AngelList Venture relies on the venture capital fund adviser exemption from registration under the Investment Advisers Act. To qualify for that exemption, AngelList can only advise venture capital funds. Regulatory requirements dictate that to be a venture capital fund, the fund can hold only up to 20% of its total assets in “non-qualifying investments;” the remaining assets must then be “qualifying investments.” At a high level, a qualifying investment is an investment directly into a private, operating company in exchange for equity in that company. A non-qualifying investment is then any investment that is, in some way, not an equity investment into an operating company. Typical non-qualifying investments include secondary sales, cryptocurrency investments, investments into other funds, or traditional debt instruments.
If an SPV or a fund plans on targeting primarily non-qualifying investments--such as an SPV raised to purchase shares in a secondary transaction--the fund would not qualify for the venture capital fund exemption and AngelList is regulatorily prevented from advising the fund.
SAX Capital, an affiliate of AngelList that is a registered investment advisor and thus not subject to the 20% non-qualifying investment limitations, could then advise the fund. As a registered investment advisor, SAX Capital has differing fee structures and requirements for investments that may not make sense for every fund manager.