New Oversight of Venture Capital May Be Wasteful

By Covering Business     March 14, 2012

After the Dodd-Frank Act (PDF) was enacted, large venture capital firms that had enjoyed a measure of anonymity faced a new mandate to register with the Securities and Exchange Commission in part because the assets they managed had grown robust enough to warrant oversight. As the law stands, any venture capital firm with at least $150 million in assets under management must register with the SEC by March 30.

A new study suggests the bill’s threshold for registration is too low. The author argues that setting the benchmark at $150 million will mean the SEC will spend most of its regulatory work monitoring a relatively small amount of money.

The study, which was published in the Spring 2012 issue of the Journal of Private Equity, suggests that the distribution of money across venture capital firms follows a Pareto distribution. Put roughly, about 80% of venture capital assets are managed by the largest 20% of venture capital funds. Thus, by raising the asset threshold to $250 million, the SEC could reduce its workload considerably while still keeping tabs on the vast majority of VC assets.

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