Bill Overview
Title: To require the Securities and Exchange Commission to revise the definition of a qualifying investment to include an equity security issued by a qualifying portfolio company, whether acquired directly from the company or in a secondary acquisition, for purposes of the exemption from registration for venture capital fund advisers under the Investment Advisers Act of 1940, and for other purposes.
Description: This bill directs the Securities and Exchange Commission (SEC) to revise venture capital investment regulations if the SEC determines such revisions would facilitate capital formation without compromising investor protection. 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 law, 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, after SEC approval, 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 be acquired directly from a qualifying portfolio company.
Sponsors: Rep. Hollingsworth, Trey [R-IN-9]
Target Audience
Population: People involved in or affected by venture capital fund investment and regulations
Estimated Size: 5000000
- The bill is focused on changing definitions for qualifying investments in venture capital funds.
- Venture capital funds typically involve sophisticated investors and accredited investors, which may include individuals and institutional investors.
- The bill will likely have implications for entities involved in investment, such as investment firms, venture capital funds, and possibly start-ups seeking venture capital funding.
- The legislative changes may enhance or alter the compliance requirements for venture capital fund advisers under the Investment Advisers Act of 1940.
- Global stakeholders impacted could include individual and institutional investors worldwide who are involved or interested in venture capital investments.
- Start-ups and emerging companies globally could be impacted, as changes in venture capital regulations might affect capital availability.
- Given that venture capital investment spans internationally, the impact is potentially global.
- Secondary markets and firms dealing with venture capital fund advisories might see changes which could affect job roles, compliance costs, and operational scales.
Reasoning
- The policy primarily impacts venture capital funds, institutional investors, and high-net-worth individuals who are engaged with such funds, primarily situated in the United States.
- This policy could moderately improve the investment landscape by potentially enabling more capital flow through revised regulations that might allow broader and perhaps easier transactions.
- The individuals directly involved in venture capital investments might experience changes in compliance burdens and possibly increased opportunities for returns.
- Those indirectly affected include employees at firms which receive venture capital funding, who may experience indirect impacts on job security and growth prospects of their workplaces.
- Given the limit on budget and focus of the policy, the most immediate and direct impacts are likely constrained to the venture capital ecosystem.
- While venture capital itself can have broad-reaching economic impacts, the policy's specific changes might have nuanced effects unless widely replicated or adjusted further.
- Since the policy deals with specific regulatory exemptions and classifications, direct impacts on individuals' well-being are likely to follow from indirect financial and employment benefits or burdens that stem from affected venture capital activities.
Simulated Interviews
Venture Capital Analyst (San Francisco, CA)
Age: 34 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 6/20
Statement of Opinion:
- I think the policy may ease some of our regulatory burdens, which is always welcome.
- It might make our investment portfolio slightly more flexible, potentially attracting more secondary market investments.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 8 |
| Year 20 | 7 | 8 |
Start-up Founder (Austin, TX)
Age: 29 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 8/20
Statement of Opinion:
- If this policy leads to increased venture capital funding, it could help my start-up get the investment it needs.
- I'm watching it closely, but I'm not sure if this will directly affect the valuations or terms.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 6 | 6 |
Institutional Investor (New York, NY)
Age: 45 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 5/20
Statement of Opinion:
- This policy might open more venues for diversified investments within venture capital, which is good for our long-term strategy.
- I appreciate the SEC taking steps that could enhance capital formation without compromising investor protections.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 8 |
Venture Capital Fund Manager (Boston, MA)
Age: 52 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 4/20
Statement of Opinion:
- Any regulatory easing could potentially improve our operations.
- Secondary transactions becoming qualifying investments might particularly benefit funds like ours involved in biotech, where flexibility is key.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 9 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 8 |
Start-up Employee (Denver, CO)
Age: 31 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 2.0 years
Commonness: 10/20
Statement of Opinion:
- I'm mostly hopeful that this policy might increase the funds flowing to start-ups.
- Anything that ensures stability and potential growth for my company is a plus.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 6 | 6 |
Corporate Attorney (Chicago, IL)
Age: 39 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 5/20
Statement of Opinion:
- Changes in regulations will probably mean more work for us initially, but they could drive more business as firms adjust to new rules.
- I see it as a double-edged sword, but generally positive for the sector.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 9 | 8 |
| Year 3 | 9 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Tech Entrepreneur (Seattle, WA)
Age: 28 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 3.0 years
Commonness: 6/20
Statement of Opinion:
- I view this policy as potentially beneficial if it means more venture capital is available for tech innovation.
- However, I'm cautious about how much it would impact our sector specifically.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 7 |
Retired Financial Advisor (Miami, FL)
Age: 62 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 7.0 years
Commonness: 12/20
Statement of Opinion:
- I'm supportive of any policy that makes investments more accessible while keeping safety a priority.
- There's potential here for personal investment opportunities, though they are still distant from immediate impact.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 7 |
Economic Researcher (Los Angeles, CA)
Age: 43 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 7/20
Statement of Opinion:
- It's a fascinating policy change that could have ripple effects in capital markets.
- I'm excited to see how it influences venture capital dynamics and whether it boosts funding.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 8 | 8 |
Accountant (Salt Lake City, UT)
Age: 56 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 3.0 years
Commonness: 8/20
Statement of Opinion:
- This could mean more accounting work if funds decide to change their structures.
- It's an intriguing legislative direction that could indirectly benefit my business.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 7 |
Cost Estimates
Year 1: $10000000 (Low: $8000000, High: $12000000)
Year 2: $8000000 (Low: $6000000, High: $10000000)
Year 3: $5000000 (Low: $3000000, High: $7000000)
Year 5: $5000000 (Low: $3000000, High: $7000000)
Year 10: $1000000 (Low: $500000, High: $2000000)
Year 100: $100000 (Low: $50000, High: $200000)
Key Considerations
- Regulatory changes involve inherent uncertainties regarding implementation and market reactions.
- The SEC's pace to revise definitions will impact the speed and efficacy of potential benefits.
- Unpredictable economic conditions can alter anticipated economic benefits or costs.
- Venture capital fund structures and tendencies can shift, impacting the intended outcomes of the bill.