The DEAL Act Would Improve Access to Capital for U.S. Startups
WASHINGTON, DC – The National Venture Capital Association (NVCA) was pleased to see that today the U.S. House Committee on Financial Services passed the Developing and Empowering our Aspiring Leaders (DEAL) Act by a voice vote. Sponsored by Representative Trey Hollingsworth (R-IN), the DEAL Act will encourage capital formation for startups by directing the Securities and Exchange Commission (SEC) to make a percentage of secondary investments qualifying for purposes of the definition of a venture capital (VC) fund. The modification would be limited in scope to equity investment by venture capital funds, activity that is generally a bipartisan priority. This bill would improve the ability of VC funds to continue to follow their portfolio companies along their growth path through more follow-on investments without fear of triggering a significant regulatory burden.
Currently, to qualify under the venture capital fund definition and register with the SEC as Exempt Reporting Advisors (ERAs), VCs must ensure that more than 80 percent of their activities are in qualifying investments, which are defined only as direct investments in private companies. Otherwise they must become Registered Investment Advisors (RIAs), a designation that was only meant for private equity and hedge funds and which adds a number of costs and challenges for VC firms. As companies have stayed private longer, secondary investments have become more prominent in VC financing rounds. In addition, VC investments in cryptocurrencies and fund of fund investments are not currently considered qualifying investments.
“The DEAL Act would alleviate pressures on VC firms and encourage more equity investment into U.S. startups,” said Bobby Franklin, President and CEO of NVCA. “We are grateful for Congressman Hollingsworth’s strong leadership and his efforts to support the environment for patient capital investment and long-term company growth.”
NVCA endorsed the DEAL Act in a letter to the House Committee on Financial Services. You can read the full letter here.