What Emerging Managers Should Know About the Proposed June 2025 QSBS Expansion

The Senate’s June 2025 QSBS draft proposes some major updates that could significantly impact how emerging managers think about exits, secondaries, and fund strategy. It’s not a full rewrite of QSBS, but the mechanics being floated could tilt economics meaningfully in favor of early-stage funds — especially those who plan ahead.

Here’s what’s on the table — and how I’d be thinking about it:

Tiered Exclusions Give You More Flexibility on Exit Timing

• Hold 3 years: 50% exclusion
• 4 years: 75%
• 5 years: 100%

This changes the game on timing. If a Series B buyer shows up in year 4, LPs can still walk with 75% of the gains tax-free. That flexibility plays well with shorter fund cycles, secondary transactions, and ongoing DPI pressure. It may also make earlier founder liquidity a little more viable.

This changes the game on timing. If a Series B buyer shows up in year 4, LPs can still walk with 75% of the gains tax-free. That flexibility plays well with shorter fund cycles, secondary transactions, and ongoing DPI pressure. It may also make earlier founder liquidity a little more viable.

$15M Per-Investor Cap Increases the Upside — Especially for Smaller Funds

• The proposed cap rises from $10M to $15M per investor, indexed to inflation after 2027
• For a fund with 20 LPs, that’s potentially $300M in federal tax-free gains on a single QSBS-qualified exit

If you’re running a smaller or first-time fund, that delta can materially improve your pitch — especially with early LPs who want the full runway on tax benefits. Just make sure they’re in before the qualifying stock is issued.

$75M Asset Limit Brings More Deals Into the Fold

• This is about the issuing company, not its valuation
• Many Series B-stage C-corps are still well under that $75M gross asset threshold

So it’s no longer just seed-stage tech that qualifies. More mature companies may be QSBS-eligible than most people realize.

Carry + QSBS Creates Some Interesting Stack Scenarios

• Carry on QSBS-eligible gains may also benefit from the exclusion
• Co-investments can qualify separately
• Trust stacking remains a viable strategy under the draft
• And no new anti-abuse provisions have been proposed yet

If structured thoughtfully, the economics here can be pretty compelling.

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Takeaways for Emerging Fund Managers

• Be intentional with portfolio construction — target C-corps under $75M in gross assets
• Start modeling 3-, 4-, and 5-year exit paths, not just 5+
• Lock down QSBS reps in term sheets and side letters
• Make QSBS compliance part of diligence
• Talk to real QSBS advisors (Book a call with me)

One Big Caveat: this would only apply to newly issued stock. There’s no retroactive benefit for deals already done — which makes timing critical if this moves forward.

Also worth noting: 74% of the tax savings here go to high-net-worth individuals, the politics could get dicey, and California still doesn’t conform.

Bottom line — the June 2025 QSBS this is still just draft legislation, but if you’re managing a fund right now, it’s worth preparing as if it will pass.

Bigger funds may take time to react. You don’t have to.

This is one of those moments where knowing the rules and moving quickly can materially shift outcomes for your LPs — and your carry.