Sec. 101. Small business early-stage investment program
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Title III of the Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.) is amended by adding at the end the following: The Administrator shall establish and carry out an early-stage investment program (hereinafter referred to in this part as the program ) to provide equity investment financing to support early-stage small businesses in accordance with this part. The program shall be administered by the Administrator acting through the Associate Administrator described under section 201.
Any existing or newly formed incorporated body, limited liability company, or limited partnership organized and chartered or otherwise existing under Federal or State law for the purpose of performing the functions and conducting the activities contemplated under the program and any manager of any small business investment company may submit to the Administrator an application to participate in the program. An application to participate in the program shall include the following:
A business plan describing how the applicant intends to make successful venture capital investments in early-stage small businesses and direct capital to small business concerns in targeted industries or other business sectors. Information regarding the relevant venture capital investment qualifications and backgrounds of the individuals responsible for the management of the applicant. A description of the extent to which the applicant meets the selection criteria under section 399D.
The Administrator shall establish an abbreviated application process for applicants that are managers of small business investment companies that are licensed under section 301 and that are applying to participate in the program. Such abbreviated process shall incorporate a presumption that such managers satisfactorily meet the selection criteria under paragraphs
(3)and
(5)of section 399D(b). Not later than 90 days after the date on which the Administrator receives an application from an applicant under section 399C, the Administrator shall make a determination to conditionally approve or disapprove such applicant to participate in the program and shall transmit such determination to the applicant in writing. A determination to conditionally approve an applicant shall identify all conditions necessary for a final approval and shall provide a period of not less than one year for satisfying such conditions. In making a determination under subsection (a), the Administrator shall consider each of the following: The likelihood that the applicant will meet the goals specified in the business plan of the applicant. The likelihood that the investments of the applicant will create or preserve jobs, both directly and indirectly. The character and fitness of the management of the applicant. The experience and background of the management of the applicant. The extent to which the applicant will concentrate investment activities on early-stage small businesses. The likelihood that the applicant will achieve profitability. The experience of the management of the applicant with respect to establishing a profitable investment track record. The extent to which the applicant will concentrate investment activities on small business concerns in targeted industries. For each applicant provided a conditional approval under subsection (a), the Administrator shall provide final approval to participate in the program not later than 90 days after the date the applicant satisfies the conditions specified by the Administrator under such subsection or, in the case of applicants whose partnership or management agreements conform to models approved by the Administrator, the Administrator shall provide final approval to participate in the program not later than 30 days after the date the applicant satisfies the conditions specified under such subsection. If an applicant provided conditional approval under subsection
(a)fails to satisfy the conditions specified by the Administrator in the time period designated under such subsection, the Administrator shall revoke the conditional approval. The Administrator may make one or more equity financings to a participating investment company. An equity financing made to a participating investment company under the program may not be in an amount that exceeds the amount of the capital of such company that is not from a Federal source and that is available for investment on or before the date on which an equity financing is drawn upon. Such capital may include legally binding commitments with respect to capital for investment. The aggregate amount of all equity financings made to a participating investment company under the program may not exceed $100,000,000. In making an equity financing under the program, the Administrator shall commit an equity financing amount to a participating investment company and the amount of each such commitment shall remain available to be drawn upon by such company— for new-named investments during the 5-year period beginning on the date on which each such commitment is first drawn upon; and for follow-on investments and management fees during the 10-year period beginning on the date on which each such commitment is first drawn upon, with not more than 2 additional 1-year periods available at the discretion of the Administrator. The Administrator shall make commitments for equity financings not later than 2 years after the date funds are appropriated for the program. As a condition of receiving an equity financing under the program, a participating investment company shall make all of the investments of such company in small business concerns, of which at least 50 percent shall be early-stage small businesses. With respect to an equity financing amount committed to a participating investment company under section 399E, the Administrator shall evaluate the compliance of such company with the requirements under this section if such company has drawn upon 50 percent of such commitment. Each investment made by a participating investment company under the program shall be treated as comprised of capital from equity financings under the program according to the ratio that capital from equity financings under the program bears to all capital available to such company for investment. As a condition of receiving an equity financing under the program, a participating investment company shall convey an equity financing interest to the Administrator in accordance with paragraph (2). The equity financing interest conveyed under paragraph
(1)shall have all the rights and attributes of other investors attributable to their interests in the participating investment company, but shall not denote control or voting rights to the Administrator. The equity financing interest shall entitle the Administrator to a pro rata portion of any distributions made by the participating investment company equal to the percentage of capital in the participating investment company that the equity financing comprises. The Administrator shall receive distributions from the participating investment company at the same times and in the same amounts as any other investor in the company with a similar interest. The investment company shall make allocations of income, gain, loss, deduction, and credit to the Administrator with respect to the equity financing interest as if the Administrator were an investor. As a condition of receiving an equity financing under the program, the manager profits interest payable to the managers of a participating investment company under the program shall not exceed 20 percent of profits, exclusive of any profits that may accrue as a result of the capital contributions of any such managers with respect to such company. Any excess of this amount, less taxes payable thereon, shall be returned by the managers and paid to the investors and the Administrator in proportion to the capital contributions and equity financings paid in. No manager profits interest (other than a tax distribution) shall be paid prior to the repayment to the investors and the Administrator of all contributed capital and equity financings made. As a condition of receiving an equity financing under the program, a participating investment company shall make all distributions to all investors in cash and shall make distributions within a reasonable time after exiting investments, including following a public offering or market sale of underlying investments. There is hereby created within the Treasury a separate fund for equity financings which shall be available to the Administrator subject to annual appropriations as a revolving fund to be used for the purposes of the program. All amounts received by the Administrator, including any moneys, property, or assets derived by the Administrator from operations in connection with the program, shall be deposited in the fund. All expenses and payments, excluding administrative expenses, pursuant to the operations of the Administrator under the program shall be paid from the fund. To the extent not inconsistent with requirements under this part, the Administrator may apply sections 309, 311, 312, 313, and 314 to activities under this part and an officer, director, employee, agent, or other participant in a participating investment company shall be subject to the requirements under such sections. The Administrator shall report on the performance of the program in the annual performance report of the Administration. In this part, the following definitions apply: The term early-stage small business means a small business concern that— is domiciled in a State; and has not generated gross annual sales revenues exceeding $15,000,000 in any of the previous 3 years. The term participating investment company means an applicant approved under section 399D to participate in the program. The term targeted industries means any of the following business sectors: Agricultural technology. Energy technology. Environmental technology. Life science. Information technology. Digital media. Clean technology. Defense technology. .
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Sec. 101
Small business early-stage investment program
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