What Is the “Risk Capital” Test and Where Is It Used?

The "risk capital" test is an alternative or supplementary test to Howey, primarily used in certain US state jurisdictions (like California) and sometimes internationally. It generally focuses on whether the investor is contributing "risk capital" to an enterprise, where the investor is largely passive and their funds are subject to the entrepreneurial or managerial efforts of others.

This test is often broader than Howey, focusing more on the investor's lack of control and the enterprise's need for the funds.