Sec. 5107. PARTICIPATION BY FIRMS WITH SUBSTANTIAL INVESTMENT FROM MULTIPLE VENTURE CAPITAL OPERATING COMPANIES, HEDGE FUNDS, OR PRIVATE EQUITY FIRMS IN A PORTION OF THE SBIR PROGRAM
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## SEC. 5107 PARTICIPATION BY FIRMS WITH SUBSTANTIAL INVESTMENT FROM MULTIPLE VENTURE CAPITAL OPERATING COMPANIES, HEDGE FUNDS, OR PRIVATE EQUITY FIRMS IN A PORTION OF THE SBIR PROGRAM ###
(a)In General Section 9 of the Small Business Act (15 U.S.C. 638), as amended by this title, is further amended by adding at the end the following: > > ###### “(dd) Participation of Small Business Concerns Majority-Owned by Venture Capital Operating Companies, Hedge Funds, or Private Equity Firms in the SBIR Program > > > #### “(1) Authority > > Upon providing a written determination described in paragraph
(2)to the Administrator, the Committee on Small Business and Entrepreneurship of the Senate, and the Committee on Small Business and the Committee on Science, Space, and Technology of the House of Representatives, not later than 30 days before the date on which any such award is made— > > > ##### “(A) > > the Director of the National Institutes of Health, the Secretary of Energy, and the Director of the National Science Foundation may award not more than 25 percent of the funds allocated for the SBIR program of the applicable Federal agency to small business concerns that are owned in majority part by multiple venture capital operating companies, hedge funds, or private equity firms through competitive, merit-based procedures that are open to all eligible small business concerns; and > > > ##### “(B) > > the head of a Federal agency other than a Federal agency described in subparagraph
(A)that participates in the SBIR program may award not more than 15 percent of the funds allocated for the SBIR program of the Federal agency to small business concerns that are owned in majority part by multiple venture capital operating companies, hedge funds, or private equity firms through competitive, merit-based procedures that are open to all eligible small business concerns. > > > #### “(2) Determination > > A written determination described in this paragraph is a written determination by the head of a Federal agency that explains how the use of the authority under paragraph
(1)will— > > > ##### “(A) > > induce additional venture capital, hedge fund, or private equity firm funding of small business innovations; > > > ##### “(B) > > substantially contribute to the mission of the Federal agency; > > > ##### “(C) > > demonstrate a need for public research; and > > > ##### “(D) > > otherwise fulfill the capital needs of small business concerns for additional financing for SBIR projects. > > > #### “(3) Registration > > A small business concern that is majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms and qualified for participation in the program authorized under paragraph
(1)shall— > > > ##### “(A) > > register with the Administrator on the date that the small business concern submits an application for an award under the SBIR program; and > > > ##### “(B) > > indicate in any SBIR proposal that the small business concern is registered under subparagraph
(A)as majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms. > > > #### “(4) Compliance > > > ##### “(A) In general > > The head of a Federal agency that makes an award under this subsection during a fiscal year shall collect and submit to the Administrator data relating to the number and dollar amount of Phase I awards, Phase II awards, and any other category of awards by the Federal agency under the SBIR program during that fiscal year. > > > ##### “(B) Annual reporting > > The Administrator shall include as part of each annual report by the Administration under subsection (b)(7) any data submitted under subparagraph
(A)and a discussion of the compliance of each Federal agency that makes an award under this subsection during the fiscal year with the maximum percentages under paragraph (1). > > > #### “(5) Enforcement > > If a Federal agency awards more than the percent of the funds allocated for the SBIR program of the Federal agency authorized under paragraph
(1)for a purpose described in paragraph (1), the head of the Federal agency shall transfer an amount equal to the amount awarded in excess of the amount authorized under paragraph
(1)to the funds for general SBIR programs from the non-SBIR and non-STTR research and development funds of the Federal agency not later than 180 days after the date on which the Federal agency made the award that caused the total awarded under paragraph
(1)to be more than the amount authorized under paragraph
(1)for a purpose described in paragraph (1). > > > #### “(6) Final decisions on applications under the sbir program > > > ##### “(A) Definition > > In this paragraph, the term ‘covered small business concern’ means a small business concern that— > > > ###### “(i) > > was not majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms on the date on which the small business concern submitted an application in response to a solicitation under the SBIR programs; and > > > ###### “(ii) > > on the date of the award under the SBIR program is majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms. > > > ##### “(B) In general > > If a Federal agency does not make an award under a solicitation under the SBIR program before the date that is 9 months after the date on which the period for submitting applications under the solicitation ends— > > > ###### “(i) > > a covered small business concern is eligible to receive the award, without regard to whether the covered small business concern meets the requirements for receiving an award under the SBIR program for a small business concern that is majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms, if the covered small business concern meets all other requirements for such an award; and > > > ###### “(ii) > > the head of the Federal agency shall transfer an amount equal to any amount awarded to a covered small business concern under the solicitation to the funds for general SBIR programs from the non-SBIR and non-STTR research and development funds of the Federal agency, not later than 90 days after the date on which the Federal agency makes the award. > > > #### “(7) Evaluation criteria > > A Federal agency may not use investment of venture capital or investment from hedge funds or private equity firms as a criterion for the award of contracts under the SBIR program or STTR program.” > . ###
(b)Definitions Section 3 of the Small Business Act (15 U.S.C. 632) is amended by adding at the end the following: > > ###### “(aa) Venture Capital Operating Company > > In this Act, the term ‘venture capital operating company’ means an entity described in clause (i), (v), or
(vi)of section 121.103(b)(5) of title 13, Code of Federal Regulations (or any successor thereto). > > > ###### “(bb) Hedge Fund > > In this Act, the term ‘hedge fund’ has the meaning given that term in section 13(h)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1851(h)(2)). > > > ###### “(cc) Private Equity Firm > > In this Act, the term ‘private equity firm’ has the meaning given the term ‘private equity fund’ in section 13(h)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1851(h)(2)).” > . ###
(c)Rulemaking To Ensure That Firms That Are Majority-Owned by Multiple Venture Capital Operating Companies, Hedge Funds, Or Private Equity Firms Are Able To Participate in a Portion of the SBIR Program **[**[15 U.S.C. 638 note](/us/usc/t15/s638)**]** ####
(1)Statement of congressional intent It is the stated intent of Congress that the Administrator should promulgate regulations to carry out the authority under section 9(dd) of the Small Business Act, as added by this section, that— #####
(A)permit small business concerns that are majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms to participate in the SBIR program in accordance with section 9(dd) of the Small Business Act; #####
(B)provide specific guidance for small business concerns that are majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms with regard to eligibility, participation, and affiliation rules; and #####
(C)preserve and maintain the integrity of the SBIR program as a program for small business concerns in the United States by prohibiting large businesses or large entities or foreign-owned businesses or foreign-owned entities from participation in the program established under section 9 of the Small Business Act. ####
(2)Rulemaking required #####
(A)Proposed regulations Not later than 120 days after the date of enactment of this Act, the Administrator shall issue proposed regulations to amend section 121.103 (relating to determinations of affiliation applicable to the SBIR program) and section 121.702 (relating to ownership and control standards and size standards applicable to the SBIR program) of title 13, Code of Federal Regulations, for firms that are majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms and participating in the SBIR program solely under the authority under section 9(dd) of the Small Business Act, as added by this section. #####
(B)Final regulations Not later than 1 year after the date of enactment of this Act, and after providing notice of and opportunity for comment on the proposed regulations issued under subparagraph (A), the Administrator shall issue final or interim final regulations under this subsection. ####
(3)Contents #####
(A)In general The regulations issued under this subsection shall permit the participation of applicants majority-owned by multiple venture capital operating companies, hedge funds, or private equity firms in the SBIR program in accordance with section 9(dd) of the Small Business Act, as added by this section, unless the Administrator determines— ######
(i)in accordance with the size standards established under subparagraph (B), that the applicant is— ######
(I)a large business or large entity; or ######
(II)majority-owned or controlled by a large business or large entity; or ######
(ii)in accordance with the criteria established under subparagraph (C), that the applicant— ######
(I)is a foreign-owned business or a foreign entity or is not a citizen of the United States or alien lawfully admitted for permanent residence; or ######
(II)is majority-owned or controlled by a foreign-owned business, foreign entity, or person who is not a citizen of the United States or alien lawfully admitted for permanent residence. #####
(B)Size standards Under the authority to establish size standards under paragraphs
(2)and
(3)of section 3(a) of the Small Business Act (15 U.S.C. 632(a)), the Administrator shall, in accordance with paragraph
(1)of this subsection, establish size standards for applicants seeking to participate in the SBIR program solely under the authority under section 9(dd) of the Small Business Act, as added by this section. #####
(C)Criteria for determining foreign ownership The Administrator shall establish criteria for determining whether an applicant meets the requirements under subparagraph (A)(ii), and, in establishing the criteria, shall consider whether the criteria should include— ######
(i)whether the applicant is at least 51 percent owned or controlled by citizens of the United States or domestic venture capital operating companies, hedge funds, or private equity firms; ######
(ii)whether the applicant is domiciled in the United States; and ######
(iii)whether the applicant is a direct or indirect subsidiary of a foreign-owned firm, including whether the criteria should include that an applicant is a direct or indirect subsidiary of a foreign-owned entity if— ######
(I)any venture capital operating company, hedge fund, or private equity firm that owns more than 20 percent of the applicant is a direct or indirect subsidiary of a foreign-owned entity; or ######
(II)in the aggregate, entities that are direct or indirect subsidiaries of foreign-owned entities own more than 49 percent of the applicant. #####
(D)Criteria for determining affiliation The Administrator shall establish criteria, in accordance with paragraph (1), for determining whether an applicant is affiliated with a venture capital operating company, hedge fund, private equity firm, or any other business that the venture capital operating company, hedge fund, or private equity firm has financed and, in establishing the criteria, shall specify that— ######
(i)if a venture capital operating company, hedge fund, or private equity firm that is determined to be affiliated with an applicant is a minority investor in the applicant, the portfolio companies of the venture capital operating company, hedge fund, or private equity firm shall not be determined to be affiliated with the applicant, unless— ######
(I)the venture capital operating company, hedge fund, or private equity firm owns a majority of the portfolio company; or ######
(II)the venture capital operating company, hedge fund, or private equity firm holds a majority of the seats on the board of directors of the portfolio company; ######
(ii)subject to clause (i), the Administrator retains the authority to determine whether a venture capital operating company, hedge fund, or private equity firm is affiliated with an applicant, including establishing other criteria; ######
(iii)the Administrator may not determine that a portfolio company of a venture capital operating company, hedge fund, or private equity firm is affiliated with an applicant based solely on 1 or more shared investors; and ######
(iv)subject to clauses (i), (ii), and (iii), the Administrator retains the authority to determine whether a portfolio company of a venture capital operating company, hedge fund, or private equity firm is affiliated with an applicant based on factors independent of whether there is a shared investor, such as whether there are contractual obligations between the portfolio company and the applicant. ####
(4)Enforcement If the Administrator does not issue final or interim final regulations under this subsection on or before the date that is 1 year after the date of enactment of this Act, the Administrator may not carry out or establish any pilot program until the date on which the Administrator issues the final or interim final regulations under this subsection. ####
(5)Definition In this subsection, the terms “venture capital operating company”, “hedge fund”, and “private equity firm” have the same meaning as in section 3 of the Small Business Act (15 U.S.C. 632), as amended by this section. ###
(d)Assistance for Determining Affiliates **[**[15 U.S.C. 638 note](/us/usc/t15/s638)**]** ####
(1)Clear explanation required Not later than 30 days after the date of enactment of this Act, the Administrator shall post on the Web site of the Administration (with a direct link displayed on the homepage of the Web site of the Administration or the SBIR and STTR Web sites of the Administration)— #####
(A)a clear explanation of the SBIR and STTR affiliation rules under part 121 of title 13, Code of Federal Regulations; and #####
(B)contact information for officers or employees of the Administration who— ######
(i)upon request, shall review an issue relating to the rules described in subparagraph (A); and ######
(ii)shall respond to a request under clause
(i)not later than 20 business days after the date on which the request is received. ####
(2)Inclusion of affiliation rules for certain small business concerns On and after the date on which the final regulations under subsection
(c)are issued, the Administrator shall post on the Web site of the Administration information relating to the regulations, in accordance with paragraph (1).
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Sec. 5107
PARTICIPATION BY FIRMS WITH SUBSTANTIAL INVESTMENT FROM MULTIPLE VENTURE CAPITAL OPERATING COMPANIES, HEDGE FUNDS, OR PRIVATE EQUITY FIRMS IN A PORTION OF THE SBIR PROGRAM
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