What a $12 Million Fund Actually Looks Like
Let me walk you through the arithmetic of launching a venture capital fund under the current rules. You raise $12 million --- the maximum size for a fund relying on the Section 3(c)(1) exemption from Investment Company Act registration. You set aside 2-3% for fund expenses: legal, accounting, administration, compliance. That leaves you roughly $11.5 million to deploy. Seed-stage rounds now routinely price at $3 to $5 million. If you are writing checks at $500K to $750K per deal --- a common allocation for a seed fund --- you can invest in perhaps fifteen to twenty companies. After reserving capital for follow-on investments in your best performers, your initial portfolio might be twelve companies.
Twelve companies. That is not a diversified venture portfolio. It is a concentrated bet that requires extraordinary judgment and extraordinary luck. The power law dynamics of venture capital --- where a single investment can return the entire fund --- demand portfolio breadth. The current regulatory ceiling makes that breadth nearly impossible for a new manager.
I watched this constraint shape behavior across thousands of funds on AngelList's platform. Emerging managers were not failing because they lacked deal flow or investment judgment. They were failing because the regulatory architecture forced them into fund structures too small to execute a coherent strategy at today's check sizes. A $12 million cap made sense when seed rounds were $500K. It is an anachronism when they average $3 to $5 million.
The 250-Investor Problem
The fund size cap is only half the constraint. Section 3(c)(1) also limits a fund to 250 beneficial owners, all of whom must be accredited investors. For an emerging manager without an established institutional LP base, this creates a vicious structural problem.
Building a $12 million fund from 250 investors means an average check size of $48,000. In practice, a handful of larger LPs anchor the fund at $250K to $500K, which means the remaining investors are writing checks of $25K or less. The economics of managing relationships with that many small LPs --- capital calls, K-1s, quarterly reports, individual inquiries --- consume a disproportionate share of a small team's bandwidth. Many emerging managers end up spending more time on LP administration than on sourcing and supporting portfolio companies.
But the deeper problem is who those 250 investors end up being. When you can only accept accredited investors and your network determines your fundraising capacity, the investor base inevitably mirrors the demographics of existing wealth. The result is predictable: emerging managers raised only about 20% of total venture capital in 2024, roughly $15 billion across 245 funds. Despite the fact that the incoming class of fund managers is more diverse than ever --- 46% under forty, 27% women or non-binary, nearly half from outside the traditional finance industry --- the 3(c)(1) constraints channel their fundraising through the same narrow networks that have always dominated venture capital. Less than 2% of VC partners are Black or Latino. The investor cap does not cause that disparity, but it reinforces the structural conditions that perpetuate it.
What the ICAN Act Would Change
The Investment Company Act Amendments of 2024 --- the ICAN Act --- proposes a straightforward fix. It would raise the 3(c)(1) fund size limit from $12 million to $150 million and expand the investor cap from 250 to 2,000 accredited investors. The legislative math on this has been remarkably bipartisan: the ICAN Act passed the House Financial Services Committee by a vote of 50 to 2 and was subsequently included in the INVEST Act of 2025, which passed the full House 302 to 123.
A $150 million ceiling does not turn 3(c)(1) funds into mega-funds. It brings the exemption in line with the realities of modern venture capital. A manager raising a $50 million fund under ICAN could build a portfolio of thirty to forty seed investments with meaningful follow-on reserves --- an actual venture strategy, not a constrained exercise in triage. The expanded investor cap of 2,000 would allow managers to accept a broader, more diverse LP base without the administrative burden of managing hundreds of tiny positions. It would enable managers from communities historically excluded from venture capital to raise from investors who share their background and understand their thesis.
There is a complementary provision worth noting. Section 109 of the INVEST Act would allow venture capital funds to invest up to 49% of their capital in other VC funds, up from the current 20% ceiling. This matters because it creates a mechanism for established funds to seed emerging managers. If a $500 million fund can allocate nearly half its capital to backing new managers, it becomes an engine for developing the next generation of investors. The current 20% limit makes such programs marginal. At 49%, they become strategic.
The Diversity Case Is an Economic Case
I want to be clear about something: the argument for expanding 3(c)(1) is not primarily a diversity argument, though diversity is a significant benefit. It is an economic efficiency argument. Venture capital's returns are driven by access to differentiated deal flow. Managers who come from non-traditional backgrounds --- different industries, different geographies, different communities --- see opportunities that the existing establishment misses.
The data from our platform at AngelList bore this out consistently. New managers came from 97 countries in 2024. They brought networks, pattern recognition, and sector expertise that the concentrated world of traditional VC could not replicate. The constraint was never talent. The constraint was that the regulatory framework forced these managers into fund structures too small and too network-dependent to compete.
When a first-generation college graduate with deep expertise in agricultural technology cannot raise a fund large enough to execute a coherent investment strategy, that is not investor protection. That is a barrier to entry masquerading as regulation. When a former operator who spent a decade building logistics software in Southeast Asia cannot accept enough investors to reach critical mass, the system is filtering for pedigree, not competence.
The Path Forward
The ICAN Act's bipartisan support reflects a rare moment of consensus in financial regulation. Conservatives see the case for reducing barriers to entrepreneurship and capital formation. Progressives see the case for broadening access to an industry that has been overwhelmingly white, male, and concentrated on the coasts. Both sides are right.
The $12 million ceiling and 250-investor cap were set in a different era for a different market. Updating them to $150 million and 2,000 investors is not deregulation --- the funds would still be limited to accredited investors, still subject to SEC anti-fraud provisions, still governed by fiduciary obligations to their LPs. What changes is that the next generation of venture managers gets a regulatory framework that reflects the actual economics of running a fund in 2024, rather than one designed for the economics of 1996.
I have spent years building infrastructure to make fund formation faster, cheaper, and more accessible. The technology is ready. The talent pipeline is deeper and more diverse than it has ever been. The bottleneck is a statutory provision that Congress can fix with broad bipartisan support. It should.