The National Venture Capital Association (NVCA) recently praised the benefits of the House Committee on Financial Services advancement of the Developing and Empowering our Aspiring Leaders (DEAL) Act by a voice vote.
NVCA officials said the measure, sponsored by Rep. Trey Hollingsworth (R-IN), encourages 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 DEAL Act would alleviate pressures on VC firms and encourage more equity investment into U.S. startups,” NVCA President and CEO Bobby Franklin said. “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.”
Under current guidelines, officials said 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.
The alternative, officials said, is that they must become Registered Investment Advisors (RIAs), a designation meant solely for private equity and hedge funds, which adds a number of costs and challenges for VC firms.
NVCA said as companies have stayed private longer, secondary investments have become more prominent in VC financing rounds, noting VC investments in cryptocurrencies and fund of fund investments are not currently considered qualifying investments.