On December 11, 2025, the U.S. House of Representatives passed the Incentivizing New Ventures and Economic Strength Through Capital Formation Act[1] (“INVEST Act”) by a bipartisan vote of 302 to 123. If passed by the Senate and signed into law by the President, the INVEST Act would, among other things, enable certain venture capital fund managers to remain unregistered with the Securities and Exchange Commission (“SEC”) while raising more capital from more retail investors and deploying capital in the booming secondaries market for private venture investments.
Changes to Registration Exemptions
Under current SEC rules, “venture capital funds” are funds that generally pursue a venture capital strategy, do not offer redemption rights, do not incur more than a minimal amount of short-term debt, and invest at least 80% of their capital in primary issuances of equity securities by private companies. Section 3(c)(1)[2] of the Investment Company Act of 1940,[3] as amended (“Investment Company Act”), exempts investment funds (including venture capital funds) from registering as investment companies with the SEC, provided that they have no more than 100 beneficial owners. “Qualifying” venture capital funds can have up to 250 beneficial owners and still rely on the Section 3(c)(1) exemption, so long as they raise no more than $10 million total (the “QVCF Exemption”).[4] In addition, firms are exempt from registering with the SEC as an investment adviser so long as they limit their investment advisory services to one or more venture capital funds, regardless of aggregate assets under management or Investment Company Act exemptions relied upon with respect to their venture capital funds.
Under the INVEST Act, venture capital funds would be permitted, among other things:
- to rely on the QVCF Exemption while raising up to $50 million total from 500 beneficial owners (with the potential for the SEC to further increase these limits through notice-and-comment rulemaking); and
- to invest up to 49% of their assets in other venture capital funds and/or equity securities of private companies acquired in secondary-market transactions.
While not specific to venture capital fundraising, the INVEST Act would also require the SEC to expand the “accredited investor” definition to include certain licensed financial professionals (brokers or investment advisers) as well as individuals who have passed a new financial competency examination required to be established by the SEC.
Why it Matters
As a practical matter, many venture capital fund managers have been unable to rely on the existing QVCF Exemption, primarily due to the $10 million cap on fundraising limiting these managers’ access to lucrative investment opportunities that require larger check sizes and scalable capital. The INVEST Act would address this implementation issue by increasing the fundraising cap over time. In addition, as the secondaries market for private venture investments has exploded in recent years, venture capital fund managers have been unable to take advantage of the new asset class without either registering with the SEC as an investment adviser or limiting their aggregate assets under management to $150 million in order to qualify for the private fund adviser exemption. All eyes in Silicon Valley and beyond now turn to the Senate to see whether the INVEST Act will continue its march towards the President’s desk.
FOOTNOTES
[1] H.R. 3383, 119th Cong. (2025).
[2] 15 U.S.C. § 80a-3(c)(1).
[3] 15 U.S.C. §§ 80a-1–80a-64.
[4] In order to qualify for the Regulation D private placement safe harbor under the Securities Act of 1933 (15 U.S.C. §§ 77a–77aa), as amended, all beneficial owners of a venture capital fund practically need to qualify as “accredited investors”. As an alternative to the Section 3(c)(1) exemption, venture capital funds may raise an unlimited amount of capital from up an unlimited number of beneficial owners pursuant to Section 3(c)(7) (15 U.S.C. § 80a-3(c)(7)) of the Investment Company Act if the fund limits its beneficial owners to “qualified purchasers” (although practically, the number of beneficial owners cannot exceed 1,999 in order for the fund to avoid becoming a public reporting company under the Securities Exchange Act of 1934 (15 U.S.C. § 78a et seq.), as amended). For individuals, “accredited investor” status requires, e.g., earning more than $200,000 of income during each of the two most recent years, whereas “qualified purchaser” status requires, e.g., owning at least $5 million of investments.