New Business Preservation Act

I 117TH CONGRESS 1ST SESSION H. R. 1020 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 FEBRUARY 11, 2021 Mr. PHILLIPS 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 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘New Business Preser- 4 vation Act’’. 5 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 1020 IH SEC. 2. DEFINITIONS. 1 In this Act: 2 (1) APPROVED STATE PROGRAM.—The term 3 ‘‘approved State program’’ means a State program 4 that is approved by the Secretary in accordance with 5 the standards established under section 3(b)(1). 6 (2) COVERED INVESTMENT.—The term ‘‘cov- 7 ered investment’’ means an equity investment in a 8 startup using amounts made available to carry out 9 the covered programs. 10 (3) COVERED PROGRAMS.—The term ‘‘covered 11 programs’’ means the Program and the program 12 carried out under section 4. 13 (4) EQUITY INVESTMENT.—The term ‘‘equity 14 investment’’— 15 (A) means an investment for an ownership 16 interest in an entity, the financial return with 17 respect to which is principally aligned with the 18 financial return of the plurality of ownership in- 19 terests in the entity; and 20 (B) includes a debt instrument that can be 21 converted to an equity ownership interest in an 22 entity based on future events. 23 (5) EXIT.—The term ‘‘exit’’, with respect to a 24 startup in which there is a covered investment, 25 means— 26 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 1020 IH (A) the acquisition of the startup; 1 (B) after an initial public offering with re- 2 spect to the startup, the sale of a share of the 3 startup that was obtained through the covered 4 investment; or 5 (C) the voluntary purchase of ownership 6 interests by the startup, investors, or existing 7 shareholders. 8 (6) FEDERAL CONTRIBUTION.—The term ‘‘Fed- 9 eral contribution’’ means a contribution made— 10 (A) by a participating State to, or for the 11 account of, an approved State program; and 12 (B) with Federal funds allocated to the 13 participating State by the Secretary. 14 (7) FOLLOW-ON INVESTMENT.—The term ‘‘fol- 15 low-on investment’’ means a subsequent equity in- 16 vestment in a startup in which there was originally 17 a separate and distinct equity investment under— 18 (A) a program carried out under the State 19 Small Business Credit Initiative Act of 2010 20 (12 U.S.C. 5701 et seq.); or 21 (B) the Program. 22 (8) MARKET RATE MANAGEMENT FEE AND 23 PROFIT INTEREST.—The term ‘‘market rate man- 24 agement fee and profit interest’’ means the usual 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 1020 IH and customary compensation structure paid to fund 1 managers for fund investment management services 2 under agreements with private sector limited part- 3 ners. 4 (9) PARTICIPATING STATE.—The term ‘‘partici- 5 pating State’’ means a State that participates in the 6 Program after having satisfied the approval criteria 7 under section 3(c). 8 (10) PROGRAM.—The term ‘‘Program’’ means 9 the Innovation and Startups Equity Investment Pro- 10 gram established under section 3(a). 11 (11) QUALIFYING AREA.—The term ‘‘qualifying 12 area’’ means an area of the United States outside of 13 the major venture capital centers, as determined in 14 the rule making conducted by the Secretary under 15 section 3(e). 16 (12) RULE; RULE MAKING.—The terms ‘‘rule’’ 17 and ‘‘rule making’’ have the meanings given those 18 terms in section 551 of title 5, United States Code. 19 (13) SECRETARY.—The term ‘‘Secretary’’ 20 means the Secretary of the Treasury. 21 (14) STARTUP.—The term ‘‘startup’’ means a 22 business entity that— 23 (A) has been in existence for less than 10 24 years; 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 1020 IH (B) has the intention or potential to deliver 1 high returns on investment; and 2 (C) has an annual revenue of not more 3 than $25,000,000. 4 (15) STATE.— 5 (A) IN GENERAL.—The term ‘‘State’’ 6 means— 7 (i) a State of the United States; 8 (ii) the District of Columbia; 9 (iii) the Commonwealth of Puerto 10 Rico; 11 (iv) the United States Virgin Islands; 12 (v) Guam; 13 (vi) American Samoa; and 14 (vii) the Commonwealth of the North- 15 ern Mariana Islands. 16 (B) RULE OF CONSTRUCTION.—The Com- 17 monwealth of Puerto Rico, the United States 18 Virgin Islands, Guam, American Samoa, and 19 the Commonwealth of the Northern Mariana Is- 20 lands shall collectively be considered to be 1 21 State for the purposes of this Act. 22 (16) STATE PROGRAM.—The term ‘‘State pro- 23 gram’’ means a program established by a State to 24 provide equity investment in startups or venture 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 1020 IH capital funds that are headquartered in qualifying 1 areas, without regard to whether those qualifying 2 areas are located in the State. 3 (17) VENTURE CAPITAL FUND.—The term 4 ‘‘venture capital fund’’ has the meaning given the 5 term in section 275.203(l)–1 of title 17, Code of 6 Federal Regulations, or any successor regulation. 7 SEC. 3. ISEI PROGRAM. 8 (a) ESTABLISHMENT.—There is established in the 9 Department of the Treasury the Innovation and Startups 10 Equity Investment Program— 11 (1) which shall be administered by the Sec- 12 retary; and 13 (2) under which— 14 (A) the Secretary shall, in accordance with 15 the provisions of this section, allocate to partici- 16 pating States the amount appropriated under 17 section 7(a)(1); 18 (B) participating States to which funds are 19 allocated under subparagraph (A) shall, 20 through approved State programs, provide eq- 21 uity investment in startups; and 22 (C) money (including securities) returned 23 to States after exits with respect to the invest- 24 ments described in subparagraph (B) shall be 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 1020 IH reinvested through an approved State program 1 or follow-on investments, as further provided in 2 section 5. 3 (b) DUTIES OF THE SECRETARY.—In administering 4 the Program, the Secretary shall— 5 (1) establish minimum standards for a State 6 program to be considered an approved State pro- 7 gram; 8 (2) provide technical assistance to States for 9 designing State programs and implementing ap- 10 proved State programs; 11 (3) disseminate information relating to best 12 practices with respect to the design and implementa- 13 tion described in paragraph (2); 14 (4) perform any managerial or administrative 15 function that is necessary to maintain the integrity 16 of the Program; and 17 (5) provide oversight of the Program, including 18 by reviewing whether each approved State program 19 is in compliance with the requirements of the Pro- 20 gram. 21 (c) APPROVAL CRITERIA.— 22 (1) PARTICIPATING STATES.—A State may be- 23 come a participating State if— 24 (A) the State— 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 1020 IH (i) designates a specific department or 1 agency of the State, or an entity supported 2 by the State, to implement and administer 3 a State program of the State; or 4 (ii) has a contractual arrangement— 5 (I) with a participating State 6 that has an approved State program; 7 and 8 (II) through which the partici- 9 pating State described in subclause 10 (I) will implement and administer the 11 State program of the State; 12 (B) the State takes all legal actions nec- 13 essary to enable the entity that, under subpara- 14 graph (A), will implement the State program of 15 the State to carry out that implementation; 16 (C) the State submits to the Secretary an 17 application described in paragraph (2)(B) dur- 18 ing a time period to be established by the Sec- 19 retary; and 20 (D) the State and the Secretary enter into 21 an allocation agreement that— 22 (i) satisfies the requirements of this 23 Act, including the requirement under sec- 24 tion 5(a)(2)(A); 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 1020 IH (ii) provides that the State program 1 established by the State will comply with 2 any standards established by the Secretary 3 in carrying out this Act; 4 (iii) establishes internal control, com- 5 pliance, and reporting requirements estab- 6 lished by the Secretary and any other 7 terms and conditions that are necessary to 8 carry out the Program, including an agree- 9 ment by the State to permit the Secretary 10 to audit the State program established by 11 the State; 12 (iv) requires that, not later than 180 13 days after the date on which the State and 14 the Secretary enter into the agreement (or 15 a later date if the Secretary determines 16 that later date to be appropriate), the 17 State program of the State is able to make 18 the type of equity investments con- 19 templated by this Act; and 20 (v) includes an agreement by the 21 State to submit to the Secretary any re- 22 ports required under the Program, includ- 23 ing those required under section 6. 24 (2) APPROVED STATE PROGRAMS.— 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 10 •HR 1020 IH (A) MODELS.—The Secretary may certify 1 a State program that uses either of the fol- 2 lowing structures as an approved State pro- 3 gram: 4 (i) A program in which a State-sup- 5 ported entity or a private investment firm 6 (referred to in this clause as the ‘‘man- 7 ager’’) directly invests in startups in ac- 8 cordance with the following requirements: 9 (I) A State agency may not serve 10 as the manager of the program. 11 (II) Any investment made under 12 the program shall have not less than 13 50 percent of the investment funded 14 using nongovernment sources. 15 (III) The manager under the pro- 16 gram may charge a market rate an- 17 nual management fee. 18 (IV) The State may allow the 19 manager under the program to receive 20 a market-rate profit share. 21 (V) The manager under the pro- 22 gram shall actively— 23 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 11 •HR 1020 IH (aa) pursue equity invest- 1 ments in startups headquartered 2 in a qualifying area; 3 (bb) educate minority-owned 4 and women-owned startups re- 5 garding the process through 6 which the manager makes equity 7 investments; and 8 (cc) pursue equity invest- 9 ments in startups described in 10 item (bb). 11 (ii) A program in which a State-sup- 12 ported entity or a private investment firm 13 establishes a fund to invest in other invest- 14 ment funds in accordance with the fol- 15 lowing requirements: 16 (I) The fund established under 17 the program may charge a market 18 rate management fee paid by the ad- 19 ministrator of the program with pro- 20 gram funds and receive a market rate 21 management fee and profit interest. 22 (II) If the State has an above av- 23 erage per capita venture capital mar- 24 ket share, the State shall prioritize al- 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 12 •HR 1020 IH locations by the fund established 1 under the program to funds 2 headquartered in a qualifying area, 3 managed by first-time managers, mili- 4 tary veterans, women, or minorities. 5 (III) The allocations made by the 6 fund established under the program 7 shall be in an amount that is not 8 more than 20 percent of the capital 9 raised by that fund, except that, with 10 respect to a recipient fund described 11 in subclause (II), that amount shall be 12 50 percent. 13 (B) APPLICATION.—A State that wishes to 14 have a State program of the State certified by 15 the Secretary as an approved State program 16 shall submit to the Secretary an application 17 that contains— 18 (i) a venture capital supply and acces- 19 sibility study listing, which shall include— 20 (I) a list of active, as of the date 21 on which the application is submitted, 22 venture capital funds in the State 23 with capital under management, seg- 24 regated by funds that actively invest 25 VerDate Sep 11 2014 00:25 Mar 09, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H1020.IH H1020 pamtmann on DSKBC07HB2PROD with BILLS 13 •HR 1020 IH in startups and funds that no longer 1 actively invest in startups; 2 (II) sources of equity investments 3 in startups; and 4 (III) a summary of investment 5 activity in the State from accredited 6 investors that are not venture capital 7 funds; 8 (ii) for the 10-year period preceding 9 the date on which the State submits the 10 application, a list of each State-sponsored 11 program, the intent of which is to stimu- 12 late equity investment in startups, includ- 13 ing the policies implemented under each 14 such program and the reported results of 15 each such program; 16 (iii) a list of active, as of the date on 17 which the application is submitted, State 18 pension fund investments in venture cap- 19 ital funds and similar types of investments; 20 (iv) a final report on outcomes in the 21 State under each program established 22 unde [Text truncated for display. 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