New Business Preservation Act
This bill establishes and provides funding for the Innovation and Startups Equity Investment Program, through which the Department of the Treasury shall work with states to invest in new businesses.
Specifically, the bill requires Treasury to provide certain funds to participating states, which such states shall use to administer specified approved programs that provide equity investment in new businesses. Certain areas with high levels of venture capital activity are excluded from the calculation of funds allocated to a participating state. Treasury shall also award funds to approved state programs to provide follow-on investments.
If a state receives funds from an exit, the state shall use such funds to further invest in startups under the approved program. An exit is defined as the (1) acquisition of a startup in which a state has invested under the program; (2) sale of a share of such startup following an initial public offering; or (3) voluntary purchase of a state's ownership interest by the startup, investors, or existing shareholders.
[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 6403 Introduced in House (IH)]
<DOC>
116th CONGRESS
2d Session
H. R. 6403
To establish the Innovation and Startups Equity Investment Program in
the Department of the Treasury, through which the Secretary of the
Treasury shall allocate money to certain States to assist high-
potential scalable startups access venture capital to commercialize
innovations, create jobs, and accelerate economic growth, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 26, 2020
Mr. Phillips (for himself, Mr. Khanna, Mr. Ryan, and Ms. Sewell of
Alabama) introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To establish the Innovation and Startups Equity Investment Program in
the Department of the Treasury, through which the Secretary of the
Treasury shall allocate money to certain States to assist high-
potential scalable startups access venture capital to commercialize
innovations, create jobs, and accelerate economic growth, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``New Business Preservation Act''.
SEC. 2. DEFINITIONS.
In this Act:
(1) Approved state program.--The term ``approved State
program'' means a State program that is approved by the
Secretary in accordance with the standards established under
section 3(b)(1).
(2) Covered investment.--The term ``covered investment''
means an equity investment in a startup using amounts made
available to carry out the covered programs.
(3) Covered programs.--The term ``covered programs'' means
the Program and the program carried out under section 4.
(4) Equity investment.--The term ``equity investment''--
(A) means an investment for an ownership interest
in an entity, the financial return with respect to
which is principally aligned with the financial return
of the plurality of ownership interests in the entity;
and
(B) includes a debt instrument that can be
converted to an equity ownership interest in an entity
based on future events.
(5) Exit.--The term ``exit'', with respect to a startup in
which there is a covered investment, means--
(A) the acquisition of the startup;
(B) after an initial public offering with respect
to the startup, the sale of a share of the startup that
was obtained through the covered investment; or
(C) the voluntary purchase of ownership interests
by the startup, investors, or existing shareholders.
(6) Federal contribution.--The term ``Federal
contribution'' means a contribution made--
(A) by a participating State to, or for the account
of, an approved State program; and
(B) with Federal funds allocated to the
participating State by the Secretary.
(7) Follow-on investment.--The term ``follow-on
investment'' means a subsequent equity investment in a startup
in which there was originally a separate and distinct equity
investment under--
(A) a program carried out under the State Small
Business Credit Initiative Act of 2010 (12 U.S.C. 5701
et seq.); or
(B) the Program.
(8) Market rate management fee and profit interest.--The
term ``market rate management fee and profit interest'' means
the usual and customary compensation structure paid to fund
managers for fund investment management services under
agreements with private sector limited partners.
(9) Participating state.--The term ``participating State''
means a State that participates in the Program after having
satisfied the approval criteria under section 3(c).
(10) Program.--The term ``Program'' means the Innovation
and Startups Equity Investment Program established under
section 3(a).
(11) Qualifying area.--The term ``qualifying area'' means
an area of the United States outside of the major venture
capital centers, as determined in the rule making conducted by
the Secretary under section 3(e).
(12) Rule; rule making.--The terms ``rule'' and ``rule
making'' have the meanings given those terms in section 551 of
title 5, United States Code.
(13) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
(14) Startup.--The term ``startup'' means a business entity
that--
(A) has been in existence for less than 10 years;
(B) has the intention or potential to--
(i) significantly scale with respect to
revenue and job creation;
(ii) develop innovative products or
services; and
(iii) deliver high returns on investment;
and
(C) is headquartered in a qualifying area.
(15) State.--
(A) In general.--The term ``State'' means--
(i) a State of the United States; and
(ii) the District of Columbia.
(B) Rule of construction.--The Commonwealth of
Puerto Rico, the United States Virgin Islands, Guam,
American Samoa, and the Commonwealth of the Northern
Mariana Islands shall collectively be considered to be
1 State for the purposes of this Act.
(16) State program.--The term ``State program'' means a
program established by a State to provide equity investment in
startups or venture capital funds that are headquartered in
qualifying areas, without regard to whether those qualifying
areas are located in the State.
(17) Venture capital fund.--The term ``venture capital
fund'' has the meaning given the term in section 275.203(l)-1
of title 17, Code of Federal Regulations, or any successor
regulation.
SEC. 3. ISEI PROGRAM.
(a) Establishment.--There is established in the Department of the
Treasury the Innovation and Startups Equity Investment Program--
(1) which shall be administered by the Secretary; and
(2) under which--
(A) the Secretary shall, in accordance with the
provisions of this section, allocate to participating
States--
(i) the amount appropriated under section
8(a)(1); and
(ii) any future amounts appropriated to
carry out the Program under the authorization
provided under section 8(b);
(B) participating States to which funds are
allocated under subparagraph (A) shall, through
approved State programs, provide equity investment in
startups; and
(C) money (including securities) returned to States
after exits with respect to the investments described
in subparagraph (B) shall be reinvested through follow-
on investments, as further provided in section 5.
(b) Duties of the Secretary.--In administering the Program, the
Secretary shall--
(1) establish minimum standards for a State program to be
considered an approved State program;
(2) provide technical assistance to States for designing
State programs and implementing approved State programs;
(3) disseminate information relating to best practices with
respect to the design and implementation described in paragraph
(2);
(4) perform any managerial or administrative function that
is necessary to maintain the integrity of the Program; and
(5) provide oversight of the Program, including by
reviewing whether each approved State program is in compliance
with the requirements of the Program.
(c) Approval Criteria.--
(1) Participating states.--A State may become a
participating State if--
(A) the State--
(i) designates a specific department or
agency of the State, or an entity supported by
the State, to implement and administer a State
program of the State; or
(ii) has a contractual arrangement--
(I) with a participating State that
has an approved State program; and
(II) through which the
participating State described in
subclause (I) will implement and
administer the State program of the
State;
(B) the State takes all legal actions necessary to
enable the entity that, under subparagraph (A), will
implement the State program of the State to carry out
that implementation;
(C) the State submits to the Secretary an
application described in paragraph (2)(B) during a time
period to be established by the Secretary; and
(D) the State and the Secretary enter into an
allocation agreement that--
(i) satisfies the requirements of this Act,
including the requirement under section
5(a)(2)(A);
(ii) provides that the State program
established by the State will comply with any
standards established by the Secretary in
carrying out this Act;
(iii) establishes internal control,
compliance, and reporting requirements
established by the Secretary and any other
terms and conditions that are necessary to
carry out the Program, including an agreement
by the State to permit the Secretary to audit
the State program established by the State;
(iv) requires that, not later than 180 days
after the date on which the State and the
Secretary enter into the agreement (or a later
date if the Secretary determines that later
date to be appropriate), the State program of
the State is able to make the type of equity
investments contemplated by this Act; and
(v) includes an agreement by the State to
submit to the Secretary any reports required
under the Program, including those required
under section 7.
(2) Approved state programs.--
(A) Models.--The Secretary may certify a State
program that uses either of the following structures as
an approved State program:
(i) A program in which a State-supported
entity or a private investment firm (referred
to in this clause as the ``manager'') directly
invests in startups in accordance with the
following requirements:
(I) A State agency may not serve as
the manager of the program.
(II) Any investment made under the
program shall have not less than 50
percent of the investment funded using
nongovernment sources.
(III) A State-sponsored entity or
nonprofit organization serving as the
manager under the program may charge a
market rate annual management fee.
(IV) The State may allow the
manager under the program to receive a
market-rate profit share.
(V) The manager under the program
shall actively--
(aa) educate minority-owned
and women-owned startups
regarding the process through
which the manager makes equity
investments; and
(bb) pursue equity
investments in startups
described in item (aa).
(ii) A program in which a State-supported
entity or a private investment firm establishes
a fund to invest in other investment funds in
accordance with the following requirements:
(I) The fund established under the
program may charge a market rate
management fee paid by the
administrator of the program with
program funds and receive a market rate
management fee and profit interest.
(II) If the State has an above
average per capita venture capital
market share, the State shall
prioritize allocations by the fund
established under the program to funds
managed by first-time managers, women,
and minorities.
(III) The allocations made by the
fund established under the program
shall be in an amount that is not more
than 20 percent of the capital raised
by that fund, except that, with respect
to a recipient fund described in
subclause (II), that amount shall be 50
percent.
(B) Application.--A State that wishes to have a
State program of the State certified by the Secretary
as an approved State program shall submit to the
Secretary an application that contains--
(i) a venture capital supply and
accessibility study listing, which shall
include--
(I) a list of active, as of the
date on which the application is
submitted, venture capital funds in the
State with capital under management,
segregated by funds that actively
invest in startups and funds that no
longer actively invest in startups;
(II) sources of equity investments
in startups; and
(III) a summary of investment
activity in the State from accredited
investors that are not venture capital
funds;
(ii) for the 10-year period preceding the
date on which the State submits the
application, a list of each State-sponsored
program, the intent of which is to stimulate
equity investment in startups, including the
policies implemented under each such program
and the reported results of each such program;
(iii) a list of active, as of the date on
which the application is submitted, State
pension fund investments in venture capital
funds and similar types of investments;
(iv) a final report on outcomes in the
State under each program established under the
State Small Business Credit Initiative Act of
2010 (12 U.S.C. 5701 et seq.) (referred to in
this subparagraph as the ``Initiative''),
including--
(I) the total amount expended in
direct support of small businesses
under the Initiative in the State;
(II) the total amount of private
capital leverage generated by each
approved program under the Initiative
in the State;
(III) the amount of funds made
available under the Initiative in the
State that were not ultimately
expended, if any;
(IV) the amount of capital returned
to the State in the form of investment
returns or loan repayments under the
Initiative; and
(V) the actual uses of residual
funds generated from the Initiative in
the State;
(v) a policy regarding the resolution of
conflicts of interest with respect to the State
program, including a comparison with that
policy for the Department of the Treasury with
respect to the Initiative; and
(vi) an identification of which model
described in subparagraph (A) the State intends
to use for the State program of the State.
(C) Review of application.--Not later than 90 days
after the date on which the Secretary receives an
application submitted by a State under subparagraph
(B), the Secretary shall approve the application if the
application satisfies all applicable requirements.
(3) Duration of approval.--
(A) In general.--Except as provided in subparagraph
(C), a State program that the Secretary certifies as an
approved State program under this subsection shall--
(i) remain so certified for the 5-year
period beginning on the date on which the
Secretary certifies the program; and
(ii) during the 5-year period described in
clause (i), remain eligible to receive
allocations under the Program, except as
otherwise expressly provided in this section.
(B) Re-certification.--After the end of the 5-year
period described in subparagraph (A)(i) with respect to
an approved State program, the Secretary may re-certify
the approved State program after obtaining from the
applicable participating State any materials that the
Secretary may require.
(C) Exception for material changes.--If, during the
5-year period described in subparagraph (A)(i) with
respect to an approved State program, there are
material changes made to the structure or
administration of the approved State program, the
applicable participating State, in order to maintain
the certification for the approved State program, shall
submit to the Secretary an updated application that
contains any materials that the Secretary may require.
(d) Allocations.--
(1) Formula.--
(A) In general.--Subject to subparagraphs (B) and
(C), the amount of an allocation to a participating
State under the Program shall be calculated as follows:
(i) With respect to an allocation made from
the amount appropriated under section 8(a)(1),
the allocation shall be calculated as follows:
(I) Divide the total population of
the State by the total population of
the United States.
(II) Multiply the total amount
appropriated under section 8(a)(1) by
the quotient obtained under subclause
(I) with respect to the State.
(ii) With respect to an allocation made
from any amounts appropriated to carry out the
Program under the authorization provided under
section 8(b), the allocation shall be
calculated as follows:
(I) Divide the total population of
the State by the total population of
the United States.
(II) Multiply the quotient obtained
under subclause (I) with respect to the
State by the total amount made
available to carry out the Program for
the fiscal year in which the allocation
is made.
(B) States with a high level of venture capital
activity.--
(i) Purpose.--The purpose of this
subparagraph is to, for the purposes of the
calculation under subparagraph (A) with respect
to certain States, exclude areas with high
levels of venture capital activity from the
populations of those States.
(ii) Calculation.--Subject to any rules
issued under clause (iii), with respect to the
calculation under subparagraph (A) for the
States of California, Massachusetts, and New
York, the total populations of those States
shall be adjusted as follows:
(I) With respect to California, the
populations of the following counties
shall be subtracted from the total
population of that State:
(aa) Marin County.
(bb) Sonoma County.
(cc) Napa County.
(dd) Contra Costa County.
(ee) Santa Clara County.
(ff) San Mateo County.
(gg) San Francisco County.
(hh) Los Angeles County.
(ii) Orange County.
(jj) Ventura County.
(II) With respect to Massachusetts,
the populations of the following
counties shall be subtracted from the
total population of that State:
(aa) Essex County.
(bb) Middlesex County.
(cc) Suffolk County.
(dd) Norfolk County.
(III) With respect to New York, the
populations of the following counties
shall be subtracted from the total
population of that State:
(aa) Kings County.
(bb) Queens County.
(cc) New York County.
(dd) Bronx County.
(ee) Richmond County.
(iii) Rule making.--As the Secretary
determines to be appropriate, the Secretary may
issue rules to amend the list of counties under
subclause (I), (II), or (III) of clause (ii) in
order to fulfill the purpose described in
clause (i).
(C) Minimum allocation.--The allocation to a
participating State under the Program shall be in an
amount that is not less than--
(i) with respect to an allocation made from
the amount appropriated under section 8(a)(1),
1 percent of that amount; and
(ii) with respect to an allocation made
from amounts appropriated in a fiscal year to
carry out the Program under the authorization
provided under section 8(b), 1 percent of the
total amount made available to carry out the
Program for that fiscal year.
(2) Delivery.--
(A) In general.--Subject to the other provisions of
this paragraph, the Secretary shall--
(i) apportion the amount allocated to a
participating State under this subsection into
thirds;
(ii) transfer the first \1/3\ described in
clause (i) to a participating State not later
than 30 days after the date on which the
Secretary approves the State program of the
State; and
(iii) transfer each successive \1/3\
described in clause (i) to a participating
State when the State has certified to the
Secretary that the State has expended,
transferred, or obligated 80 percent of the
most recently allocated \1/3\ for Federal
contributions.
(B) Use of amounts.--Each amount allocated to a
participating State under this subsection shall remain
available to the State--
(i) for making Federal contributions; and
(ii) in the case of each \1/3\ transferred
under subparagraph (A), for paying
administrative costs incurred by the State in
implementing an approved State program of the
State in an amount that is not more than 5
percent of that \1/3\ amount.
(C) Withholding.--The Secretary may withhold a \1/
3\ transfer under subparagraph (A) pending the results
of a financial audit by the Secretary of the applicable
approved State program.
(D) Exception.--The Secretary may, in the
discretion of the Secretary, transfer the full amount
allocated to a participating State under this
subsection in a single transfer if the State submits to
the Secretary an application that demonstrates the need
for such a method of transfer.
(3) Remaining funds.--If, after allocating funds to
participating States under this subsection, there are amounts
remaining from the amounts made available to carry out the
Program (without regard to whether those amounts were made
available under section 8(a)(1) or pursuant to the
authorization provided under section 8(b)), the Secretary shall
allocate the remaining amounts in accordance with paragraphs
(1) and (2).
(e) Rules.--Not later than 90 days after the date of enactment of
this Act, the Secretary shall initiate a rule making to issue rules
regarding the administration of the Program, which shall include the
establishment of the minimum standards described in subsection (b)(1).
SEC. 4. FOLLOW-ON INVESTMENTS.
(a) In General.--The Secretary shall allocate the amount
appropriated under section 8(a)(2), and any future amounts appropriated
to carry out this section under the authorization provided under
section 8(b), to approved State programs to facilitate follow-on
investments.
(b) Process.--To carry out the allocations under this section, the
Secretary shall manage a competitive process, facilitated by an expert
consultant from the private sector, to award funding to approved State
programs to provide follow-on investments.
(c) Amount.--A follow-on investment under subsection (b) shall be
in an amount that is not less than $5,000,000 and not more than
$50,000,000.
(d) Fees.--With respect to the expert consultant described in
subsection (b)--
(1) the Secretary may pay management fees to the consultant
in an amount that is not more than 0.5 percent of the co-
investment funds managed by the consultant over the term of the
program under this section; and
(2) the consultant may receive not more than 10 percent of
the profit interest earned by the States participating in the
program under this section from the proceeds of successful
follow-on investments.
(e) Rules.--Not later than 180 days after the date of enactment of
this Act, the Secretary shall issue rules--
(1) to determine the eligibility of States that wish to
participate in the program established under this section,
which shall include the exclusion under section 3(d)(1)(B)(ii);
(2) to provide the manner in which States may make the
follow-on investments described in this section;
(3) that shall permit multiple States to work together to
invest in startups; and
(4) to determine an appropriate time to make the
allocations required under this section with respect to follow-
on investments in startups for which the original equity
investments were made under the Program.
SEC. 5. EXITS AND REPAYMENT.
(a) Exits.--
(1) In general.--If a State to which an allocation is made
under a covered program receives funds from an exit with
respect to a covered investment, the State shall use those
funds to further invest in startups in the manner contemplated
by the applicable covered program.
(2) Enforcement.--The Secretary shall--
(A) require that each allocation agreement
described in section 3(c)(1)(D) include the requirement
under paragraph (1); and
(B) in any audit conducted of the State by the
Secretary under a covered program, confirm that there
is compliance with respect to the requirement under
paragraph (1).
(b) Failure To Reinvest.--If a State to which an allocation is made
under a covered program receives funds from an exit with respect to a
covered investment and fails to comply with any requirement under this
Act, that State shall repay to the Secretary the amount of that
allocation, including any realized gains.
SEC. 6. EXPEDITED CONTRACTING.
For the purposes of carrying out this Act, during the 1-year period
beginning on the date of enactment of this Act, the Secretary may enter
into contracts without regard to any other provision of law regarding
public contracts.
SEC. 7. REPORTING.
(a) Quarterly Reports From States to the Secretary.--
(1) In general.--Not later than 30 days after the first day
of each calendar quarter that begins after the date on which
the Secretary issues final rules in the rule making initiated
under section 3(e), each participating State that has received
an allocation under the Program and each State to which funding
is awarded under section 4(b) shall submit to the Secretary a
report regarding the use, during the quarter preceding the
quarter in which the State submits the report, of funds
received under the applicable covered program.
(2) Contents.--In each report that a State is required to
submit under paragraph (1), the State shall, with respect to
the quarter covered by the report--
(A) indicate the total amount of funds during the
quarter that the State received under the covered
programs and expended; and
(B) contain a certification by the State that--
(i) all of the information contained in the
report is accurate;
(ii) funds allocated to the State under the
covered programs continue to be available and
legally committed to an approved State program
of the State, except for funds already expended
by the State in carrying out the approved State
program; and
(iii) the State is carrying out the
approved State program of the State in
accordance with this Act and rules issued under
this Act.
(b) Annual Reports From States to the Secretary.--Not later than
March 31 of each year in which the covered programs are in effect, each
participating State that has received an allocation under the Program
and each State to which funding is awarded under section 4(b) shall
submit to the Secretary an annual report with respect to the year
preceding the year in which the report is submitted, which shall
include, for the year covered by the report--
(1) the number of startups supported by an investment made
through an approved State program of the State;
(2) the total number of investments made through an
approved State program of the State;
(3) the amount of private capital leverage for each covered
investment made through an approved State program of the State
and collectively by the State under the covered programs and
the source of any private capital match;
(4) a breakdown of investments made through an approved
State program of the State by, with respect to the startups in
which the investments were made, industry type, investment
size, age of entity, annual sales, geographic location (which
shall be indicated by zip code), and number of employees; and
(5) any other information that the Secretary, in the sole
discretion of the Secretary, may require to carry out the
purposes of the covered programs.
(c) Annual Reports From the Secretary to Congress.--
(1) Reporting requirement.--
(A) In general.--The Secretary shall submit to the
Committee on Banking, Housing, and Urban Affairs of the
Senate and the Committee on Financial Services of the
House of Representatives an annual report that
summarizes information reported to the Secretary by
States that details, for the year covered by the
report, outcomes from investments made pursuant to
funds allocated under the covered programs.
(B) Length of requirement.--The Secretary shall
submit the annual report required under subparagraph
(A) until the later of--
(i) the year that is 12 years after the
date of enactment of this Act; or
(ii) the year in which no investment is
made through either of the covered programs.
(2) Reserve of amounts.--Of amounts appropriated to carry
out the covered programs under section 8(a)(1), and amounts
that may be appropriated under the authorization provided under
section 8(b), the Secretary may reserve a percentage of the
amounts in order to carry out paragraph (1).
SEC. 8. APPROPRIATIONS; DEPOSITS.
(a) Direct Appropriation.--There are appropriated, out of monies in
the Treasury not otherwise appropriated, $2,000,000,000 as follows:
(1) $1,500,000,000 to carry out the Program, including any
administrative costs incurred in carrying out the Program.
(2) $500,000,000 to carry out the follow-on investments
program established under section 4, including any
administrative costs incurred in carrying out that program.
(b) Authorization of Future Appropriations.--In addition to the
appropriation under subsection (a), there is authorized to be
appropriated to the Secretary such sums as may be necessary to carry
out this Act.
(c) Deposits.--In addition to the amount appropriated under
subsection (a), and any amounts that may be appropriated under the
authorization provided under subsection (b), the Secretary may, in
accordance with the requirements of this Act, expend any funds repaid
to the Secretary under section 5(b).
(d) Availability of Funds.--
(1) In general.--The amount appropriated under subsection
(a), and any amounts that may be appropriated under the
authorization provided under subsection (b), shall remain
available, without fiscal year limitation, until expended.
(2) Availability of certain deposits.--Any amounts repaid
to the Secretary as described in subsection (c) shall remain
available, without fiscal year limitation, until expended.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Financial Services.
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