Testa, Hurwitz & Thibeault, LLP
                                      Attorneys at Law

                         High Street Tower, 125 High Street
                              Boston, Massachusetts 02110

Office (617) 248-7000                   Fax (617) 248-7100
Direct Dial (617) 248-7278                     E-Mail schnoor@tht.com

April 28, 1997

Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

RE:  Revision of Rule 144, Rule 145 and Form 144 - Release No. 33 7391
     (File No. S7-07-97)

Dear Mr. Katz:

     We have been retained on behalf of the National Venture Capital 
Association (the "NVCA") to respond to the request of the Securities and 
Exchange Commission ("SEC" or "Commission") in Release No. 33-7391, issued 
on February 20, 1997 (the "Release") for comments on proposals relating to 
Rule 144 ("Rule 144") and Rule 145 ("Rule 145") under the Securities Act of 
1933 (the "1933 Act").  These proposals would add a bright line test to the 
definition of "affiliate" contained in Rule 144, eliminate the manner of 
sale requirements contained in Rule 144, eliminate the presumptive 
underwriter provisions of Rule 145 and codify certain SEC staff interpretive 
positions.  In addition, the NVCA is offering its views in response to the 
SECs request for comment on further revisions to the holding period 
requirements contained in Rule 144, the elimination of the trading volume 
tests to determine the amount of securities that can be resold under Rule 
144 and the possible regulatory approaches to hedging transactions.

     The NVCA is a professional association representing over 240 venture 
capital firms throughout the United States.  Collectively, these firms 
account for approximately 80% of all professional venture capital financings 
each year.  In 1996, the venture capital community invested over $10 billion 
in more than 1,500 financings of emerging growth companies.  These 
venture-backed companies, primarily in the communications, computer, health 
services and consumer fields, are at the forefront of creating jobs, exports 
and tax revenues on the federal and state level.  In addition, 260 
venture-backed companies raised $11.8 billion in initial public offerings 
("IPOs") in 1996, representing approximately 30% of all money raised by IPOs 
in 1996.  The ability to access public market liquidity, and the terms on 
which such access is made available, is of critical importance for NVCA 
member firms.  The NVCA therefore strongly supports the policy objectives of 
the Commission in both simplifying Rule 144 while also enhancing the process 
of capital formation.  However, the NVCA is concerned about how certain 
aspects of the Proposal will affect the role of the venture capital 
community in the capital formation process.  In particular, the definition 
of the term "affiliate" under Rule 144 and the potential elimination of the 
trading-volume leg of the volume of sale limitation under Rule 144(e) may 
have a significant impact on venture capital investors.

I.   Definition of Affiliate under Rule 144 and Rule 145.

     The Commission proposed in the Release to create a "safe harbor" from 
the definition of affiliate under Rule 144(a)(1).  Under this proposal, 
persons who are not "insiders" under Section 16 of the Securities Exchange 
Act of 1934 (the "34 Act") (i.e. parties who are not executive officers, 
directors or 10% shareholders) would be deemed not to be affiliates under 
the resale provisions of Rules 144 and 145.  Under proposed amendments to 
Rule 144(a)(1), Section 16 insiders would still be able to invoke a 
subjective facts and circumstances test to assert that they are not in a 
control relationship with the issuer, and therefore not affiliates under 
Rule 144 and 145.

     The NVCA welcomes the SECs efforts to create a bright line exclusion 
from the Rule 144 definition of affiliate.  However, the NVCA has concerns 
about where the Commission proposes to draw the line, particularly with 
respect to persons who may be considered affiliates solely by virtue of 
their shareholdings.  Because the degree of influence or control of any 
given ownership percentage is highly dependent on other facts and 
circumstances - in particular the pattern of holdings by other shareholders 
 - the NVCA recognizes that drawing a bright line in this area is inherently 
difficult.  Nonetheless, we believe that the 10% level is too low a level to 
presume the degree of control over the affairs of an issuer that is inherent 
in the notion of affiliate status.  In this regard, we note that shareholder 
rights plans (also known as poison pills) - which are designed to provide 
procedural safeguards to encourage a prospective acquirer to negotiate with 
an issuers board of directors before the acquirer has acquired enough 
shares to influence or control the issuer - are generally not triggered 
until the acquirer owns 15% or 20% of the issuer.

     Accordingly, the NVCA supports the position taken by the Advisory 
Committee on the Capital Formation and Regulatory Processes (the "Advisory 
Committee") in its report to the SEC on July 24, 1996.  The Advisory 
Committee has recommended limiting the definition of affiliate under Rule 
144 and Rule 145 to the chief executive officer, insider directors, holders 
of 20% of the voting power and holders of 10% of the voting power with at 
least one director representative on the board of directors.  The NVCA 
believes that the Advisory Committee proposal, by excluding outside 
directors who own less than 10% of voting power and other shareholders who 
own less than 20% of voting power, ties a persons affiliate status more 
clearly with his, her or its ability to control the issuer (e.g., by 
excluding shareholders who hold less than 20% of the voting power without 
board representation).

     If the Commission chooses not to follow the proposal of the Advisory 
Committee, then the NVCA would strongly recommend a change to at least one 
aspect of the affiliate safe harbor contained in the Proposal. 
 Specifically, the NVCA believes that the safe harbor for shareholders 
without board representation should be expanded to include persons who own 
between 10% and 20% of class of equity securities and who are eligible to 
report their holdings on Schedule 13G.  Unlike Schedule 13D, which is 
designed to provide an early notification of the acquisition of securities 
by persons who are prospective acquirers, Schedule 13G is generally 
available to persons who, among other things, have acquired securities in 
the ordinary course of business without the purpose or effect of "changing 
or influencing the control of the issuer."  The NVCA believes that 
distinguishing between Schedule 13D and Schedule 13G filers would represent 
a reasonable balancing in view of the difficulty of defining affiliate 
status in the range of ownership between 10% and 20%.  Moreover, the NVCA 
believes that drawing a distinction on this basis will not complicate the 
administration of Rule 144, since beneficial owners in this range are 
already required to determine whether they are required to file on Schedule 
13D or Schedule 13G.

II.  Removal of Manner of Sale Requirement.

     The NVCA supports the proposal by the SEC to eliminate all of the 
manner of sale requirements set forth in Rule 144(f).  The current rule 
makes it impossible for a seller to solicit purchasers, use innovative 
methods for selling securities such as electronic bulletin boards and other 
electronic trading systems or to privately negotiate a sale of a Companys 
stock to a purchaser without a broker, even in cases where the other Rule 
144 requirements such as the holding period, public information, notice and 
volume limitations have been satisfied.  We agree with the Commission that 
these manner of sale requirements currently unduly restrict transactions 
that are not distributive in nature and that the public information, holding 
period, volume and notice requirements of the Rule 144 regarding resales are 
adequate to determine what should constitute a distribution.

     With respect to the questions raised by the Commission as to the likely 
impact of eliminating the manner of sale requirement, the NVCA notes that 
there is ample evidence in the form of sales under Rule 144(k) in support of 
the conclusion that the manner of sale requirements are not necessary to 
protect the integrity of public trading markets.  NVCA member firms have 
substantial experience, both direct (as sellers) and indirect (as 
distributors of restricted securities to venture capital investors who then 
resell the shares), with sales under Rule 144(k).  Rule 144(k) sales are not 
required to comply with the manner of sale requirements of Rule 144(f), and 
therefore may be made with seller solicitation of buyers, special selling 
efforts, on or off of regulator security markets and with or without the 
participation of brokers.  In spite of this broad flexibility, the NVCA 
believes that the substantial majority of Rule 144(k) sales flow through 
established securities markets involving broker and other market 
intermediaries, for the simple reason that these typically provide the best 
price and execution for sell orders.  In contrast with the widely publicized 
problems with resales of shares issued under Regulation S, these 
unrestricted sales under Rule 144(k) have not given rise to widespread or 
systematic abuses.  The NVCA believes that the favorable experience under 
144(k) would carry over into other Rule 144 sales if the manner of sale 
requirement were to be eliminated.  The NVCA further believes that the 
remaining requirements -  public information, holding period, volume and 
notice requirements - provide adequate safeguards, and that issuers and 
affiliated sellers have both the incentive and means to enforce compliance 
with these requirements.

III. Codification of SEC Positions Regarding Determination of Holding 
Period.

     The Commission has proposed amendments to Rule 144 to clarify and 
codify staff interpretive positions concerning the calculation of holding 
periods in circumstances involving the conversion or exchange of securities 
and the formation of holding companies.  The NVCA supports the Commissions 
proposed actions in this regard.  In particular, the clarification of the 
treatment of conversions and exchanges are of vital interest to venture 
capital investors, who frequently invest in securities other than shares of 
common stock, which securities are then converted into or exchanged for 
common stock of the issuer at a later time.  By integrating these well 
established principles into the Rule, the Commission will reduce the burden 
imposed on venture capital investors, who frequently must spend considerable 
time and resources educating newly public issuers and their counsel as to 
the application of Rule 144 in this area.

IV.  Elimination of "Presumptive Underwriter" Doctrine from Rule 145.

     The NVCA strongly supports the Commissions proposal to eliminate the 
"presumptive underwriter" provisions under Rule 145(c), which explicitly 
deem persons who were affiliates of any party to a reclassification, merger 
or consolidation or transfer of assets to be underwriters for purposes of 
the 1933 Act.  The presumptive underwriter doctrine can have a particularly 
dramatic impact on affiliates of public companies acquired in mergers; these 
persons often receive relatively small holdings in the acquiring company, 
yet may find themselves severely disadvantaged in comparison to other 
holders unaffiliated with the acquiring company because their sales are 
subject to volume limitations under Rule 145.  In other words, the 
presumptive underwriter doctrine produces the counter intuitive result that 
a person who receives shares pursuant to a registration statement under the 
1933 Act and who is unaffiliated with the issuer is nonetheless subject to 
the Rule 144 volume limitations.  In many cases venture capitalists who sit 
on the boards of public companies that are prospective targets are torn 
between their duty to their venture funds - which would best be served be 
resigning as a director in advance of a prospective merger, thereby avoiding 
Rule 145 presumptive underwriter restrictions  - and their duty as a 
director to the other shareholders of the public company - which calls for 
continued service in order to help guide the company through the merger.

     The NVCA shares the Commissions view that it is no longer necessary to 
rely on a presumptive underwriter approach in connection with resale of 
securities acquired in Rule 145 transactions, by affiliates of the acquired 
company.  The NVCA believes that the registration requirement under the 1933 
Act, which requires the registration of shares to be issued by the acquirer 
on an S 4, together with the application of Rule 144 to sales by affiliates 
of the acquirer, provide adequate safeguards for public market investors. 
 Accordingly, the NVCA supports elimination of the presumptive underwriter 
doctrine as advancing the goals of both simplification and capital 
formation.

V.   Rule 144 Holding Period.

     The Commission has solicited comment on whether the newly adopted Rule 
144 one year holding period should be further shortened to a shorter period, 
such as six months.  The NVCA neither supports nor opposes this further 
shortening, which would not, as a practical matter, have a significant 
impact on its members.  In most cases, the underwriters of a portfolio 
company IPO requires that the companys principal shareholders, including 
its venture capital investors, agree not to sell any shares for a period of 
time - generally 180 days - after the IPO.  Accordingly, the benefit of a 
six month holding period would only extend to shares acquired with six 
months of the effectiveness of the IPO.  Shares purchased within this period 
do not typically represent a significant portion of the holdings of most 
venture capital investors.

     The Commission has also solicited comment on whether the holding period 
for unrestricted resales by non-affiliates should be shortened from two 
years.  The NVCA supports a further shortening of this holding period.  This 
further shortening would enable venture capital funds to provide faster 
liquidity to fund investors, thereby increasing their returns and attracting 
more capital for investment in emerging growth companies.  Moreover, the 
NVCA believes that the benefits to investors in venture capital funds and 
prospective portfolio companies would not result in any loss of protection 
for public market investors.  The NVCA notes that, as mentioned above, 
underwriters in IPOs generally insist on a six-month lock-up.  This is the 
period of time that, based on practical experience, appears to best balance 
the need of pre-IPO investors for liquidity with the need of public market 
investors for an orderly trading market.

     Finally, the Commission solicited comment on a number of other 
variations in approaches to defining holding periods.  These variations 
include linking the holding periods to the size of the company, or varying 
the holding period based on the nature of the security.  The NVCA opposes 
these variations, which will greatly increase the complexity and expense of 
the complying with Rule 144 and are therefore counter to the goals of 
simplicity and capital formation.  The NVCA is particularly concerned about 
distinctions based on the size of companies;  fluctuations in the size of 
emerging companies, however measured, will make advance planning difficult 
or even impossible.

VI.  Elimination of Trading Volume Test.

     In the Release, the Commission solicits comment on whether the two 
tests based on the trading volume under Rule 144(e) should be eliminated, 
thereby forcing all sellers of restricted and control securities to rely on 
the "one percent test" discussed below.  Under Rule 144(e), the amount of 
securities that may be sold by holders of restricted and control securities 
within the preceding three month period is limited to the greater of (i) one 
percent of the Companys outstanding securities, (ii) the average weekly 
trading volume in the Companys securities or all national securities 
exchanges and/or reported through the automated quotation system of a 
registered securities association in the four full calendar weeks prior to 
the filing of the required notice of intent to sell or (iii) the average 
weekly trading volume in such securities reported through the consolidated 
transaction reporting system during the four week period specified in (ii) 
above.

     The NVCA strongly disagrees with the elimination of the trading volume 
tests under Rule 144(e)(ii) and (iii).  The first reason set forth in the 
Release for an elimination of the trading volume tests is that if most 
persons selling securities under Rule 144 rely on the "one percent test" an 
elimination of the trading volume tests would simplify the compliance with 
the volume limitations under Rule 144(e).  In our experience, however, most 
NASDAQ traded emerging growth companies, particularly higher profile 
companies, have weekly trading volumes in excess - often well in excess - of 
one percent of their outstanding common stock.  Investors in these emerging 
growth companies, therefore, rely to a significant extent on trading volume 
tests in making resales under Rule 144.

     The NVCA is concerned that any empirical analysis of Rule 144 sales 
based solely on the Forms 144 filed with the Commission will greatly 
understate the importance of the trading volume test.  In particular, any 
analysis that ignores the aggregation requirements under Rule 144(e)(3) will 
produce significantly misleading results if the analysis assumes that any 
person reporting the sale of less that 1% of the outstanding shares is not 
relying on the trading volume test.  For example, assume a venture capital 
fund that owns 3% of an issuers outstanding Common Stock distributes those 
shares to ten limited partners, each of which has a 10% interest in the 
fund.  Because the limited partners are required to aggregate their sales, 
they can only sell in reliance based on the trading volume test, even though 
their Forms 144 will report the sale of 0.3% of the issuers stock.

     The availability of the trading volume test is of critical importance 
to venture capital investors and, therefore, to the capital formation 
process.  A rule of thumb in the venture capital business is that out of 
every ten portfolio investments two or three companies will result in total 
or substantial losses; four or five companies will move sideways, producing 
modest gains or losses; two or three companies will produce solid returns of 
three to five times cost; and one or two companies will produce superior 
returns of ten or more times cost.  This means that the ability to realize 
the gains of the relatively small number of very successful investments is 
critical to the portfolios performance, since these gains must make up for 
the losses and produce all of the net profit.  Moreover, the most successful 
portfolio companies often receive several rounds of investments, which means 
that venture capital funds often have their largest holdings in their most 
successful portfolio companies.   The loss of the trading volume test will 
have a dramatic impact on the ability of  venture capital funds to realize 
returns in their most important investments - i.e. those companies where 
they have the largest holdings.  Accordingly, elimination of the trading 
volume test will discourage large investments by venture capitalists, 
thereby undercutting the objective of enhancing capital formation.

     The NVCA believes that the trading volume tests are the most 
appropriate measure of defining the contours of activity that would not 
constitute a distribution of securities under Section 2(11) of the 1933 Act. 
 One of the characteristics of a transaction rising to the level of a 
distribution is its size relative to the regular ongoing trading market in 
the issuers stock.  The trading volume tests, by definition, better capture 
the historical patterns of trading in the subject securities than the static 
one percent test.

     The Commission also solicits comments in the Release on the concerns 
set forth by the New York Stock Exchange ("NYSE") in its Petition for 
Rulemaking filed on July 9, 1996 (the "Petition").  The NYSE asserts that 
the trading volume test are not comparable between the NASDAQ market and the 
national securities exchanges because of the way trades are reported for the 
different markets.  According to the NYSE, there is typically double 
counting of trading volume on NASDAQ and other dealer markets because of 
dealer-interpositioning.  The NYSE argues that this places them at a 
competitive disadvantage in attracting new listings because of the perceived 
ability of company officials in new companies to more readily sell a greater 
quantity of restricted securities on NASDAQ and the other dealer markets 
than on the NYSE and other securities exchanges.

     The NVCA disagrees with the NYSE both as the dynamics of the two 
markets as well as the motivations of companies in selecting markets for 
their shares.  On the first point, the alleged double-counting only occurs 
when a NASDAQ market maker buys, for its own account, from a seller and then 
turns around and later sells the shares, again from its own account, to a 
buyer.  In many cases a market maker may simply act as a broker, matching 
buy and sell orders from independent parties; in these cases there is no 
"double counting".  Moreover, the NYSE also understates the potential for 
double counting in its own market.  NYSE trading is run by specialist firms, 
who have the obligation to buy and sell securities for their own account as 
necessary to maintain an orderly market; in these cases there will also be 
"double counting".  NVCA member firms have had substantial experience in 
guiding their portfolio companies through IPOs, and the NVCA does not 
believe that the availability of a potentially more favorable trading volume 
calculation is a significant factor in choosing between NASDAQ and the NYSE. 
 Many other factors - including the listing requirements, the ability to 
attract a market following and research coverage, the presence of 
competitors and other comparable companies -  play a more important role in 
these decisions.  In short, the NVCA does not agree that the NYSE is at any 
competitive disadvantage to NASDAQ and other dealer markets merely because 
of perceived differences in the way trades are calculated.

* * * * * * * * *

     On behalf of the NVCA, we would like to express our thanks to the 
Commission for providing this opportunity to comment on the Proposal.  We 
hope that the Commission will find these comments helpful.  If you have any 
questions or would like further information regarding this letter, please 
feel free to contact me at (617) 248-7278 or Mark G. Heesen of the NVCA at 
(703) 351-5267.

                    Respectfully submitted,

                    William J. Schnoor, Jr.

cc:  Mr. Mark G. Heesen

347644

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