How the “Big Beautiful Bill” Could Reshape Venture-Backed Small Businesses

A newly passed federal tax law—dubbed the “Big Beautiful Bill” —has introduced changes that could significantly impact small businesses, especially those backed by venture capital. While the headlines highlight tax relief and market stimulation, the finer print reveals nuanced implications for startups, investors, and their employees.

A Win for Liquidity and Growth

One of the key changes in the bill is an expansion of the Qualified Small Business Stock (QSBS) tax exclusion. Previously, investors could exclude up to $10 million in gains; that limit is now $15 million per issuer.

Additionally, the bill raised the bar for what qualifies as a “small business” from $50 million to $75 million in assets. That means a larger swath of high-growth startups can now benefit from QSBS status—companies that might have aged out of eligibility under the old rules.

For venture-backed firms, these changes open up greater flexibility. Early investors and employees are no longer tethered to the five-year holding period often required to maximize tax benefits. Now, under a tiered system, they can realize significant gains earlier while still enjoying partial tax exclusion.

The Rise of the Secondary Market

What does this mean in practice? Investors and employees may be more inclined to sell their shares earlier, rather than waiting for a big IPO or acquisition. This is already playing out in what’s called the secondary market—where shares of private companies are traded before a public exit.

Historically, venture capital firms held onto their equity until a startup "exited." But in recent years, with fewer IPOs and high-profile acquisitions, the secondary market has emerged as a popular option for liquidity. And the changes in this bill could accelerate that trend.

Investment firms and trading platforms like Hiive and Caplight are preparing for a wave of activity. According to the Wall Street Journal, Scenic Management is currently raising $150 million to buy startup shares from founders, early employees, and venture firms looking to cash out sooner rather than later.

Opportunities for Founders and Teams

For startup founders and small business owners, this may mean easier access to capital without issuing new shares or taking on debt. If your investors or team members can sell shares more easily, that could increase their confidence in your business and reduce pressure to rush toward an IPO.

As a founder, you might find attracting and retaining talent easier. Employees are more likely to stay engaged if they can benefit financially from their equity earlier in the company’s lifecycle.

Proceed with Caution

With opportunity comes risk. Easier access to tax-free sales might lead some investors or employees to exit prematurely, potentially weakening long-term commitment to your business. If key stakeholders sell off too soon, it could hurt morale or signal instability to the broader market.

There’s also the issue of valuation pressure. If too many people try to sell shares in the secondary market at once, prices could fall, creating negative perceptions of your company’s worth.

Lastly, these benefits only apply to stock purchased after July 4, 2025, so any current stakeholders won’t see immediate advantages. And the updated rules add new complexities—tracking asset thresholds, share purchase dates, and holding periods will require more robust tax and legal planning.

Final Thoughts

For small businesses supported by venture capital, the “Big Beautiful Bill” is a step toward greater flexibility and financial reward. It makes it easier for early backers and employees to realize gains and opens doors to secondary trading as a viable exit strategy.

Success will depend on how thoughtfully you and your investors navigate these new rules. By balancing liquidity with long-term vision, you can position your company to thrive under this evolving financial landscape.

This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.