House Passes Bipartisan Capital Formation Package: The INVEST Act

The House, just prior to the announcement of the INVEST Act, passed three other bills also intended to promote capital formation. All bills have been received in the Senate with H.R. 4429 and H.R. 4431 referred to the Committee on Banking, Housing, and Urban Affairs and H.R. 2066 referred to the Committee on Small Business and Entrepreneurship:

1. Developing and Empowering Our Aspiring Leaders (“DEAL”) Act (H.R. 4429) would expand the category of qualifying venture investments to include fund-of-fund and secondary investments.
2. Improving Capital Access for Newcomers (“ICAN”) Act (H.R. 4431) proposes to increase the size and investor limits for qualifying venture capital funds.
3. Investing in All of America Act (H.R. 2066) would expand access to capital for small businesses in rural and underserved areas or those operating in national security or critical tech sectors by excluding investments by Small Business Investment Companies (“SBICs”).

Key Provisions of the INVEST Act at a Glance

Title I: Expanding Access to Capital for Small Businesses

The INVEST Act would establish an Office of Small Business in each of the SEC’s Divisions of Corporation Finance, Investment Management and Trading & Markets to coordinate capital formation related matters.  The bill also proposes to raise multiple exemption thresholds and modernizes definitions to reflect current market conditions, including:

• increasing the crowdfunding exemptive offering threshold requiring accountant review to $250,000 from $100,000 (with discretion up to $400,000),
• raising the exemption threshold under the Investment Advisers Act to $175 million from $150 million with inflation indexing, and
• expanding the qualifying venture capital fund size from $10 million to $50 million while increasing the investor cap from 250 to 500.

The legislation would direct the SEC to revise Regulation D to permit presentations at specified sponsored events (e.g., universities, nonprofits, angel groups, accelerators) without these being deemed “general solicitation.”

Title II: Increasing Opportunities for Investors

The bill proposes to modernize the accredited investor definition, allowing inflation-adjusted wealth thresholds and adding criteria based on professional licensure, education, or experience, alongside an SEC-administered exam-based pathway to accredited status. It would authorize electronic delivery of investor documents with safeguards and opt-out rights and transition rules in an effort to improve disclosure for investors. The INVEST Act would remove constraints on closed-end fund investments in private funds, facilitating professionally managed access to private markets for retail investors. The legislation also focuses on protecting seniors from financial exploitation by creating a Senior Investor Task Force at the SEC, and directing a GAO study on senior financial exploitation.

Title III: Strengthening Public Markets

The INVEST Act proposes to reduce the registration requirements for Emerging Growth Companies (“EGCs”) from three years to two years of audited financial statements, and broaden the availability of confidential submissions and testing-the-waters to all issuers. The legislation also expands well-known seasoned issuer (“WKSI”) eligibility by lowering the public-float threshold from $700 million to $400 million, thereby streamlining shelf access for additional public companies.

The bill would also update Acquired Fund Fees and Expenses (“AFFE”) disclosure to avoid distortive expense ratios for certain fund-of-funds products. AFFE disclosure requires acquiring funds, including business development companies (“BDCs”) to aggregate and disclose in their prospectuses the amount of total annual acquired fund operating expenses and to express the total amount as a percentage of an acquiring fund’s net assets.

Why Now?

The focus on capital formation has intensified. The number of US public companies has fallen from roughly 8,800 in 1997 to fewer than 4,000 in 2024, a contraction that has reduced investor choice and limited access to public market growth. The Financial Services Committee concludes that successive layers of regulation, including Sarbanes-Oxley and Dodd-Frank, have raised compliance costs in ways that disproportionately impact smaller issuers, making it more expensive to remain public. It also notes that private market rules have lagged inflation and market realities, warranting reform. If enacted as proposed, the legislation would likely reduce transaction costs at the margin, broaden the investor base for private offerings, and streamline pathways to public capital. Read the Financial Services Committee’s statement on the passage of the bill. We will continue to monitor the bill as it goes through the Senate.