A 3(c)(7) feeder has no investor cap of its own. The Exchange Act holder of record threshold sets one, and the average ticket of the wealth channel turns it into a dollar capacity.
A 3(c)(7) feeder has no investor cap under the Investment Company Act, but it must stay below 2,000 holders of record to avoid registering under section 12(g) of the Exchange Act, so in practice it takes about 1,900 investors and its capacity is that number times the average ticket. With an illustrative wealth ticket mix averaging $327.5k, one feeder holds $622.25m. A pipeline of 3,000 clients wanting $982.5m needs two feeders, and the second costs about 3.2 basis points a year on the money it holds.
Worked in full in The Private Wealth Fundraiser by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Feeders that pool high-net-worth clients into a private fund usually rely on section 3(c)(7), which requires every investor to be a qualified purchaser but sets no limit on their number. A 3(c)(1) feeder, by contrast, is capped at 100 beneficial owners (250 for a qualifying venture capital fund), which is why wealth platforms rarely use one for a large raise. The limit that does bind is section 12(g): an issuer with more than $10 million of total assets and a class of equity held of record by 2,000 persons, or by 500 persons who are not accredited investors, has to register that class. A feeder sold only to qualified purchasers will rarely have non-accredited holders, so 2,000 is the number to manage. How holders are counted follows the Exchange Act record-holder rules, which differ from the 3(c)(1) beneficial owner count, so the count itself should be confirmed with counsel.
| Ticket | Share of clients | Clients | Amount, $m | Contribution to average, $k |
|---|---|---|---|---|
| $100k | 40% | 1,200 | 120.0 | 40.0 |
| $250k | 35% | 1,050 | 262.5 | 87.5 |
| $500k | 20% | 600 | 300.0 | 100.0 |
| $2,000k | 5% | 150 | 300.0 | 100.0 |
| Total | 100% | 3,000 | 982.5 | 327.5 |
Other inputs: an internal ceiling of 1,900 holders, leaving 100 of headroom below 2,000; a feeder running cost of $115k a year rising 3 per cent a year over a ten-year life.
1. Average ticket. Sum of ticket × share = 40.0 + 87.5 + 100.0 + 100.0 = $327.5k. In Excel: =SUMPRODUCT(A2:A5,B2:B5).
2. Capacity of one feeder. 1,900 × $327.5k = $622.25m. At the full 2,000 it would be $655.0m, but a feeder run to the line has no room for transfers.
3. Holders used per $100m raised. $100m ÷ $327.5k = 305.3 investors.
4. Feeders needed. 3,000 clients ÷ 1,900 = 1.58, so two feeders, or a single feeder that turns away 1,100 clients and $360.25m.
| Option | Raised, $m | Lost, $m | Holders |
|---|---|---|---|
| One feeder, closed when 1,900 holders are reached | 622.25 | 360.25 | 1,900 |
| One feeder, minimum ticket raised to $250k | 862.5 | 120.0 | 1,800 |
| Two feeders | 982.5 | 0.0 | 3,000 |
Raising the minimum to $250k is the instinctive fix. It lifts the average ticket to $479.2k and fits the remaining 1,800 clients in one vehicle, but it drops 40 per cent of the clients and $120.0m, 12.2 per cent of demand. It also tells the advisors whose clients sit at $100k that the product is no longer for them, which costs more in the next raise than in this one.
The second feeder is cheaper than it looks. Holding 1,100 investors and $360.25m, it costs $115k a year, about $105 per investor or 3.2 bp of its assets, and $1,318k over ten years with inflation. Split evenly, two feeders of 1,500 holders each cost 2.3 bp a year on the whole $982.5m, against 1.8 bp for a single full feeder: half a basis point for $360.25m of extra capital.
| Average ticket | Capacity, $m | Holders per $100m |
|---|---|---|
| $150k | 285.0 | 666.7 |
| $250k | 475.0 | 400.0 |
| $327.5k | 622.25 | 305.3 |
| $500k | 950.0 | 200.0 |
| $1,000k | 1,900.0 | 100.0 |
The constraint bites hardest on exactly the channel the feeder was built for. A platform raising from mass-affluent qualified purchasers at an average of $150k fills a feeder at $285.0m; a private bank averaging $1,000k could put $1,900.0m through the same vehicle.
The holder count is not fixed at closing. When an investor dies and the interest passes to several heirs, or a couple splits a joint holding, one holder becomes several. If 1 per cent of 1,900 holders a year pass their interest to 3 heirs each, the feeder gains 38 holders a year and a 100-holder buffer lasts 2.6 years. A feeder closed at 1,990 to squeeze in the last few clients has almost no buffer at all. Feeder documents usually let the GP refuse transfers that would push the count over a set number, and the ceiling should be set with that in mind, not at the statutory line.
Planning point: forecast holders, not just dollars. A fundraising model that projects $982.5m without the 3,000 accounts behind it will discover the second feeder after the first one has closed, when setting it up delays the clients who are already waiting.
Feeder capacity = about 1,900 holders × average ticket: $622.25m here, so a $982.5m pipeline needs two feeders, at an extra cost of about 3.2 bp a year on the second one's assets. The cost of the feeder layer to the client is worked in how much a private equity feeder fund costs the investor, the 3(c)(1) count in counting investors for the 3(c)(1) limit, and the book's channel forecast in the free workbook for this case.
Not under the Investment Company Act, unlike the 100-owner limit of 3(c)(1). The practical limit comes from section 12(g) of the Exchange Act, which requires registration once total assets exceed $10 million and 2,000 persons hold the class of record. Most feeders set an internal ceiling such as 1,900 to leave room for transfers.
Its holder ceiling times the average ticket. At 1,900 holders and an illustrative $327.5k average, $622.25m; at a $150k average, $285.0m; at $1,000k, $1,900.0m. Every $100m raised at a $327.5k average uses 305.3 holders, so the holder count, not the dollar target, is often what fills the vehicle.
Usually. In the illustrative case a second feeder for 1,100 overflow investors and $360.25m costs $115k a year, about 3.2 basis points of its assets, while the alternative of raising the minimum ticket to $250k gives up $120.0m and 40 per cent of the clients.
This article is one calculation from The Private Wealth Fundraiser. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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