It seems a simple enough proposition. In the face of a new Dodd-Frank Act rule requiring hedge, venture and other investment fund advisers to register with the SEC, the Securities and Exchange Commission must define some congressionally mandated exceptions.

The result: a flurry of comments on nearly every aspect of the proposals, proof that nothing is simple when it comes to re-regulation.

Congress wants the SEC to set parameters for three exemptions: those who solely advise venture capital funds; those who advise private funds with less than $150 million in assets under management; and those who advise foreign funds with less than $25 million under management from U.S. investors and with few U.S. investors.

Oddly enough, one of the toughest definitional questions involves who is and who isn't a venture capitalist. Two months after the SEC issued its Nov. 19 proposal, venture fund advisers are barraging the SEC with requests for changes. As written now, many VCs would be forced to register for what are traditional practices. To qualify for the VC exemption, an adviser's work must be limited to funds that invest strictly in equity securities of private operating companies. "There is risk that some [venture funds] may feel obligated to register due to restrictions that preclude variations on typical operations even if these variations impose no additional risk to investors or the financial system," Mark G. Heesen, president of the National Venture Capital Association, wrote the SEC.

The exemption for smaller funds poses similar problems. The SEC plan calls for exempting advisers to private funds, including small hedge funds with less than $150 million under management if they do not advise publicly listed funds such as mutual funds. Extra funds would have to remain in cash or in Treasuries.

Virtually every element of the definitions is being parsed and debated in the comments barrage.

One group suggests that holding money market funds should be permitted for uncommitted money. California Corporations Commissioner Preston DuFauchard goes even further, questioning why a small part of firms' investments can't be in other assets. DuFauchard suggested 10% to 20% of capital be usable for any purpose.

Mesirow Financial Inc. senior managing directors Marc E. Sacks and Thomas E. Galuhn call 15% an appropriate percentage "that will not compromise investor protection nor impose financial risks on the financial markets," they write.

Others want bridge loans to be allowable investments.

Then there's the requirement that VC funds invest only in private operating companies to be exempt.

Davis Polk & Wardwell LLP, which represents a number of venture capital firms, warned that the language could force a VC to immediately sell off its stake in a company that goes public even if the investment firm wants nothing more than to retain some of its holdings.

There's also a limit on acquiring portfolio securities through secondary transactions. The Mesirow Financial execs argue that the requirement would make it impossible to do the limited purchases of stock needed "to provide liquidity for founders and early employees of startup companies."

The Managed Funds Association suggests that the $150 million smaller fund limit be based on net rather than gross assets at fair market value and that family accounts, proprietary accounts and accounts for which a manager receives no compensation be excluded.

Even limits on foreign advisers are being questioned. Foreign fund advisers and their lawyers are urging the $25 million asset limit be raised to $100 million or $150 million. Christopher M. Salter of O'Melveny & Myers LLP, speaking on behalf of several Asian VC companies, says the $25 million limit "does not serve any meaningful regulatory" purpose.

The European Private Equity & Venture Capital Association, which supports raising the $25 million figure, questions whether some foreign fund advisers who already face stiff regulation in other countries should be treated differently than U.S.-based ones. It also questions how currency exchange fluctuations in assets will be handled.

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Ira Teinowitz covers financial regulation for The Deal magazine.