HR4429-119

What This Bill Does

The Developing and Empowering our Aspiring Leaders Act of 2025 directs the Securities and Exchange Commission to revise rule 275.203(l)-1 under the Investment Advisers Act within 180 days. The rule currently defines when a private fund qualifies as a venture capital fund for purposes of the venture-capital adviser exemption. The bill requires the SEC to revise the definition of qualifying investment so that an equity security issued by a qualifying portfolio company counts whether the venture fund acquired it directly from the company or in a secondary acquisition. It also requires investments in another venture capital fund to count as qualifying investments.

The bill pairs that new flexibility with a portfolio cap. Immediately after acquiring any asset, a private fund could qualify as a venture capital fund only if no more than 49 percent of its aggregate capital contributions and uncalled committed capital, excluding short-term holdings, is invested in other venture capital funds or qualifying investments acquired in secondary transactions. The cap can be valued at cost or fair value, consistently applied by the fund. The practical effect is to let venture funds use secondary acquisitions and venture fund-of-funds strategies without losing venture-capital-fund status, as long as direct or other qualifying venture investment remains the majority of the fund's capital base.

Who Benefits and How

Venture capital funds, emerging fund managers, venture fund-of-funds investors, secondary-market sellers of qualifying portfolio company securities, qualifying portfolio companies, startup founders, private fund advisers using the venture-capital adviser exemption, and institutional investors in venture capital benefit because the bill lets funds hold more secondary securities and investments in other venture funds while retaining regulatory treatment as venture capital funds.

Who Bears the Burden and How

The Securities and Exchange Commission, SEC Investment Management staff, venture fund compliance officers, private fund lawyers, investor-protection advocates, limited partners reviewing venture-fund strategies, and exam staff overseeing private fund advisers must comply with a 180-day rule revision, monitor the 49 percent cap, value secondary and fund-of-funds holdings consistently, and evaluate whether expanded venture-fund flexibility increases indirect exposure or reduces direct startup financing.

Key Provisions

• Requires the SEC to revise the venture-capital-fund rule within 180 days.
• Revises qualifying investment to include equity securities issued by qualifying portfolio companies and acquired directly or in secondary transactions.
• Revises qualifying investment to include investments in other venture capital funds.
• Requires venture capital funds to keep no more than 49 percent of aggregate capital contributions and uncalled committed capital in other venture funds or secondary acquisitions.
• Allows the 49 percent cap to be measured at cost or fair value if applied consistently.