The Colorado Division of Securities has adopted new rules applicable to investment advisers effective as of July 15, 2017. The adopted rules include an exemption from state licensing requirements for certain investment advisers. Specifically, the new Rule 51-4.11(IA) (the “New Rule”) under the Colorado Securities Act (the “Act”) exempts certain “private fund advisers” from the Act’s licensing requirements. The effect of the New Rule is that certain investment advisers who are subject to the Act and who fall below the dollar amount of assets under management for registration with the SEC, now may also be exempt from registration with the state of Colorado, subject to the terms of the New Rule.
Under the New Rule, a private fund adviser, which is an “investment adviser” under the Act who provides investment advice solely to one or more “qualifying private funds,” is exempt from the licensing requirements of Section 11-51-401(1.5) of the Act, subject to certain additional requirements under the New Rule. A “qualifying private fund” means a private fund that meets the definition of a “qualifying private fund” in Rule 203(m)-1 under the federal Investment Advisers Act of 1940 (the “Advisers Act”), which is generally 3(c)(1) and 3(c)(7) funds.
To qualify for the exemption under the New Rule, an investment adviser must satisfy each of the following conditions:
In addition to the above requirements, if the investment adviser provides investment advice to at least one qualifying private fund that is a 3(c)(1) fund (and that is not a “venture capital fund”), then the following additional requirements apply for such investment adviser to qualify for the licensing exemption:
Investment advisers with a place of business in Colorado or who are otherwise subject to the Act should consider the following in determining whether to take advantage of the licensing exemption under the New Rule:
Although the Colorado Division of Securities did not issue any formal written guidance with respect to the New Rule prior to the effective date, additional guidance may be forthcoming. Such guidance is likely to include, for example, instructions on whether investment advisers who are already licensed in Colorado or registered with the SEC will need to first file on Form ADV-W withdrawing their registrations before submitting an exempt reporting adviser report in reliance on the New Rule.
 New rules with respect to cyber security, business continuity planning, and other matters are also among the rules that went effective on July 15, 2017. See https://www.colorado.gov/pacific/dora/securities-law-rules for more details.
 Under the previous rules, those private fund investment advisers with a place of business in Colorado or who were otherwise subject to the Act and who did not meet the eligibility requirements to register with the Securities and Exchange Commission (the “SEC”) were generally required to be licensed with the Colorado Division of Securities.
 Generally speaking, in accordance with the Advisers Act and the instructions to Form ADV, advisers exclusively to private funds are required to register with the SEC when they have reached $150 million in assets under management and are eligible to register with the SEC when they have reached $100 million in assets under management.
 A 3(c)(1) fund is a privately offered fund that has no more than 100 beneficial owners. Subject to certain exceptions, a 3(c)(7) fund is a privately offered fund whose beneficial owners all qualify as “qualified purchasers” under Section 2(a)(51) under the federal Investment Company Act of 1940 (the “1940 Act”).
 A private fund that meets the definition of a “venture capital fund” under the federal Advisers Act Rule 203(I)-1.
 Note that while all investors in a 3(c)(1) fund may be “accredited investors” as such term is defined under the Securities Act, not all accredited investors qualify as “qualified clients” under Rule 205-3 of the Advisers Act.
 Such non-qualifying funds include private funds that are excluded from the definition of “investment company” under Section 3(c)(5) or Section 3(c)(9) of the 1940 Act. However, a fund that qualifies for one of these exclusions but also meets the requirements for Section 3(c)(1) or Section 3(c)(7) could be included in the definition of “qualifying private fund.”