The Topline:
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HFSC and SEC kick off capital formation agenda
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House clears first hurdle to advance tax agenda
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Innovator Alliance visits the the Hill to drive tax agenda for startup ecosystem
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Quick hits: Crypto and Corporate Transparency Act updates
The House Financial Services Committee kicked off its capital formation agenda with a capital markets subcommittee hearing focused on expanding capital access across a company’s lifecycle, removing barriers to help more companies to go public, and providing more opportunities for retail investors to participate in the private markets.
Why it matters: Private capital is the lifeblood of startups and growth-stage companies, providing patient, risk-forward funding to solve ambitious problems. This structure democratizes ingenuity, drives innovation and value creation, and promotes economic growth and job creation. But unless we modernize our policy infrastructure, the benefits of this economic and innovation engine will be limited to fewer people. We need to bolster private capital, but importantly, we need to broaden its reach to more investors, more entrepreneurs, more companies, and more communities.
Carta sent a letter and led a broader group of innovation-focused organizations in sending a letter to support the Committee’s capital formation agenda. We highlighted the following key areas to expand access to capital, bolster emerging ecosystems, and broaden investment options for everyday investors:
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Modernizing the accredited investor standard beyond a wealth-based test, which will help democratize access to private market investment opportunities
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Expanding access to private market investments through professionally managed funds, where investors benefit from fiduciary obligations, diversification, and institutional diligence
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Increasing the size and investor limits for qualifying VC funds, helping smaller managers assemble competitive funds and reach more investors
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Expanding the ability for VC funds to make fund-of-funds and secondary investments, driving more capital to emerging ecosystems
Legislative prospects: Capital formation is a bipartisan issue, and any changes to the law will require bipartisan support. What gets tricky is the means to that end and the policy trade-offs to accomplish it, namely navigating the relationship of the public and private markets and the balance of access and investor protection. Reforms are likely to be more narrowly crafted rather than comprehensive, but that still provides an opportunity to expand investor access to private markets and bolster fund managers.
And strong interest from Congress can help drive efforts at the SEC…
SEC moves: Even before Paul Atkins, President Trump’s nominee to lead the SEC, is in seat, the agency is taking steps to improve the capital-raising process for entrepreneurs and expand private market opportunities to more investors. Acting Chairman Mark Uyeda outlined a policy shift from the previous administration to focus on capital formation efforts and has asked staff to start considering:
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Opportunities to improve the exempt offering framework, including improvements to crowdfunding to bolster its utility
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Pathways to expand retail investor participation in the private markets through modifications to the accredited investor definition and increasing exposure to private fund investment vehicles
SEC toolbox: The SEC could enact many reforms without congressional action. But the agency has limited resources and competing priorities, including policy workstreams on digital assets, public market disclosures, and corporate governance. Engagement—both from Congress and the ecosystem—will be key to ensure capital formation remains a priority (you may start noticing a trend…engagement matters).
Get engaged: The Committee is soliciting public feedback on areas, including:
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Greatest barriers to raising capital: what is working well, what can be improved
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Policies to encourage the development of more entrepreneurial ecosystems and ways to lower barriers for emerging managers
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Avenues to expand retail investor access to private funds and modernize the accredited investor standard
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How funds are leveraging technology and how AI and blockchain can be used to expand private market access
Carta Policy will be working to collect feedback from stakeholders across the ecosystem to share with policymakers this important initiative. Please reach out if you would like to get involved and share your thoughts.
To learn more about the SEC agenda, tax reform, and other issues impacting the innovation ecosystem, tune in on March 12.
Register House clears first hurdle to advance tax agenda
The House passed its first test on tax reform: passing its budget resolution that would enable tax reform to pass by a simple majority. But the budget resolution only provides a blueprint: top-line numbers for tax reform and spending cuts. Now comes the hard part—agreeing on the policy.
Tax reform prospects: Trump and Senate Republicans are pushing a permanent extension of TCJA tax cuts, but making the temporary provisions permanent as well as including additional tax cuts to fulfill campaign promises, will substantially increase the cost. That means there is more pressure to find “pay-fors.” Enter Qualified Small Business Stock and carried interest, both of which have come under scrutiny during recent tax discussions. Industry will need to educate policymakers to push back on efforts to curb them to increase tax revenue. And that is what Carta is doing…
Innovator Alliance hits the Hill
To help protect tax policies that drive innovation, Carta launched the Innovator Alliance with our coalition partners. This week, the group was on Capitol Hill advocating for tax policies that support entrepreneurship and drive investment and talent into the innovation ecosystem to bolster economic growth and U.S. competitiveness. The Alliance’s focus includes policy issues such as qualified small business stock, research and development, carried interest, and net operating losses. We met with numerous offices and partnered on a briefing for tax, small business, and financial services committee staff.
Check out Carta’s head of policy Anthony Cimino discussing these efforts in Politico:
Carta Policy in NYC
Next week, the Carta Policy Team will be in New York City:
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March 5: Anthony and Holli will be joining expert panels to discuss key topics shaping the private fund industry, including increasing retail demand for private fund exposure and how best to navigate an evolving regulatory landscape, in an event hosted by Kroll, Carta, and Goodwin.
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March 6: Back by popular demand, Carta is kicking off its first 2025 Policy Dinner at Gramercy Tavern. We launched this dinner series to bring together private fund industry leaders for good food and conversation around the current policy landscape and how it will impact the economics and operations of funds and their portfolio companies.
If you’re in the area and would like to catch up, let us know!
Quick hits
Corporate Transparency Act reporting update: FinCEN announced it would not be pursuing enforcement, issuing fines, or handing down penalties associated with failing to file beneficial ownership information reports until forthcoming regulations establishing new reporting deadlines become effective. FinCEN intends to issue a new rule extending reporting deadlines by March 21, 2025, and is expected to solicit comments on revising existing reporting requirements.
Net/net: There will be no penalties for noncompliance until new reporting deadlines are established. More to come…
Crypto corner: The SEC ended more registration-related crypto lawsuits and investigations and took the position that certain memecoins are not securities; the House took its first steps to roll back a crypto tax reporting rule; the Senate Banking Committee held its first hearing to examine legislative frameworks for digital assets and advancing a bipartisan stablecoin framework is the near-term priority.
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