House passes BIO-backed legislation to increase access to capital

Legislation to free up capital for small innovative firms by removing regulatory barriers for both companies and investors passed the House Dec. 11—a move praised by the Biotechnology Innovation Organization (BIO).

The Incentivizing New Ventures and Economic Strength Through Capital Formation (INVEST) Act was introduced by House Financial Services Committee Chair French Hill (R-AR) with Gregory Meeks (D-NY) and other co-sponsors from both parties. It garnered bipartisan support and passed the House by a vote of 302-123.

This one bill groups several measures that address access to capital that BIO and its members have long supported as a way to improve the investment climate for small biotechs. BIO joined a Dec. 5 coalition letter signed by more than two dozen associations and other interested parties praising the act and calling for its passage.

The bill expands access to capital and while increasing investment and ownership opportunities, “to ensure policy encourages responsible innovation and keeps the interests of startups and small businesses—the economic engine of this country—front and center,” according to the coalition letter.

“The INVEST Act would provide critical capital and tax incentives that help small and emerging biotechnology companies bridge the gap between breakthrough science and real-world therapies,” said Bradford Zakes, BIO Senior Vice President, Emerging Companies and Economic Affairs.

“By strengthening access to early-stage funding, this legislation empowers innovators to advance promising research, accelerate development timelines, and compete on a level playing field—ultimately driving economic growth and delivering new solutions for patients in need,” Zakes said. “We applaud the House of Representatives for passing this important legislation.”

How it works

The INVEST Act contains a wide range of amendments and actions that seek to increase funds available to small innovative firms. It’s actions can be grouped in three main areas:

Expanding access to capital:

• add Securities and Exchange Commission (SEC) support for rural small businesses;
• deregulate presentations at events for angel investors;
• increase limits for exemptions of regulation for crowdfunded investment and investment advisers;
• enhance coordination with the Office of the SEC Advocate for Small Business Capital Formation;
• urge SEC study of the “small entity” definition;
• exempt the SEC Advocate for Small Business Capital Formation from certain Paperwork Reduction Act requirements;
• increase membership and capital limits for qualifying venture capital funds;
• clarify what constitutes a qualifying investment for a venture capital fund.

Increasing opportunities for investors:

• expand the definition of accredited investor;
• expand investment options for 403(b) retirement plans;
• establish an exam for accredited investors, giving certification to those who pass;
• study issues affecting investors over 65;
• improve disclosure by allowing electronic delivery of investor documents;
• expand closed-end investment companies’ ability to invest in private funds.

Strengthening public markets:

• reduce Emerging Growth Company (EGC) registration requirements;
• reduce financial reporting burdens for EGCs;
• revise how investment companies disclose acquired fund fees and expenses;
• direct SEC to ease testing-the-waters requirements to promote IPOs;
• order a study of the costs associated with small- and medium-sized company IPOs;
• expand Well-Known Seasoned Issuer (WKSI) eligibility;
• require disclosure on multi-class share arrangements in solicitation materials.