Norbert Michel and Christian Kruse
The House of Representatives recently passed the Incentivizing New Ventures and Economic Strength Through Capital Formation Act of 2025, or the INVEST Act of 2025. The bill is effectively a bundle of capital formation bills, most of which aim to incentivize capital formation in both public and private markets.
The INVEST Act contains many improvements that reduce regulatory burdens. For instance, the bill reduces the number of years emerging growth companies must provide financial statements for from three to two years, allows funds and advisors to disseminate disclosures via electronic methods, and expands confidential draft registrations from emerging growth companies to all issuers.
Many of the improvements in the bill also broaden investor access. However, some provisions in the bill miss the mark on who really needs regulatory relief and could result in fewer investment opportunities and less investor freedom. Congress should move forward with the improvements found in the INVEST Act, but reconsider certain provisions that could worsen conditions for issuers and investors.
How the INVEST Act Alleviates Private Market Woes
The INVEST Act makes many appropriate adjustments to certain rules governing private securities markets. Noticeably, the bill decreases regulatory compliance costs for investment crowdfunding issuers, allowing them to retain and therefore direct more funds towards their businesses. Currently, offerings below $124,000 must only provide financial statements signed by the company’s CEO. Offerings between $124,000 and $618,000 must have their financials reviewed by an independent public accountant, and most offerings above $618,000 must provide fully audited financials.
The INVEST Act increases the lowest threshold for financial disclosure up to $250,000. This change lowers the requirement for financial disclosure for offerings between $124,000 and $250,000, increasing the amount of funds that can be dedicated to the business. Additionally, increasing the threshold allows more issuers to target the amount of funds they actually need instead of cutting themselves off due to an arbitrary “funding cliff.”
Aside from investment crowdfunding, the bill also redefines the accredited investor standard—the standard that the Securities and Exchange Commission (SEC) uses to decide who is and who isn’t allowed to participate in private securities markets. Currently, based on a bright-line wealth test, the bill would require the SEC to administer an educational exam to determine accreditation. The INVEST Act’s educational exam addition appears to be a move in the right direction, as the wealth test that the SEC has historically relied on has kept 87 percent of Americans from investing in private securities. And as the private securities market outpaces the public market year after year, it’s difficult to justify keeping most investors out.
However, the SEC already tried to broaden access in 2020 by extending accreditation to individuals who had passed exams to earn certain professional licenses (Series 7 or 65 trading license). The move only added roughly 0.01 percent of the American population to the pool of accredited investors. While the bill’s exam could broaden the number of accredited investors, the data show that educational extensions have yet to achieve that goal.
The INVEST Act would also make changes to reduce costs for venture capital funds. The bill increases the maximum number of beneficial owners of a qualifying venture capital fund from 250 to 500 and raises the statutory capital maximum from $10 million to $50 million. The latter move builds upon an SEC ruling earlier this year that adjusted the capital maximum from $10 million to $12 million. Paired with a potential increase in the pool of accredited investors, increasing the number of owners, and the capital max on venture capital funds could be a great first step for many investors looking to invest in private securities.
How the INVEST Act Misses the Mark on What Needs to Be Done
While the INVEST Act would certainly reduce costs for crowdfunding issuers, the bill’s funding threshold adjustment fails to help the smallest offerings that suffer from disproportionate fixed costs that Regulation CF places on issuers.
According to a recent SEC report, the median crowdfunding offering is around $113,000—well beneath the $124,000 disclosure threshold. Yet, there are still substantial fixed costs associated with even this level of disclosure. Offerings under $100,000 can see overall costs reach 10 percent of the funds they raise. A possible solution, a micro-offering exemption, (on which we have a forthcoming briefing paper), might be the needed remedy for the smallest issuers’ heightened costs.
And for all that the INVEST Act could do to broaden investor access to private markets, the bill’s language gives the SEC too much discretion over the educational exam’s contents. The SEC could make the test just as difficult as current professional trading certifications, eliminating the goal of “equal opportunity for all investors.” The bill also makes a critical error in handling the accredited investor standard’s wealth test. The accredited investor standard’s wealth test has dictated private market access since 1982, even though it’s been well established that both wealth and income act as poor proxies for determining an investor’s financial sophistication. This understanding is the reason the INVEST Act adds an educational exam pathway to accreditation.
Yet the bill fails when it comes to addressing the future of the wealth test. Instead of reducing the accredited investor standard’s reliance on wealth and income, the INVEST Act codifies the SEC’s existing regulations. If passed, the SEC’s wealth test would become United States law, making the SEC’s bad policy only revokable by another act of Congress.
Placing a flawed statute on the books can have far-reaching harm and potentially take decades to undo. A better and more principled path to take would be to allow investors to waive investor protections as non-accredited investors and invest their money where they see fit without government involvement.
Conclusion
The INVEST Act of 2025 does a lot of good by reducing costs for companies, funds, and brokers and expanding investor access in private markets. But the current path established by the proposed legislation would set the accredited investor standard’s unfair wealth test in stone and ensure that investment crowdfunding thresholds would leave out the smallest businesses, continuing the status quo, which harms both small businesses and investors.
If Congress wants more Americans to flourish, it should make changes to the INVEST Act that correctly identify where reform is truly needed. Only then can the legislation genuinely increase opportunities for issuers and investors alike.
