Last week, U.S. Sen. Mike Rounds (R-S.D.) introduced a bill called the Developing and Empowering our Aspiring Leaders (DEAL) Act to push investments in startups by lifting certain restrictions on some venture capital firms.
If enacted, the DEAL Act of 2022, S. 3914 would direct the Securities and Exchange Commission to exempt certain investments by VC funds from SEC registration requirements. In particular, it would allow investments acquired through secondary transactions to be considered qualifying investments for VC funds.
Sen. Rounds said, “Small businesses are the foundation of our communities. They create local jobs and support their neighbors. The DEAL Act would encourage more investment by venture capital firms into new businesses, further fueling growth in our communities.”
The bill is supported by both the U.S. Chamber of Commerce and the National Venture Capital Association.
Tom Quaadman, executive vice president of The Chamber’s Center for Capital Markets Competitiveness, said, “As Americans work to recover from the pandemic, the economy needs every resource available to grow businesses and create jobs.”
He added, “Emerging Growth Companies are an important part of that equation as they represent the future of opportunity in our capital markets, which is why the U.S. Chamber applauds Senator Rounds for introducing the DEAL Act. This important piece of legislation will allow more investment in bright new ideas and future public companies that will power the next generation of American economic success.”
Bobby Franklin, President and CEO of NVCA, said: “This bill will support the next generation of high growth American companies and expand entrepreneurial activity into more regions of the country.”
He continued, “U.S. startups are this country’s jobs and innovation engine and improving their chances of success will generate economic opportunity and support America’s technological leadership in the world.”
Sen. Rounds’ bill is the companion bill to the DEAL of 2021, H.R. 4227, which was sponsored by U.S. Representative Trey Hollingsworth (R-Ind.). H.R. 4227 says, “This bill directs the Securities and Exchange Commission to revise venture capital investment regulations. 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 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.”
Sen. Rounds’ bill has been referred for consideration to the Senate Banking, Housing, and Urban Affairs Committee.
