House passes package of bills that could boost venture capital
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Congress yesterday pushed forward a package of bills that could increase capital formation in the private markets.
The big picture: This could be the first part of a one-two punch for private markets, followed by more politically fraught efforts to allow 401(k) plans to invest in alternative assets.
Driving the news: The INVEST Act, which contains 22 different pieces of legislation, was passed by on a bipartisan basis in the House, 302-123, and now moves to the Senate.
Zoom in: Its most consequential bill might be the DEAL Act, which raises the limit on how many secondary and fund-of-funds investments a VC fund can make while maintaining its exemption.
- It raises the cap from 20% of a fund's AUM to 49%, while keeping the original limit for other nonqualifying assets like tokens.
- The upshot could be a deeper capital pool for emerging fund managers, plus fewer VC firms becoming registered investment advisors.
- Sens. Mike Rounds (R-N.D.) and Raphael Warnock (D-Ga.) have introduced DEAL in the Senate.
Behind the scenes: The venture industry originally wanted a higher nonqualifying threshold, but House Democrats insisted that at least 51% of a venture capital fund be used for ... well, venture capital.
Other provisions include:
- Allowing individuals to take a test to verify accredited investor status, rather than relying solely on wealth.
- HALO Act, which would revise Reg D to allow startups to present at events sponsored by entities like universities and accelerators, without being deemed general solicitation.
- ICAN Act, which doubles the beneficial owner limit for qualifying VC funds to 500 from 250, and quintuples the capital limit to $50 million from $10 million.
Look ahead: Diem-Mi Lu, the National Venture Capital Association's vice president of government affairs, believes the Senate could follow the House's lead and vote on INVEST Act as a standalone bill.
- "This isn't JOBS Act 3.0 or some other sort of messaging bill," she says. "None of the individual bills got less than 10 Democrat votes in committee, so this was intended to get broad support."
- That said, a majority of House Democrats did vote against the bill — in part due to retirement plan provisions unrelated to VC — and some senators like Elizabeth Warren (D-Mass.) already have signaled their opposition.
