Developing and Empowering our Aspiring Leaders Act of 2025
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Would require the Securities and Exchange Commission to expand the definition of a 'qualifying investment' for venture capital funds, allowing secondary-market transactions and investments in other venture capital funds to count toward a fund's qualifying portfolio — not just direct investments in startups.
The change would give venture capital funds more flexibility in how they deploy capital while preserving regulatory exemptions from registration, audits, and investor-communication restrictions that small funds rely on to operate.
What this bill would do
What it would do
The bill would direct the SEC, within 180 days of enactment, to revise its venture capital fund regulations in two ways. First, it would expand the definition of a "qualifying investment" to include equity securities acquired through secondary transactions — purchases of existing shares from prior investors rather than directly from a company — and to explicitly include investments in other venture capital funds. Under current rules, these types of holdings are treated as non-qualifying investments and are capped at 20% of a fund's portfolio.
Second, it would impose a new 49% cap: immediately after any asset acquisition, no more than 49% of a fund's aggregate capital contributions and uncalled committed capital may consist of investments in other venture capital funds or secondary acquisitions. This condition ensures funds remain predominantly direct early-stage investors to retain their venture capital status and the associated regulatory exemptions.
Key provisions
- 1Would require the SEC to revise the definition of 'qualifying investment' to include equity securities acquired through secondary transactions, not just direct acquisitions from portfolio companies.
- 2Would require the SEC to specify that an investment in another venture capital fund constitutes a qualifying investment under the venture capital fund exemption rules.
- 3Would require the SEC to add a condition that a fund holds no more than 49% of its aggregate capital in other venture capital funds or secondary acquisitions to qualify as a venture capital fund.
- 4Would set a 180-day deadline for the SEC to complete the required regulatory revisions after enactment.
Who would be affected
Venture capital fund managers and advisers who rely on the Investment Advisers Act exemption from SEC registration requirements. Funds that pursue secondary transactions — buying startup equity from early employees or prior investors — or that invest in other venture capital funds would gain the most flexibility. Startup companies seeking capital from these funds could also be indirectly affected.
Why it matters
Venture capital funds that hold too many non-qualifying investments under current rules risk losing their exemption from SEC registration, audits, and investor-communication restrictions — a significant compliance burden. Allowing secondary acquisitions and fund-of-fund investments to count as qualifying holdings would let funds pursue broader investment strategies without jeopardizing their exempt status, as long as such holdings stay below 49% of committed capital.
What would change
Changes to existing law
Amends Investment Advisers Act of 1940 (Sec. 2)
Directs the SEC to revise the venture capital fund adviser registration exemption rules by broadening qualifying investment definitions and adding a 49% cap on secondary and fund-of-fund holdings.
Amends 17 C.F.R. § 275.203(l)-1 (Sec. 2)
Expands qualifying investment definition to include secondary acquisitions and investments in other venture capital funds; adds a 49% aggregate capital condition for fund qualification.
Agencies directed to act
Effective dates
- SEC must complete regulatory revisions to the qualifying investment definition
Funding and costs
Congressional Budget Office estimate
CBO estimates H.R. 4429 would have no effect on direct spending, revenues, or the deficit, with discretionary implementation costs of less than $500,000 over the 2026–2030 period.
CBO finds that H.R. 4429 would have no effect on direct (mandatory) spending, revenues, or the federal deficit over the 2026–2030 or 2026–2035 periods. Implementing the bill would require the Securities and Exchange Commission (SEC) to issue new rules expanding the definition of qualifying investments for venture capital funds, costing less than $500,000 over 2026–2030 in discretionary spending (spending subject to annual appropriations); because the SEC is authorized to collect fees to offset its appropriation, the net discretionary effect is expected to be negligible. CBO identified one private-sector mandate — the potential increase in fees paid to the SEC by regulated entities — but estimates its cost would fall well below the annual Unfunded Mandates Reform Act threshold of $206 million. No intergovernmental mandates were identified.
How implementation would work
The bill gives the SEC 180 days from enactment to promulgate revised rules amending 17 C.F.R. § 275.203(l)-1. The agency would update both the definition of "qualifying investment" and the conditions for a private fund to qualify as a venture capital fund. No explicit public-comment or notice-and-comment requirement is stated in the bill text beyond the standard rulemaking obligations that apply to the SEC. Compliance would be self-assessed by fund advisers, who must ensure their portfolios do not exceed the 49% cap on secondary acquisitions and fund-of-fund holdings immediately after each asset acquisition.
Legislative status & sources
Latest action
Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Official CRS summary
Show the CRS summaryHide the CRS summary
This bill directs the Securities and Exchange Commission to revise venture capital investment regulations to allow additional types of investments to be considered as qualifying investments. Venture capital funds are exempt from certain regulations applicable to other investment firms, including those related to filings, audits, and restricted communications with investors. Under current regulations, non-qualifying investments—which include secondary transactions and investments in other venture capital funds—may comprise up to 20% of a venture capital fund.
The bill allows investments acquired through secondary transactions or investments in other venture capital funds to be considered as qualifying investments for venture capital funds. However, for a private fund to qualify as a venture capital fund, the fund's investments must predominately (1) be acquired directly, or (2) be investments in other venture capital funds.
Legislative subjects
Administrative law and regulatory procedures; Finance and Financial Sector; Financial services and investments; Securities; Securities and Exchange Commission (SEC)
Committee report
H. Rept. 119-246