Improving Capital Allocation for Newcomers Act of 2025
Summary
The "Improving Capital Allocation for Newcomers Act of 2025" amends the Investment Company Act of 1940. It modifies the definition of "qualifying venture capital funds" by increasing the allowable number of persons in the fund from 250 to 500. The Act also raises the minimum dollar amount in section 3(c)(1)(C)(i) from $10,000,000 to $50,000,000, measured from the enactment date.
Furthermore, the Act mandates a study on the effects of these amendments on businesses and startup entities receiving venture capital. This study will be conducted by the Advocate for Small Business Capital Formation in consultation with the Investor Advocate.
Finally, based on the study's findings and public comments, the Securities and Exchange Commission (SEC) may issue rules to adjust the person threshold (between 250-750) and the dollar figure (between $10M-$100M), with no effect on inflation adjustments.
Expected Effects
This act is likely to increase the amount of capital available to venture capital funds. It may also broaden the range of investors who can participate in these funds. The required study and potential rulemaking aim to ensure that these changes benefit small businesses and startups, particularly those with diverse founders and geographic locations.
Potential Benefits
- Increased access to capital for startups and small businesses.
- Potential for greater investment in underserved geographic areas.
- Possible increase in funding for startups with founders from diverse socio-economic backgrounds and veteran status.
- Data-driven adjustments to regulations based on the mandated study.
- Modernization of investment regulations to reflect current market conditions.
Potential Disadvantages
- Potential for increased risk for investors due to the expanded pool of eligible participants.
- Possible concentration of capital in larger venture capital funds, potentially disadvantaging smaller funds.
- The increased minimum dollar amount could exclude some smaller startups from accessing venture capital.
- The study and rulemaking process could be lengthy, delaying any potential benefits.
- The SEC's discretion in rulemaking may lead to outcomes that favor certain types of businesses or investors.
Constitutional Alignment
The Act appears to align with the Commerce Clause (Article I, Section 8, Clause 3) by regulating investment companies involved in interstate commerce. The study and potential rulemaking provisions are consistent with Congress's power to oversee and regulate economic activity. The Act does not appear to infringe upon any individual liberties or rights protected by the Bill of Rights.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).