How Registered Venture Capital Funds Open Private Markets to Individual Investors — and What It Costs Them in Taxes
AaronVenture capital has generated some of the highest risk-adjusted returns of any asset class over the past four decades. The problem has never been performance -- it has been access. The legal architecture of private funds, built on Regulation D exemptions and accredited investor requirements, ensured that the people most likely to benefit from long-duration compounding in private markets were the people least likely to get in.
That architecture is cracking open. Over the past several years, a growing number of fund managers have chosen to register under the Investment Company Act of 1940 -- the same statute that governs mutual funds and ETFs -- to offer venture capital exposure to individual investors, regardless of accreditation status. The approach is not new. The Private Shares Fund (PRIVX) has operated as a registered interval fund investing in late-stage venture-backed companies since 2014. But what was once a niche structural experiment has become a wave. ARK, Fundrise, Robinhood, StepStone, Hamilton Lane, Connetic, Cashmere, and most recently AngelList have all launched or filed registered vehicles targeting private market exposure for retail capital.
The latest entrant is USVC, built by AngelList Asset Management, which received tailored exemptive relief from the SEC in February 2026 to operate a venture capital strategy within a registered closed-end fund. AngelList's product is distinctive -- its dealflow network has facilitated billions in startup funding since 2013 -- but the structural trade-off it faces is identical to every other fund in this category.
The legal wrapper that makes universal access possible also imposes real economic costs. The tax election that comes with registration -- a Regulated Investment Company under Subchapter M of the Internal Revenue Code -- strips away some of the most valuable tax benefits available to traditional venture investors. That trade-off defines the entire category, not just one fund.
This is the full breakdown: the landscape of registered VC funds, the legal architecture that enables them, the SEC relief that makes USVC operational, and a precise accounting of what the structure costs in after-tax returns.
The Landscape: Registered VC Funds by Structure
Not all registered venture capital funds are built the same. The 1940 Act offers several structural templates, each with different liquidity mechanics, pricing, and investor experience. The current landscape breaks into three categories.
Interval Funds
Interval funds offer periodic share repurchases at net asset value, typically quarterly, for a limited percentage of outstanding shares (usually 5-25%). Investors buy at NAV and redeem at NAV, but can only exit during repurchase windows -- and the fund may not fulfill 100% of redemption requests if demand exceeds the offer.
ARK Venture Fund (ARKVX) -- Launched September 2022 by Cathie Wood's ARK Investment Management. One of the earliest high-profile attempts to bring venture exposure to non-accredited investors through a registered wrapper. The fund invests across both public and private companies, blending early-stage venture with ARK's signature conviction in disruptive innovation. Multiple share classes (D, U, S). Net assets of approximately $41 million as of early 2026.
Private Shares Fund (PRIVX/PIIVX) -- The elder statesman of the category. Managed by Liberty Street Advisors since March 2014, this fund focuses on late-stage, venture-backed private companies approaching IPO or secondary market liquidity. Twelve years of operating history. Q1 2026 gross sales of approximately $118 million, marking its fifth-strongest quarter ever.
Connetic Venture Capital Access Fund (VCAFX) -- Launched October 2024. A newer entrant focused on providing diversified venture capital exposure through the interval fund structure.
Cashmere Fund -- A Delaware statutory trust registered under the 1940 Act as a non-diversified, closed-end interval fund. Prospectus dated July 2025. Invests alongside a network of founders and investors, emphasizing venture-stage companies where platform visibility and influence can accelerate growth.
Exchange-Listed Closed-End Funds
These funds conduct initial public offerings, list common shares on a major stock exchange, and trade throughout the day like any public equity. Investors get daily liquidity -- but at market prices, which can trade at a premium or discount to the fund's net asset value. This is the structure with the widest distribution reach but the most market-price volatility relative to underlying portfolio value.
Fundrise Innovation Fund (VCX) -- Listed on the New York Stock Exchange on March 20, 2026, with over 100,000 existing investors and more than $650 million in initial assets. One of the first and largest public venture capital funds to trade on a major exchange. Managed by Fundrise, the platform that pioneered online real estate investing. Fundrise CEO Ben Miller described the listing as "the culmination of nearly 15 years of work."
Robinhood Ventures Fund I (RVI) -- Priced its IPO on March 6, 2026, at $25 per share with a total fund size of $658.4 million. Listed on the NYSE. The fund gives Robinhood's retail brokerage customers direct access to a managed venture portfolio -- they can buy shares the same way they buy any other stock on the platform.
Tender Offer Funds
Tender offer funds provide periodic liquidity through discretionary buyback offers -- the fund itself offers to repurchase shares at NAV, but the timing, frequency, and percentage are at the manager's discretion rather than fixed by a schedule. This gives the manager more flexibility to manage around illiquid positions, but offers less predictability for investors seeking exit.
StepStone Private Venture and Growth Fund -- Managed by StepStone Group, one of the largest private markets allocators globally. Conducts regular (approximately quarterly) tender offers, as documented in multiple SEC Schedule TO filings.
Hamilton Lane Venture Capital and Growth Fund -- Filed its N-2 registration statement with the SEC in December 2024. Hamilton Lane, a major institutional private markets firm, also operates the Hamilton Lane Private Assets Fund using a similar structure. Notably, Hamilton Lane has experimented with converting between tender offer and interval fund structures across its product suite.
What Connects Them
Despite the structural differences, every fund in this category shares the same foundational choice: registration under the 1940 Act, which eliminates accredited investor requirements in exchange for SEC oversight, disclosure obligations, and -- critically -- the tax consequences of Regulated Investment Company status.
The legal and tax analysis that follows uses USVC's exemptive order as a case study, but the structural trade-offs apply across the entire category.
What USVC Is
USVC is a venture capital access fund managed by AngelList Asset Management, the investment management arm of AngelList, which has facilitated billions in startup funding through rolling funds, syndicates, and special purpose vehicles since 2013. AngelList's infrastructure already powers a significant share of early-stage venture dealflow in the United States. USVC is its attempt to extend that infrastructure to a much wider investor base.
The product works as a feeder structure. Individual investors buy shares in USVC, and the fund deploys capital into a diversified portfolio of venture-stage companies -- either directly or through underlying AngelList-managed vehicles. Investors get broad venture exposure without selecting individual deals, negotiating allocation, or managing the administrative burden that comes with direct startup investing.
What distinguishes USVC from the other registered VC funds is not the wrapper -- it is the source of dealflow. AngelList's syndicates and rolling funds are private vehicles available only to accredited investors. USVC channels that same pipeline into a registered investment company that any investor can access, regardless of income or net worth.
What distinguishes it from everything else on AngelList's own platform is the legal structure. AngelList's syndicates and rolling funds are private vehicles exempt from registration. USVC is a registered closed-end management investment company -- a public fund subject to full SEC oversight.
The Legal Structure
USVC is registered under the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.).
The 1940 Act governs pooled investment vehicles that invest in securities and offer shares to the public. Registration places USVC -- and every other fund described in the landscape above -- inside the same regulatory perimeter that governs mutual funds, interval funds, and listed closed-end funds.
Registration subjects these funds to SEC oversight and periodic reporting, independent board governance requirements, custody and asset segregation rules, valuation standards, and leverage and capital structure limits under Section 18 of the Act.
Unlike private venture partnerships, which avoid this framework by claiming exemptions, registered VC funds affirmatively elect to register. That election removes reliance on exemptions -- and with it, the investor eligibility restrictions that define traditional venture capital.
The Exemption Framework These Funds Avoided
Traditional VC funds rely on exemptions in Section 3(c) of the 1940 Act to avoid registration:
- Section 3(c)(1) -- exempts funds with 100 or fewer beneficial owners
- Section 3(c)(7) -- exempts funds whose investors are all "qualified purchasers"
Registered VC funds do not rely on Section 3(c)(1) or 3(c)(7). They register. That structural decision is why individual investors can participate.
USVC's SEC Exemptive Relief
Registration alone was not sufficient to make USVC operational. A standard closed-end fund structure under the '40 Act was designed for public equity portfolios, not illiquid venture capital. USVC needed tailored relief from the SEC to make the economics work.
On October 2, 2025, USVC and AngelList Asset Management filed an application for exemptive relief with the Commission (File No. 812-15911). After an amendment on January 6, 2026, and a public notice and comment period, the SEC granted the order on February 18, 2026, under Investment Company Act Release No. 35964.
The order grants relief across three distinct areas of the Act:
Multiple share classes and asset-based fees. The SEC exempted USVC from Sections 18(a)(2), 18(c), and 18(i) of the Act, which restrict how closed-end funds can issue multiple classes of securities. This relief allows the fund to offer separate share classes with different fee structures -- including asset-based distribution and service fees -- similar to mutual fund share class arrangements. Without this relief, USVC would be limited to a single class of common shares with uniform fees, which would restrict its ability to serve different investor segments or engage distribution partners.
Periodic repurchase structure. The order grants exemption from Rule 23c-3 under the Act, which governs interval fund repurchase mechanics. This gives USVC the ability to conduct periodic share repurchases on terms tailored to venture capital's illiquidity profile -- rather than being forced into the rigid quarterly repurchase schedule that Rule 23c-3 prescribes. For a fund holding illiquid startup equity, that flexibility is structural, not cosmetic.
Affiliated transaction approval. Under Section 17(d) and Rule 17d-1 of the Act, transactions between a fund and its affiliates require SEC approval. The order grants USVC the ability to implement its distribution fee arrangements as affiliated transactions, ensuring the fund can compensate intermediaries and service providers within its corporate family without running afoul of the Act's strict self-dealing prohibitions.
The SEC found that the requested exemptions are "appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act," and that the proposed repurchase structure "does not unfairly discriminate against any holders."
This relief is not unusual in kind -- many closed-end funds receive similar tailored exemptions. But its significance for USVC is structural: without it, the fund could not operate a venture capital strategy within the constraints of a registered investment company. The exemptive order is what makes the wrapper functional.
Why Individual Investors Can Participate
The ability for non-accredited investors to buy shares in registered VC funds flows directly from registration under the 1940 Act.
A private venture partnership must claim an exemption under Section 3(c), offer securities under Regulation D, and restrict investors to accredited or qualified purchaser thresholds.
A registered investment company offers registered securities, files public disclosure documents, and operates under full SEC supervision.
There is no accredited investor requirement because these funds are not relying on private fund exemptions.
In plain terms: every fund in this landscape chose compliance over exclusivity. They accepted the regulatory burdens of the 1940 Act in exchange for universal eligibility.
That choice reshapes access. It also reshapes taxation.
Why These Funds Issue 1099s, Not K-1s
Because registered VC funds operate as investment companies under the 1940 Act, they elect to be taxed as Regulated Investment Companies (RICs) under Subchapter M of the Internal Revenue Code (26 U.S.C. §§ 851-855).
To qualify as a RIC, a fund must satisfy income and diversification requirements under IRC § 851. If those requirements are met and the fund distributes at least 90% of its net investment income annually, the RIC avoids entity-level corporate taxation.
That is the second structural hinge.
Partnership vs. RIC Taxation
Traditional venture capital funds are taxed under Subchapter K as partnerships. They issue Schedule K-1s. Income, gains, losses, deductions, and credits pass through to limited partners with their character intact.
RICs issue Form 1099-DIV and distribute ordinary dividends, qualified dividends, and capital gain distributions. They do not pass through granular income character.
Investors in registered VC funds are shareholders. Investors in traditional VC funds are partners.
That distinction determines whether tax attributes such as Section 1202 qualified small business stock (QSBS) treatment survive.
Quantifying the Tax Drag
Once you understand the legal wrapper and the tax election, the economic consequences become mechanical. These apply to every fund in the registered VC category -- not just USVC.
1. Loss of Section 1202 QSBS Exclusion
Section 1202 of the Internal Revenue Code allows eligible investors to exclude up to $10 million or 10x basis of gain from qualified small business stock held for at least five years.
VC partnerships can pass QSBS eligibility through to limited partners because partnerships are tax-transparent. A RIC cannot. When QSBS-eligible gains are realized inside a RIC, distributions are taxed as long-term capital gain distributions at up to 23.8% (20% LTCG + 3.8% NIIT).
The chart below illustrates the gap across return scenarios, assuming a $100,000 initial investment:
At a 10x return, the RIC investor keeps $685,800 after federal tax. The partnership investor keeps the full $900,000. At 50x -- the kind of outcome that defines venture returns -- the gap widens to $1.17 million on a single $100,000 position.
In a power-law asset class, the tax treatment of outliers determines long-term after-tax performance. Losing QSBS is not incremental -- it fundamentally alters the economics of the winners.
2. Mandatory Distribution Timing
Under Subchapter M, RICs must distribute at least 90% of net investment income annually to maintain tax status. Partnerships have no comparable requirement -- gains can remain inside the fund and compound.
Accelerated distribution accelerates taxation. Accelerated taxation reduces compounding. The drag per exit may appear modest, but over a decade-long fund life it compounds.
3. Loss Pass-Through Constraints
Partnerships pass through capital losses to investors, subject to basis and passive activity limitations. RICs retain capital losses internally as carryforwards under IRC § 1212. Shareholders cannot directly offset external capital gains with venture losses from the fund.
For investors with unrelated capital gains, that constraint is economically meaningful.
4. Income Character Compression
Partnerships preserve income character -- including specialized attributes such as Section 1231 gains or foreign tax credits. RIC distributions compress income into ordinary dividends, qualified dividends, and capital gain distributions. For retail investors, that simplifies reporting. For tax-optimized portfolios, it reduces flexibility.
5. State Filing Simplicity
Partnership investors may incur multi-state filing obligations depending on portfolio company geography. RIC shareholders generally file only in their state of residence. Compliance complexity shifts from the investor to the fund. For smaller investors, this is a real administrative benefit.
6. UBTI Blocking
Tax-exempt accounts such as IRAs can incur Unrelated Business Taxable Income (UBTI) exposure in partnership structures. A RIC structure functions as a blocker -- distributions to retirement accounts are not treated as UBTI. For retirement capital, that advantage can outweigh some of the structural costs described above.
The Trade-Off in Plain Terms
The funds described in this article did not simplify venture capital. They re-engineered it.
By registering under the 1940 Act and electing RIC taxation under Subchapter M, they traded QSBS passthrough, loss passthrough flexibility, and timing discretion for universal investor access, SEC-regulated transparency, administrative simplicity, and UBTI shielding.
The landscape now offers genuine structural variety. Interval funds like ARK (ARKVX), Private Shares Fund (PRIVX), Connetic (VCAFX), and Cashmere offer NAV-based entry and exit with periodic repurchase windows. Exchange-listed closed-end funds like Fundrise (VCX) and Robinhood Ventures (RVI) offer daily liquidity on the NYSE at market prices. Tender offer funds like StepStone and Hamilton Lane provide discretionary buybacks suited to longer-duration illiquid positions. And USVC, with tailored SEC exemptive relief and AngelList's dealflow network behind it, adds another flavor to the menu.
For non-accredited investors, the relevant comparison is not between any of these funds and a traditional venture partnership. That alternative does not exist. The comparison is between a registered VC fund and no venture exposure at all.
For accredited investors with direct partnership access, the calculus changes. The loss of Section 1202 eligibility alone can reduce after-tax returns on top-performing investments by double-digit percentages.
The wrapper is not neutral. It redistributes value.
Access is no longer the constraint. After-tax efficiency is. Which side of that trade-off matters depends entirely on where the investor stands -- and which of these funds, if any, fits the way they want to hold that exposure.
Primary statutes cited: Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.); Section 3(c); Section 18; Subchapter M (26 U.S.C. §§ 851-855); IRC § 1202. SEC exemptive order: Release No. IC-35964 (Feb. 18, 2026).