Investment Advisor FAQs

January 30, 2026  |  By

One of the most critical considerations for our fund clients is investment advisor registration. Most smaller fund managers can operate under an exemption, but only up to a point. Once you cross that point, the compliance obligations become much more burdensome. These FAQs will walk you through this analysis.

Unsure whether your activities actually make you an investment advisor? Our blog, Are you acting as an Investment Advisor?, walks through the key questions to help you assess your role.

When Do I Actually Have to Register as an Investment Adviser?

Initially, most new fund managers can easily qualify as an Exempt Reporting Advisor (“ERA”).

At some point, though, the question pops up: “When do I actually have to register as an investment adviser?”

The answer is a little different depending on whether you’re relying on the Private Fund Adviser Exemption or the Venture Capital Fund Adviser Exemption. Below is a simple guide to when those exemptions stop working and registration becomes a must.

Quick Refresher: Two Types of ERAs

Under the Investment Advisers Act of 1940, you can qualify as an ERA in two main ways:

  1. Private Fund Adviser ERA
    • You only advise “private funds” (think 3(c)(1) and 3(c)(7) funds), and
    • You have less than $150M in private fund assets under management (“AUM”) in the U.S.
  2. Venture Capital Fund Adviser ERA
    • You only advise funds that meet the SEC’s definition of a “venture capital fund,” and
    • There is no AUM cap – but each fund you advise must stay within that venture capital fund definition (80% qualifying VC investments, limited leverage, illiquidity, etc.).

In both cases, you’re not fully registered, but you still file Form ADV as an ERA and keep it updated. From there, the “when do I have to register?” analysis looks a little different for each type of ERA.

When a Private Fund ERA Must Register

If you’re relying on the Private Fund Adviser Exemption, the big trigger is AUM.

You cross the $150M private fund AUM line

Once your U.S. private fund AUM hits $150M or more, you can no longer rely on the private fund ERA exemption and generally must register with the SEC (unless another exemption applies).

A few practical notes:

  • You calculate AUM on Form ADV – it includes:
    • The value of all private fund assets you manage on a continuous and regular basis;
    • Uncalled committed capital; and
    • Market value / fair value of those holdings. This one is important – it requires frequent coordination with portfolio companies.
  • You review this at least annually when you update ADV, but you should be “AUM-forecasting” well before you hit $150M.

If you’re trending close (say, in the $130M–$145M range with open commitments in the pipeline), it’s time to start planning for registration rather than waiting for the day you technically cross the line.

You start advising non-private-fund clients

The private fund ERA exemption is only available if you solely advise private funds.

If you:

  • Take on a separately managed account for a high-net-worth individual,
  • Start advising a company or family office outside of a fund vehicle, or
  • Provide investment advice for compensation in any other format,

…then you are no longer “only advising private funds.” That usually means the private fund adviser exemption is off the table, and you need to either:

  • Re-structure so that advice flows through a private fund, or
  • Register (federally or at the state level), depending on your AUM and where you’re located.

Your state wants you to register

Even if you’re small enough to avoid SEC registration, you may still have to register as an adviser at the state level if you’re not eligible for a similar state-law ERA exemption.

Very high-level (and this varies by state):

  • If you’re under $25M AUM, registration is often a state question, not an SEC question.
  • Between $25M and $100M, you’re generally looking at state registration, unless your home state doesn’t “exam” advisers (in which case you may move up to SEC).
  • Between $100M and $150M, you might be an ERA with the SEC under the private fund exemption but still have state-level obligations.

The point: don’t assume that being an ERA with the SEC automatically answers the state registration question.

When a Venture Capital Fund Adviser ERA Must Register

If you’re relying on the Venture Capital Fund Adviser Exemption, AUM is not the main issue. The main question is: Are you still “solely advising venture capital funds” as the SEC defines them?

There are two common ways VC advisers “fall out” of the exemption.

Your fund stops being a “venture capital fund”

The SEC’s definition of a venture capital fund includes things like:

  • At least 80% of assets in qualifying investments (generally equity purchased directly from private portfolio companies);
  • Borrowings capped at 15% of aggregate capital contributions and uncalled commits, and short-term;
  • No routine redemption rights (only “extraordinary circumstances”); and
  • You represent to investors that you’re pursuing a VC strategy.

You can lose VC status if, for example:

  • You start doing a lot of secondary purchases, credit strategies, token strategies, or fund-of-funds positions that push your fund over the 20% non-qualifying bucket;
  • You add a NAV line of credit or other leverage that exceeds the 15%/120-day limits;
  • You build in regular redemption rights that look more like a hedge fund or open-ended vehicle.

Once the fund no longer fits the definition, it’s not a “venture capital fund” for the exemption, and the adviser can’t rely on the VC ERA exemption for that fund’s advice going forward.

What happens next depends on your facts:

  • If your total private fund AUM is under $150M, you may be able to switch to the Private Fund Adviser Exemption and stay an ERA.
  • If you’re over $150M, or you also advise separately managed accounts, you’re generally looking at full registration.

You start advising non-VC funds

Even if your first fund is a squeaky-clean VC, you lose the VC adviser exemption once you advise anything that isn’t a venture capital fund, such as:

  • A growth equity / buyout fund,
  • A credit or opportunity fund, or
  • A fund-of-funds that doesn’t fit the VC definition.

At that point, your options usually are:

  1. Rely on the Private Fund Adviser Exemption (if your total private fund AUM is still under $150M), or
  2. Register as an investment adviser (SEC or state), depending on AUM thresholds.

This is why many managers launch Fund I as a classic VC fund, but by the time they add a second strategy, they’ve either planned a move to the private fund ERA exemption or are preparing to register.

A Simple “When Do I Register?” Roadmap

Here’s a simplified way to think about it:

If you are a Private Fund ERA:

  • You can stay exempt if:
    • You only advise private funds; and
    • Your private fund AUM stays below $150M in the U.S.
  • Registration (or a structural change) is on the horizon if:
    • You’re approaching or cross $150M; or
    • You want to add separately managed accounts or other non-fund clients; or
    • Your home state requires registration even if the SEC doesn’t.

If you are a Venture Capital ERA:

  • You can stay exempt if:
    • You only advise funds that meet the SEC’s “venture capital fund” definition; and
    • Those funds continue to stick to the VC limits on portfolio composition, leverage, and liquidity.
  • Registration (or a switch to the private fund exemption) is on the horizon if:
    • Your fund drifts outside the VC definition (too many non-qualifying investments, too much leverage, redemption-style liquidity); or
    • You add a non-VC fund strategy (credit, secondaries, continuation vehicles, etc.); and
    • Your AUM and client mix don’t allow you to fall back on the private fund exemption.

Final Thoughts

Most managers don’t wake up one day and “accidentally” become registrable. You usually see it coming:

  • You’re raising a bigger flagship fund,
  • You’re layering on a new strategy, or
  • Your investor base is asking for more customized products or vehicles.

The key is to treat registration vs. ERA as a strategic decision, not a panic project after you’ve already crossed a line.

If you’re looking at your structure and wondering whether you’re still safely in ERA territory – that’s the right time to map out when registration would kick in and what it would mean for your compliance program, disclosures, and fundraising. If you think it may be time to register, check out our Investment Advisor Registration FAQs for what that entails.

Posted in: Private Fund

About the Author(s)

Rebecca Carpenter

Rebecca Carpenter is Senior Counsel at Vela Wood. She focuses her practice on advising private fund and venture capital fund managers on a wide variety of business manners including formation, analysis of investments, and securities and regulatory matters.

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