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I
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 Ala-
bama) 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, cre-
ate jobs, and accelerate economic growth, and for other
purposes.
Be it enacted by the Senate and House of Representa-
1
tives of the United States of America in Congress assembled,
2
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SECTION 1. SHORT TITLE.
1
This Act may be cited as the ‘‘New Business Preser-
2
vation Act’’.
3
SEC. 2. DEFINITIONS.
4
In this Act:
5
(1) APPROVED
STATE
PROGRAM.—The term
6
‘‘approved State program’’ means a State program
7
that is approved by the Secretary in accordance with
8
the standards established under section 3(b)(1).
9
(2) COVERED
INVESTMENT.—The term ‘‘cov-
10
ered investment’’ means an equity investment in a
11
startup using amounts made available to carry out
12
the covered programs.
13
(3) COVERED PROGRAMS.—The term ‘‘covered
14
programs’’ means the Program and the program
15
carried out under section 4.
16
(4) EQUITY INVESTMENT.—The term ‘‘equity
17
investment’’—
18
(A) means an investment for an ownership
19
interest in an entity, the financial return with
20
respect to which is principally aligned with the
21
financial return of the plurality of ownership in-
22
terests in the entity; and
23
(B) includes a debt instrument that can be
24
converted to an equity ownership interest in an
25
entity based on future events.
26
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(5) EXIT.—The term ‘‘exit’’, with respect to a
1
startup in which there is a covered investment,
2
means—
3
(A) the acquisition of the startup;
4
(B) after an initial public offering with re-
5
spect to the startup, the sale of a share of the
6
startup that was obtained through the covered
7
investment; or
8
(C) the voluntary purchase of ownership
9
interests by the startup, investors, or existing
10
shareholders.
11
(6) FEDERAL CONTRIBUTION.—The term ‘‘Fed-
12
eral contribution’’ means a contribution made—
13
(A) by a participating State to, or for the
14
account of, an approved State program; and
15
(B) with Federal funds allocated to the
16
participating State by the Secretary.
17
(7) FOLLOW-ON INVESTMENT.—The term ‘‘fol-
18
low-on investment’’ means a subsequent equity in-
19
vestment in a startup in which there was originally
20
a separate and distinct equity investment under—
21
(A) a program carried out under the State
22
Small Business Credit Initiative Act of 2010
23
(12 U.S.C. 5701 et seq.); or
24
(B) the Program.
25
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(8) MARKET
RATE
MANAGEMENT
FEE
AND
1
PROFIT INTEREST.—The term ‘‘market rate man-
2
agement fee and profit interest’’ means the usual
3
and customary compensation structure paid to fund
4
managers for fund investment management services
5
under agreements with private sector limited part-
6
ners.
7
(9) PARTICIPATING STATE.—The term ‘‘partici-
8
pating State’’ means a State that participates in the
9
Program after having satisfied the approval criteria
10
under section 3(c).
11
(10) PROGRAM.—The term ‘‘Program’’ means
12
the Innovation and Startups Equity Investment Pro-
13
gram established under section 3(a).
14
(11) QUALIFYING AREA.—The term ‘‘qualifying
15
area’’ means an area of the United States outside of
16
the major venture capital centers, as determined in
17
the rule making conducted by the Secretary under
18
section 3(e).
19
(12) RULE; RULE MAKING.—The terms ‘‘rule’’
20
and ‘‘rule making’’ have the meanings given those
21
terms in section 551 of title 5, United States Code.
22
(13)
SECRETARY.—The
term
‘‘Secretary’’
23
means the Secretary of the Treasury.
24
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(14) STARTUP.—The term ‘‘startup’’ means a
1
business entity that—
2
(A) has been in existence for less than 10
3
years;
4
(B) has the intention or potential to—
5
(i) significantly scale with respect to
6
revenue and job creation;
7
(ii) develop innovative products or
8
services; and
9
(iii) deliver high returns on invest-
10
ment; and
11
(C) is headquartered in a qualifying area.
12
(15) STATE.—
13
(A) IN
GENERAL.—The term ‘‘State’’
14
means—
15
(i) a State of the United States; and
16
(ii) the District of Columbia.
17
(B) RULE OF CONSTRUCTION.—The Com-
18
monwealth of Puerto Rico, the United States
19
Virgin Islands, Guam, American Samoa, and
20
the Commonwealth of the Northern Mariana Is-
21
lands shall collectively be considered to be 1
22
State for the purposes of this Act.
23
(16) STATE PROGRAM.—The term ‘‘State pro-
24
gram’’ means a program established by a State to
25
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provide equity investment in startups or venture
1
capital funds that are headquartered in qualifying
2
areas, without regard to whether those qualifying
3
areas are located in the State.
4
(17) VENTURE
CAPITAL
FUND.—The term
5
‘‘venture capital fund’’ has the meaning given the
6
term in section 275.203(l)–1 of title 17, Code of
7
Federal Regulations, or any successor regulation.
8
SEC. 3. ISEI PROGRAM.
9
(a) ESTABLISHMENT.—There is established in the
10
Department of the Treasury the Innovation and Startups
11
Equity Investment Program—
12
(1) which shall be administered by the Sec-
13
retary; and
14
(2) under which—
15
(A) the Secretary shall, in accordance with
16
the provisions of this section, allocate to partici-
17
pating States—
18
(i) the amount appropriated under
19
section 8(a)(1); and
20
(ii) any future amounts appropriated
21
to carry out the Program under the au-
22
thorization provided under section 8(b);
23
(B) participating States to which funds are
24
allocated
under
subparagraph
(A)
shall,
25
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•HR 6403 IH
through approved State programs, provide eq-
1
uity investment in startups; and
2
(C) money (including securities) returned
3
to States after exits with respect to the invest-
4
ments described in subparagraph (B) shall be
5
reinvested through follow-on investments, as
6
further provided in section 5.
7
(b) DUTIES OF THE SECRETARY.—In administering
8
the Program, the Secretary shall—
9
(1) establish minimum standards for a State
10
program to be considered an approved State pro-
11
gram;
12
(2) provide technical assistance to States for
13
designing State programs and implementing ap-
14
proved State programs;
15
(3) disseminate information relating to best
16
practices with respect to the design and implementa-
17
tion described in paragraph (2);
18
(4) perform any managerial or administrative
19
function that is necessary to maintain the integrity
20
of the Program; and
21
(5) provide oversight of the Program, including
22
by reviewing whether each approved State program
23
is in compliance with the requirements of the Pro-
24
gram.
25
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•HR 6403 IH
(c) APPROVAL CRITERIA.—
1
(1) PARTICIPATING STATES.—A State may be-
2
come a participating State if—
3
(A) the State—
4
(i) designates a specific department or
5
agency of the State, or an entity supported
6
by the State, to implement and administer
7
a State program of the State; or
8
(ii) has a contractual arrangement—
9
(I) with a participating State
10
that has an approved State program;
11
and
12
(II) through which the partici-
13
pating State described in subclause
14
(I) will implement and administer the
15
State program of the State;
16
(B) the State takes all legal actions nec-
17
essary to enable the entity that, under subpara-
18
graph (A), will implement the State program of
19
the State to carry out that implementation;
20
(C) the State submits to the Secretary an
21
application described in paragraph (2)(B) dur-
22
ing a time period to be established by the Sec-
23
retary; and
24
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•HR 6403 IH
(D) the State and the Secretary enter into
1
an allocation agreement that—
2
(i) satisfies the requirements of this
3
Act, including the requirement under sec-
4
tion 5(a)(2)(A);
5
(ii) provides that the State program
6
established by the State will comply with
7
any standards established by the Secretary
8
in carrying out this Act;
9
(iii) establishes internal control, com-
10
pliance, and reporting requirements estab-
11
lished by the Secretary and any other
12
terms and conditions that are necessary to
13
carry out the Program, including an agree-
14
ment by the State to permit the Secretary
15
to audit the State program established by
16
the State;
17
(iv) requires that, not later than 180
18
days after the date on which the State and
19
the Secretary enter into the agreement (or
20
a later date if the Secretary determines
21
that later date to be appropriate), the
22
State program of the State is able to make
23
the type of equity investments con-
24
templated by this Act; and
25
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•HR 6403 IH
(v) includes an agreement by the
1
State to submit to the Secretary any re-
2
ports required under the Program, includ-
3
ing those required under section 7.
4
(2) APPROVED STATE PROGRAMS.—
5
(A) MODELS.—The Secretary may certify
6
a State program that uses either of the fol-
7
lowing structures as an approved State pro-
8
gram:
9
(i) A program in which a State-sup-
10
ported entity or a private investment firm
11
(referred to in this clause as the ‘‘man-
12
ager’’) directly invests in startups in ac-
13
cordance with the following requirements:
14
(I) A State agency may not serve
15
as the manager of the program.
16
(II) Any investment made under
17
the program shall have not less than
18
50 percent of the investment funded
19
using nongovernment sources.
20
(III) A State-sponsored entity or
21
nonprofit organization serving as the
22
manager under the program may
23
charge a market rate annual manage-
24
ment fee.
25
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•HR 6403 IH
(IV) The State may allow the
1
manager under the program to receive
2
a market-rate profit share.
3
(V) The manager under the pro-
4
gram shall actively—
5
(aa) educate minority-owned
6
and women-owned startups re-
7
garding
the
process
through
8
which the manager makes equity
9
investments; and
10
(bb) pursue equity invest-
11
ments in startups described in
12
item (aa).
13
(ii) A program in which a State-sup-
14
ported entity or a private investment firm
15
establishes a fund to invest in other invest-
16
ment funds in accordance with the fol-
17
lowing requirements:
18
(I) The fund established under
19
the program may charge a market
20
rate management fee paid by the ad-
21
ministrator of the program with pro-
22
gram funds and receive a market rate
23
management fee and profit interest.
24
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(II) If the State has an above av-
1
erage per capita venture capital mar-
2
ket share, the State shall prioritize al-
3
locations by the fund established
4
under the program to funds managed
5
by first-time managers, women, and
6
minorities.
7
(III) The allocations made by the
8
fund established under the program
9
shall be in an amount that is not
10
more than 20 percent of the capital
11
raised by that fund, except that, with
12
respect to a recipient fund described
13
in subclause (II), that amount shall be
14
50 percent.
15
(B) APPLICATION.—A State that wishes to
16
have a State program of the State certified by
17
the Secretary as an approved State program
18
shall submit to the Secretary an application
19
that contains—
20
(i) a venture capital supply and acces-
21
sibility study listing, which shall include—
22
(I) a list of active, as of the date
23
on which the application is submitted,
24
venture capital funds in the State
25
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•HR 6403 IH
with capital under management, seg-
1
regated by funds that actively invest
2
in startups and funds that no longer
3
actively invest in startups;
4
(II) sources of equity investments
5
in startups; and
6
(III) a summary of investment
7
activity in the State from accredited
8
investors that are not venture capital
9
funds;
10
(ii) for the 10-year period preceding
11
the date on which the State submits the
12
application, a list of each State-sponsored
13
program, the intent of which is to stimu-
14
late equity investment in startups, includ-
15
ing the policies implemented under each
16
such program and the reported results of
17
each such program;
18
(iii) a list of active, as of the date on
19
which the application is submitted, State
20
pension fund investments in venture cap-
21
ital funds and similar types of investments;
22
(iv) a final report on outcomes in the
23
State under each program
[Text truncated for display. Full text available on Congress.gov.]