Congress just handed VCs $100B+ to buy existing shares instead of funding new companies.

On December 12, 2025, the House of Representatives passed the INVEST Act 302-123. A package containing 22 pieces of legislation aimed at reshaping how venture capital operates.

It’s not getting the attention it deserves. No headlines. No tweets. No VC think pieces.

But buried in that legislation is something massive:

The DEAL Act raises the limit on secondary and fund-of-funds investments from 20% to 49% of a VC fund's assets under management.

Translation: VCs can now put nearly HALF their fund into buying existing shares instead of funding new companies.

2 weeks ago -

I predicted secondaries would replace IPOs as the primary liquidity mechanism by Q4 2026.

I gave it 70% confidence. It just got regulatory confirmation.

Congress just turbocharged the secondary market explosion by allowing VCs to deploy 49% of their funds buying existing shares (up from 20%).
This isn't a minor tweak, it's regulatory rocket fuel for the "stay private forever" thesis.

VCs can now be BOTH primary investors (funding new companies) AND secondary buyers (providing liquidity to existing shareholders).

The math: If VCs raise $300B annually and can now deploy $147B into secondaries (vs. $60B before), the secondary market jumps from $152B (2024) to $250B+ by 2026.

My prediction (secondaries replace IPOs) just went from 70% confidence to 85%.

The unintended consequence: Fewer dollars for NEW companies, more dollars recycling into EXISTING winners. Capital isn't expanding. It's consolidating around companies that already won.

Read on for: The 5 ways this changes venture capital, why Congress accidentally killed early-stage funding, and what founders/VCs should do RIGHT NOW.

Signal #1: The DEAL Act changes secondary investing limits

The DEAL Act raises the limit on secondary and fund-of-funds investments from 20% to 49% of AUM.

What this means in dollars across the entire market:

VCs raised ~$300B globally in 2024-2025 (estimate based on historical data).
If VCs can now deploy 49% into secondaries (vs. 20% before):

That's $87B in NEW secondary buying power.

The secondary market was $152B in 2024. This could push it to $250B+ by 2026.

What this means: My secondaries replacing IPO prediction just got regulatory validation.

Signal #2: The ICAN Act enables smaller funds to grow

The ICAN Act doubles the beneficial owner limit for VC funds from 250 to 500, and quintuples the capital limit from $10M to $50M.

Why this matters:

Emerging managers (sub-$100M funds) were capped at 250 investors and $10M in capital.

Now they can raise $50M from 500 investors.

That's a 5x increase in fund size for the smallest tier.

But here's the twist:

Those emerging managers can ALSO now deploy 49% into secondaries (not just 20%).

So a $50M emerging manager fund can put $24.5M into buying secondary shares.

What this means: Even small funds become secondary buyers, not just primary investors.

Signal #3: Bipartisan support means a likely Senate passage

The INVEST Act passed the House 302-123. That's 71% support. Overwhelmingly bipartisan.

In a divided Congress, 302-123 is a landslide. The bill now moves to the Senate.

Given bipartisan House support and Trump administration's pro-business stance, Senate passage is likely in Q1 2026.

What this means: This isn't hypothetical. This becomes law in 60-90 days.

Signal #4: Secondary market was already exploding

From my Week 1 analysis:

The secondary market was ALREADY growing faster than primary funding.
Now add $87B in new VC buying power.

What this means: The explosion accelerates in 2026.

Signal #5: VCs were already starving early-stage

From my Week 2 analysis:

VCs were ALREADY concentrating capital into mega-rounds and late-stage.
Now they have regulatory permission to put 49% into secondaries.

What this means: Even LESS capital for new companies. More capital recycling into existing winners.

Let me break down what Congress actually passed:

The INVEST Act (passed Dec 12, 2025):

A legislative package containing 22 bills related to venture capital, innovation, and startup financing.

Key provisions:

1. The DEAL Act (Direct Enhancement of Access to Liquidity):

2. The ICAN Act (Increasing Capital Access for New Ventures):

3. Other provisions:

The stated goal:

Make venture capital more accessible and efficient.

The actual effect:

Turbocharged secondary markets. Reduced capital for early-stage. Consolidated power in megafunds.

The consensus take:

"This is great for venture capital! More flexibility! Lower barriers! Pro-innovation legislation!"

VCs are saying: "Finally, Congress gets it. This helps the ecosystem."
Emerging managers: "We can raise larger funds now!"
LPs thinking: "More investment options for VCs = better returns."

Why that take is dangerously naive:

Everyone's celebrating "more flexibility" without asking:

What happens when VCs can put 49% of their fund into secondaries instead of funding new companies?

My blind spot #1: Maybe this HELPS early-stage by creating exit paths

Counter-argument: If VCs can sell their early-stage positions via secondaries (to other VCs with 49% allocations), it creates liquidity for early investors.

That liquidity enables them to recycle capital back into NEW seed investments.

Net effect: Early-stage funding could actually INCREASE because VCs can exit positions earlier via secondaries.

Why I'm skeptical: The secondary market favors late-stage, proven companies. A VC holding Series A shares in an unproven $20M valuation company won't find secondary buyers easily. Secondary liquidity benefits late-stage, not early-stage.

My blind spot #2: Maybe emerging managers benefit most

Counter-argument: The ICAN Act quintuples capital limits from $10M to $50M for emerging managers.

If 1,000 emerging managers can now raise $50M each (vs. $10M before), that's $40B in NEW capital for early-stage.

Those emerging managers focus on Seed/Series A (where megafunds don't play).

Net effect: Early-stage funding could INCREASE from emerging manager growth.

Why I'm skeptical: Only 1,117 VC funds closed in 2025, down from 2,100 in 2024.
A 47% collapse.

Emerging managers are dying DESPITE needing less capital. Quintupling the limit doesn't help if LPs won't commit at all.

My blind spot #3: Maybe secondary market growth DOESN'T cannibalize primary

Counter-argument: Capital isn't zero-sum.

Just because VCs deploy $147B into secondaries doesn't mean they deploy LESS into primaries.

They might just raise larger funds to accommodate both.

Net effect: Total VC deployment INCREASES (both primary AND secondary grow).

Why I'm skeptical: VC fundraising has been declining. LPs aren't giving VCs MORE capital, they're giving the SAME capital with more flexibility.

If a VC raises $1B and can deploy $490M into secondaries, that's $490M NOT going into new companies.

My blind spot #4: Maybe this doesn't pass the Senate

Counter-argument: Despite 302-123 House passage, the Senate could kill it.

Especially if there's opposition from:

If it doesn't pass, none of this matters.

Why I'm skeptical: Bipartisan 71% support in a divided House is rare. Trump administration is pro-business. Senate passage is likely.

If you're a founder (early-stage, Seed to Series B):

1. Accept that VC capital for early-stage is shrinking

VCs can now deploy 49% into secondaries. They will.
Because secondaries are less risky, faster returns, larger scale.

Result: Fewer dollars for Seed/Series A.

Your strategy:

- Get to revenue FAST (pre-revenue raises are dying)
- Target emerging managers, not megafunds (emerging managers can't play in secondaries at scale)
- Consider alternative capital (revenue-based financing, angels, family offices)
- Plan for smaller rounds at lower valuations

2. If you CAN'T raise, consider an acqui-hire

M&A activity has been surging as an alternative to IPOs.
If you've built a team and some traction but can't raise your next round, sell.

Getting $10-30M in an acqui-hire beats dying slowly.

3. Watch the INVEST Act Senate timeline

If it passes in Q1 2026, the secondary market explodes by Q2 2026.
That's your signal: Early-stage capital is about to get even scarcer.

Raise NOW if you can. Before the secondary tsunami hits.

If you're a founder (late-stage, Series C+):

1. Implement secondary sale programs IMMEDIATELY

VCs can now deploy 49% into secondaries.
That's $87B in new buying power looking for shares to buy.

If you're sitting on a $1B+ valuation with employees who want liquidity, create a tender offer program.

VCs with 49% secondary allocations will BID for your shares.

2. Use secondaries to avoid IPO pressure

From my Week 11 analysis (Databricks):

Part of the new capital will support secondary share sales for employees, offering liquidity without forcing a public listing.

If VCs can deploy 49% into your secondaries, you can raise capital + provide liquidity without going public.

Stay private longer. Maintain control. Higher valuations than public markets.

3. Position yourself as a "secondary-friendly" company

VCs with $147B in secondary buying power need places to deploy it.

If you're transparent about:

You become attractive to VCs.

If you're a VC:

1. Decide your primary vs. secondary split NOW

You can now deploy 49% into secondaries.

Will you?

Option A: Stay 80/20 (primary/secondary)

Option B: Go 51/49 (primary/secondary)

Option C: Go 60/40 or even 70/30 (secondary-heavy)

Most megafunds will go Option C. Emerging managers forced into Option A.

2. Build secondary deal sourcing capabilities

If you're deploying $147B into secondaries (vs. $60B before), you need:

Secondary investing is a DIFFERENT skill set than primary.

Start building now.

3. Prepare for LP questions: "Why are you buying secondaries instead of funding new companies?"

When you tell LPs "49% of our fund is in secondaries," they'll ask:

"Aren't you supposed to fund innovation, not recycle capital into existing winners?"

Your answer matters.

"Secondaries generate faster distributions, lower risk, and allow us to access later-stage companies we missed at Seed/Series A."

My prediction:

Congress didn't mean to kill early-stage funding. But they did.

Your turn.

Do you think I'm overreacting to a 20% → 49% rule change?

Or am I underestimating how much this redirects capital away from new companies?

Reply with your take:

This week's sources:
→ Morgan Lewis - INVEST Act: Potential Implications for Financial Services
→ The DEAL Act: Raising Secondary Investment Limits to 49%
→ ICAN Act Doubles Beneficial Owner Limits for VC Funds
→ VC Fundraising Data 2024-2025: Concentration Accelerates
→ Week 1 sources (Secondary Market Analysis)
→ Week 3 sources (Capital Concentration Data)
→ Databricks Private Market Analysis

See you next week,
Pavan

P.S. Remember my Week 1 prediction? I said secondaries would replace IPOs as the primary liquidity mechanism by Q4 2026, with 70% confidence. Congress just gave that prediction regulatory rocket fuel. I'm updating to 85% confidence. The secondary market explosion isn't coming, it's accelerating RIGHT NOW.

P.P.S. Unintended consequences are the most predictable consequences. Congress wanted to "help venture capital be more flexible." Result: VCs will use that flexibility to de-risk (secondaries) instead of taking risk (funding new companies). The opposite of innovation policy.