On December 11, 2025, the U.S. House of Representatives passed the Incentivizing New Ventures and Economic Strength Through Capital Formation (INVEST) Act of 2025 (H.R. 3383) to increase capital formation in private markets and encourage initial public offerings.
The INVEST Act – a package of 22 bills addressing capital access -- is designed to fund early-stage businesses by enabling new venture capital fund formation. At the same time it seeks to broaden opportunities for retail investors to participate in the high-growth segment of the private market, without compromising investor protection by channeling retail participation through professionally managed, SEC-regulated structures.
Background
Registered closed-end funds operate under the Investment Company Act of 1940 and are available to retail (non-accredited) investors through SEC-registered offerings. These funds are governed by independent boards, managed by fiduciary investment advisers, and subject to comprehensive SEC oversight.
By contrast, private funds, including venture capital ("VC") funds, are sold only to institutional and accredited investors and are usually exempt from Investment Company Act registration. Furthermore, advisers to VC funds are exempt from registration under the Investment Advisers Act of 1940 if they advise only "venture capital funds" under SEC rules.
The INVEST Act is designed to bridge this regulatory divide, giving ordinary investors access to private-fund strategies through registered, fiduciary-managed vehicles.
Key Reforms to the Investment Company Act of 1940
Section 206 - Increasing Investor Opportunities
Section 206 prohibits the SEC from imposing limits, such as accredited-investor-only restrictions or high minimum investment requirements, on closed-end funds that invest in private funds. Historically, SEC staff guidance effectively barred ordinary investors from closed-end funds holding more than 15% of assets in private funds unless those investors were accredited and invested at least $25,000.
Section 109 - Expanding the Venture Capital Fund Definition
Section 109 permits VC funds to invest up to 49% of contributed and uncalled capital in other VC funds and in secondary transactions (e.g., purchases from employees and founders). Current rules cap such investments at 20%. This change will enable larger VC funds to seed smaller, emerging managers-expanding geographic diversity of capital, and smaller managers will gain needed capital access to invest in early-stage startups.
Section 108 - Scaling "Qualifying Venture Capital Funds"
Section 108 raises the Investment Adviser registration exemption thresholds for "qualifying venture capital funds," increasing:
- the investor limit from 250 to 500 persons, and
- the capital limit from $10 million to $50 million (with future adjustment authority).
These increases are designed to enable fund managers to lower minimum investment amounts, supporting broader accredited-investor participation and facilitating first-time fund formation.
Section 104 - Raising the Investment Adviser Exemption Threshold
Section 104 increases the investment-adviser registration threshold for private-fund advisers from $150 million to $175 million, allowing more emerging advisers to operate without bearing the high compliance costs associated with full SEC registration.
Section 302 - Encouraging Investment in Business Development Companies
Section 302 permits registered funds to exclude certain indirect BDC-related fees from disclosure calculations, removing a disincentive for funds to invest in BDCs and helping increase capital available to small and mid-sized businesses.
