over the requirements.
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What is an exempt reporting adviser
Section 203 of the Investment Advisers Act generally requires an investment adviser managing client assets to register with the SEC once it crosses certain size thresholds. Two provisions carve out an exemption from that registration requirement: section 203(l), for advisers that solely advise venture capital funds, and section 203(m), for advisers that solely advise private funds and manage less than $150 million in assets in the United States. An adviser relying on either one is an exempt reporting adviser rather than an unregulated one, since the SEC’s own guide to these exemptions confirms it still owes the Commission a subset of the information required on Form ADV and remains bound by the Advisers Act’s general prohibition on fraud and misleading statements to clients.
The venture capital fund adviser exemption
Section 203(l) exempts an adviser that advises solely venture capital funds, with no cap on the dollar amount of assets under management. The exemption turns entirely on whether each fund the adviser manages qualifies as a “venture capital fund” under the SEC’s definition in Rule 203(l)-1.
What counts as a qualifying venture capital fund
A fund only qualifies if it meets several conditions at once:
- It holds at least eighty percent of its capital in qualifying investments, generally equity in private operating companies, with no more than twenty percent in other, non-qualifying investments immediately after acquiring them.
- It does not borrow, issue debt, or otherwise incur leverage beyond fifteen percent of its aggregate capital contributions, and any such borrowing is for a non-renewable term of no more than 120 days, apart from guarantees of a portfolio company’s own obligations up to the size of the fund’s investment.
- Investors cannot redeem their interests except in extraordinary circumstances.
- The fund does not register under the Investment Company Act and does not operate as a business development company.
- The fund represents itself to investors as pursuing a venture capital strategy, not merely happening to invest in startups.
Rolling funds and single-deal SPVs under the VC exemption
A single-deal SPV that buys one company’s shares and holds them without leverage or redemption rights generally fits the qualifying investment test easily, since the whole vehicle is one qualifying investment. A rolling fund or a fund of funds vehicle needs closer analysis, particularly around the eighty percent test and any short-term borrowing used to bridge capital calls. For how these vehicles run day to day, see Setting Up, Managing, and Achieving Success with a VC Fund.
The private fund adviser exemption
Section 203(m) exempts an adviser that advises solely private funds, meaning funds excluded from the definition of investment company under section 3(c)(1) or 3(c)(7) of the Investment Company Act, as long as the adviser’s assets under management in the United States stay under $150 million. Unlike the venture capital exemption, this one does not require the underlying funds to invest in startups at all. It fits a manager running one or more SPVs or a small private fund that does not otherwise qualify as a venture capital fund, provided the total stays below the threshold.
Combining both exemptions
A manager can rely on both provisions at once. Qualifying venture capital fund assets are not counted toward the $150 million private fund adviser threshold, so a manager can advise an unlimited amount in true venture capital funds under section 203(l) while separately advising other, non-qualifying private funds under section 203(m), as long as those other funds stay under $150 million in the aggregate as the manager builds assets under management across several vehicles.
What an exempt reporting adviser has to file
An ERA files a subset of Form ADV, specifically Part 1A, through the same electronic system that registered advisers use. It reports basic information about the firm, its owners, the funds it advises, and any disciplinary history, but it does not file Part 2, the narrative brochure that goes to clients, and it is not subject to the compliance program and examination requirements that apply to a registered adviser. The filing has to be updated at least annually and promptly after certain material changes.
State notice filings
Federal exemption does not automatically clear every state requirement. Many states require an adviser relying on section 203(l) or 203(m) to make its own notice filing and pay a fee before soliciting investors who live there, and a few states apply their own, separate exemption tests. A manager raising from investors across several states should confirm each state’s notice filing rule rather than assuming the federal ERA filing covers it everywhere.
Comparing exempt reporting adviser status to full registration
| Exempt reporting adviser | Fully registered adviser | |
|---|---|---|
| Form ADV filed | Part 1A only | Parts 1A and 2 |
| Client brochure required | No | Yes |
| Written compliance program required by the adviser rules | No | Yes |
| Subject to routine SEC examination | Rare | Yes, periodically |
| Bound by antifraud provisions | Yes | Yes |
| AUM limit for the exemption | None for VC funds; $150 million for other private funds | Not applicable |
When an SPV manager outgrows exempt reporting adviser status
A manager that starts advising non-venture-capital private funds above $150 million in the United States, or that begins managing separate accounts or funds that do not fit either exemption, generally has to register as a full investment adviser with the SEC or with its home state, depending on its size. Crossing the threshold mid-year does not require an immediate registration, since the Advisers Act rules give an adviser a transition period once it determines it no longer qualifies for an exemption, but a manager approaching $150 million in non-VC private fund assets should start that conversation with counsel well before the number is reached.
Frequently asked questions
What is an exempt reporting adviser?
An exempt reporting adviser is an investment adviser that qualifies for the venture capital fund adviser exemption or the private fund adviser exemption under the Investment Advisers Act, so it does not have to fully register with the SEC but still files part of Form ADV.
Who qualifies as an exempt reporting adviser?
A manager that advises solely qualifying venture capital funds qualifies under section 203(l) regardless of size. A manager that advises solely private funds and manages less than $150 million in the United States qualifies under section 203(m).
What does an exempt reporting adviser have to file?
Part 1A of Form ADV with the SEC, updated at least annually, plus any notice filing a state where the adviser solicits investors requires. It does not file the Part 2 brochure that registered advisers give to clients.
Does exempt reporting adviser status apply to a single SPV?
Yes, if the SPV is a qualifying venture capital fund or a 3(c)(1) or 3(c)(7) private fund and the manager’s other private fund assets stay within the applicable exemption. Many single-deal SPV managers rely on the venture capital fund exemption.
Do exempt reporting advisers have any compliance obligations?
Yes. They remain subject to the Advisers Act’s general prohibition on fraud and misleading statements, and the SEC can still examine or bring an enforcement action against an ERA even though it has not fully registered.
How Syndicately fits
Syndicately forms and administers the SPVs a venture capital or private fund adviser relies on, handling entity formation, investor onboarding with KYC and AML checks, subscription documents, capital calls, and Form D filings, while your adviser status and Form ADV filings stay with your own counsel. See how Syndicately supports fund managers across a portfolio of SPVs.
This article is general information, not legal or investment advice. Whether an adviser exemption applies depends on the specific funds and assets involved, so confirm your status with securities counsel before relying on it.
