Sec. 3. ISEI Program
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There is established in the Department of the Treasury the Innovation and Startups Equity Investment Program— which shall be administered by the Secretary; and under which— the Secretary shall, in accordance with the provisions of this section, allocate to participating States— the amount appropriated under section 8(a)(1); and any future amounts appropriated to carry out the Program under the authorization provided under section 8(b); participating States to which funds are allocated under subparagraph
(A)shall, through approved State programs, provide equity investment in startups; and 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. In administering the Program, the Secretary shall— establish minimum standards for a State program to be considered an approved State program; provide technical assistance to States for designing State programs and implementing approved State programs; disseminate information relating to best practices with respect to the design and implementation described in paragraph (2); perform any managerial or administrative function that is necessary to maintain the integrity of the Program; and provide oversight of the Program, including by reviewing whether each approved State program is in compliance with the requirements of the Program. A State may become a participating State if— the State— 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 has a contractual arrangement— with a participating State that has an approved State program; and through which the participating State described in subclause
(I)will implement and administer the State program of the State; 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; the State submits to the Secretary an application described in paragraph (2)(B) during a time period to be established by the Secretary; and the State and the Secretary enter into an allocation agreement that— satisfies the requirements of this Act, including the requirement under section 5(a)(2)(A); provides that the State program established by the State will comply with any standards established by the Secretary in carrying out this Act; 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; 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 includes an agreement by the State to submit to the Secretary any reports required under the Program, including those required under section 7. The Secretary may certify a State program that uses either of the following structures as an approved State program: 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: A State agency may not serve as the manager of the program. Any investment made under the program shall have not less than 50 percent of the investment funded using nongovernment sources. A State-sponsored entity or nonprofit organization serving as the manager under the program may charge a market rate annual management fee. The State may allow the manager under the program to receive a market-rate profit share. The manager under the program shall actively— educate minority-owned and women-owned startups regarding the process through which the manager makes equity investments; and pursue equity investments in startups described in item (aa). 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: 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. 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. 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. 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— a venture capital supply and accessibility study listing, which shall include— 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; sources of equity investments in startups; and a summary of investment activity in the State from accredited investors that are not venture capital funds; 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; 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; 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— the total amount expended in direct support of small businesses under the Initiative in the State; the total amount of private capital leverage generated by each approved program under the Initiative in the State; the amount of funds made available under the Initiative in the State that were not ultimately expended, if any; the amount of capital returned to the State in the form of investment returns or loan repayments under the Initiative; and the actual uses of residual funds generated from the Initiative in the State; 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 an identification of which model described in subparagraph
(A)the State intends to use for the State program of the State. 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. Except as provided in subparagraph (C), a State program that the Secretary certifies as an approved State program under this subsection shall— remain so certified for the 5-year period beginning on the date on which the Secretary certifies the program; and 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. 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. 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. Subject to subparagraphs
(B)and (C), the amount of an allocation to a participating State under the Program shall be calculated as follows: With respect to an allocation made from the amount appropriated under section 8(a)(1), the allocation shall be calculated as follows: Divide the total population of the State by the total population of the United States. Multiply the total amount appropriated under section 8(a)(1) by the quotient obtained under subclause
(I)with respect to the State. 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: Divide the total population of the State by the total population of the United States. 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. 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. 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: With respect to California, the populations of the following counties shall be subtracted from the total population of that State: Marin County. Sonoma County. Napa County. Contra Costa County. Santa Clara County. San Mateo County. San Francisco County. Los Angeles County. Orange County. Ventura County. With respect to Massachusetts, the populations of the following counties shall be subtracted from the total population of that State: Essex County. Middlesex County. Suffolk County. Norfolk County. With respect to New York, the populations of the following counties shall be subtracted from the total population of that State: Kings County. Queens County. New York County. Bronx County. Richmond County. 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). The allocation to a participating State under the Program shall be in an amount that is not less than— with respect to an allocation made from the amount appropriated under section 8(a)(1), 1 percent of that amount; and 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. Subject to the other provisions of this paragraph, the Secretary shall— apportion the amount allocated to a participating State under this subsection into thirds; 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 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. Each amount allocated to a participating State under this subsection shall remain available to the State— for making Federal contributions; and 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. 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. 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. 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). 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).
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