Expanding 3(c)(1) for Small Venture Capital Funds: Why It Matters

March 2025

Startups are the engine of American innovation, but outdated regulations risk leaving small venture capital (VC) funds—and the founders they support—stuck in the past. Today, we're advocating for a critical update to Section 3(c)(1) of the Investment Company Act to ensure startups and investors alike can thrive in tomorrow's economy.

The Problem: Rules Built for a Different Era

Section 3(c)(1) allows small VC funds to avoid costly regulatory hurdles if they stay below $12 million in assets and 250 accredited investors. While this worked decades ago, today's startups face two major challenges:

• Larger Funding Needs: Seed rounds now average $3–$5 million, up from $500,000 in 2010. A $12 million fund can only back a handful of companies, limiting diversification.
• Geographic and Demographic Gaps: Emerging managers—particularly women, people of color, and those outside Silicon Valley—rely on broad networks of smaller investors. The 250-investor cap stifles their ability to raise capital.

These constraints starve startups of vital early-stage funding and exclude smaller investors from high-growth opportunities.

The Solution: The ICAN Act

The Improving Capital Allocation for Newcomers (ICAN) Act proposes two commonsense updates:

1. Increase the investor limit from 250 to 2,000 accredited investors.
2. Raise the fund size cap from $12 million to $150 million.

This isn't about removing guardrails—it's about aligning rules with reality.

Why This Matters

• Expanding Access: More investors can participate with smaller checks, diversifying portfolios and reducing reliance on a few large backers.
• Empowering New Managers: New managers from outside the traditional venture capital networks gain flexibility to tap wider networks, fostering inclusion in an industry where <2% of VC partners are Black or Latino.
• Fueling Regional Economies: Startups in rising hubs outside of Silicon Valley often depend on local funds. Larger pools mean more capital for overlooked founders.
• Protecting Investors: Accredited investor standards and anti-fraud rules remain intact. Professional fund managers ensure "chaperoned access," balancing opportunity with safety.

Addressing Concerns

Critics argue expanding limits could increase risk. But the ICAN Act doesn't lower investor protections—it modernizes scale. Accredited investors (who meet strict income/net worth thresholds) still qualify, and fund managers remain legally accountable. This isn't a free pass; it's a smarter framework for today's market.

A Call to Action

Private markets now drive 80% of U.S. job growth, yet most Americans are locked out of their wealth-building potential. At the same time, managers who rely on raising capital from larger investor bases face unnecessary constraints. The ICAN Act ensures small VC funds can compete, diversify, and back the next generation of innovators.

Join us in urging Congress to pass this critical legislation. Together, we can build an ecosystem where opportunity isn't limited by outdated rules—but powered by bold ideas.

AngelList advocates for policies that expand chaperoned access to private markets: enabling broader participation through professionally managed funds, which protect investors while unlocking innovation.