Scale-Up Manufacturing Investment Company Act of 2020

II 116TH CONGRESS 2D SESSION S. 3483 To amend the Small Business Investment Act of 1958 to establish the Scale-Up Manufacturing Investment Company (‘‘SUMIC’’) Program. IN THE SENATE OF THE UNITED STATES MARCH 12, 2020 Mr. BOOKER (for himself and Mrs. GILLIBRAND) introduced the following bill; which was read twice and referred to the Committee on Small Business and Entrepreneurship A BILL To amend the Small Business Investment Act of 1958 to establish the Scale-Up Manufacturing Investment Com- pany (‘‘SUMIC’’) Program. 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 ‘‘Scale-Up Manufac- 4 turing Investment Company Act of 2020’’. 5 SEC. 2. FINDINGS. 6 Congress finds that— 7 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 2 •S 3483 IS (1) the strength of the United States manufac- 1 turing sector is critical to the economy and the glob- 2 al competitiveness of the United States; 3 (2) United States manufacturers support 4 17,600,000 jobs in the United States and account 5 for 12 percent of the gross domestic product of the 6 United States; 7 (3) access to capital is essential to growth and 8 innovation in the manufacturing sector; 9 (4) small, emerging manufacturers face unique 10 challenges scaling commercial production in the 11 United States, driving many young manufacturers to 12 other countries; 13 (5) structural barriers exist in the United 14 States that prevent key investments in first-commer- 15 cial manufacturing facilities; 16 (6) a healthy manufacturing sector is essential 17 to innovation economy of the United States, pro- 18 viding three-quarters of all private sector research 19 and development, employing nearly two-thirds of all 20 research and development workers, and producing 21 the majority of all patents issued; 22 (7) technology-intensive manufacturing small 23 businesses, some of which may be start-ups, with the 24 potential to anchor the next generation of manufac- 25 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 3 •S 3483 IS turing production where they locate, face special 1 challenges in accessing the capital to move from idea 2 to prototype and into commercial production; 3 (8) already more capital intensive than software 4 or services start-ups, manufacturing start-ups and 5 small businesses face a ‘‘second and wider valley of 6 death’’ when it comes to raising the capital to scale 7 up for commercial production because of their cap- 8 ital intensity and novel technology; 9 (9) a number of countries, including China, 10 South Korea, Germany, and Japan, provide publicly 11 funded incentives to attract these firms, recognizing 12 that despite the risks, the long-term benefits of es- 13 tablishing leadership in emerging technology areas 14 are large; 15 (10) a study of manufacturing technology-inten- 16 sive start-ups licensed by the Massachusetts Insti- 17 tute of Technology found that almost all that scaled 18 up into commercial production did so overseas large- 19 ly because of this far more attractive capital and in- 20 vestment environment for manufacturing start-ups, 21 which is a huge loss for the future of manufacturing 22 in the United States; 23 (11) if the United States loses the first genera- 24 tion of production for a new technology or manufac- 25 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 4 •S 3483 IS turing process, history suggests that it is an uphill 1 battle once lost to reclaim that capability here given 2 the unique learning and know-how acquired during 3 the building of that first factory; and 4 (12) to ensure that manufacturing technologies 5 invented in the United States are ultimately made in 6 the United States will require addressing the unique 7 capital access challenges faced by these technology- 8 intensive manufacturing start-ups. 9 SEC. 3. SCALE-UP MANUFACTURING INVESTMENT PRO- 10 GRAM. 11 (a) IN GENERAL.—Title III of the Small Business 12 Investment Act of 1958 (15 U.S.C. 681 et seq.) is amend- 13 ed by adding at the end the following: 14 ‘‘PART D—SCALE-UP MANUFACTURING 15 INVESTMENT COMPANY PROGRAM 16 ‘‘SEC. 399A. DEFINITIONS. 17 ‘‘In this part— 18 ‘‘(1) the term ‘Associate Administrator’ means 19 the Associate Administrator described in section 20 201; 21 ‘‘(2) the term ‘Council’ means the Scale-Up 22 Manufacturing Investment Company Credit Council 23 that may be established under section 399K; 24 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 5 •S 3483 IS ‘‘(3) the term ‘participating investment fund’ 1 means a privately managed investment fund licensed 2 under section 399C to operate under the program; 3 ‘‘(4) the term ‘private capital’ has the meaning 4 given the term in section 103(9); 5 ‘‘(5) the term ‘program’ means the scale-up 6 manufacturing investment company program estab- 7 lished under section 399B; 8 ‘‘(6) the term ‘qualifying manufacturing 9 project’ means an investment in a small and emerg- 10 ing manufacturer for the purposes of building first 11 commercial production facilities, novel manufac- 12 turing capabilities, or the introduction into produc- 13 tion of emerging manufacturing technologies; 14 ‘‘(7) the term ‘small and emerging manufac- 15 turer’ means any advanced manufacturer that does 16 not exceed the size standard established by the Ad- 17 ministrator for the applicable North American In- 18 dustry Classification System code under section 3 of 19 the Small Business Act (15 U.S.C. 632); and 20 ‘‘(8) the term ‘small business concern owned 21 and controlled by socially and economically disadvan- 22 taged individuals’ has the meaning given the term in 23 section 8(d)(3)(C) of the Small Business Act (15 24 U.S.C. 637(d)(3)(C)). 25 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 6 •S 3483 IS ‘‘SEC. 399B. ESTABLISHMENT. 1 ‘‘(a) IN GENERAL.—The Administrator shall estab- 2 lish and carry out a scale-up manufacturing investment 3 company program under which the Administrator shall 4 provide leverage to participating investment funds to sup- 5 port debt and equity investments in qualifying manufac- 6 turing projects of small and emerging manufacturers in 7 the United States. 8 ‘‘(b) ADMINISTRATION OF PROGRAM.—The program 9 shall be administered by the Administrator acting through 10 the Associate Administrator. 11 ‘‘SEC. 399C. SELECTION OF PARTICIPATING INVESTMENT 12 FUNDS. 13 ‘‘(a) APPLICATION FOR LICENSE.— 14 ‘‘(1) SUBMISSION OF APPLICATION.—An invest- 15 ment fund desiring to receive a license to operate 16 under the program shall submit an application to 17 the Administrator at such time and in such manner 18 as the Administrator may require. 19 ‘‘(2) REQUIREMENT.—An application submitted 20 under paragraph (1) shall demonstrate that the in- 21 vestment fund— 22 ‘‘(A) has the requisite minimum private 23 capital raised from investors; and 24 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 7 •S 3483 IS ‘‘(B) committed to operate under the pro- 1 gram as of the date of submission of the appli- 2 cation. 3 ‘‘(3) STATUS.—Not later than 90 days after the 4 date on which the Administrator receives an applica- 5 tion submitted under paragraph (1), the Adminis- 6 trator shall provide the applicant with a written re- 7 port detailing the status of the application and any 8 requirements remaining for completion of the appli- 9 cation. 10 ‘‘(b) SELECTION.— 11 ‘‘(1) IN GENERAL.—Not later than 180 days 12 after the date on which the Administrator receives 13 an application under subsection (a), the Adminis- 14 trator shall approve or deny the application for a li- 15 cense to operate under the program and notify the 16 applicant of the determination. 17 ‘‘(2) CRITERIA.—The Administrator shall es- 18 tablish selection criteria to evaluate applications to 19 operate under the program, which shall include, at 20 a minimum— 21 ‘‘(A) the proven investment experience of 22 the investment fund manager; 23 ‘‘(B) the proven, balanced, and positive-in- 24 vestment track record of a previous investment 25 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 8 •S 3483 IS fund or the principals and fund performance 1 analysis measured against benchmarks and peer 2 funds; 3 ‘‘(C) the experience of the investment fund 4 with investments relating to small manufactur- 5 ers and emerging technologies related to ad- 6 vanced manufacturing; 7 ‘‘(D) an evaluation of the use of leverage 8 by the investment fund managers in past deals; 9 ‘‘(E) evidence indicating a cohesive and ef- 10 fective team and team dynamic; 11 ‘‘(F) principals with strong reputations; 12 ‘‘(G) a record of positive realizations and 13 exits from previous investments in the invest- 14 ment track record; 15 ‘‘(H) clearly articulated focus, investment 16 thesis, investment themes, and investment in- 17 struments to be used to capitalize companies; 18 and 19 ‘‘(I) fund structure and economics that re- 20 flect standard practices and industry norms, 21 such as— 22 ‘‘(i) preferred returns to limited part- 23 ners; 24 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 9 •S 3483 IS ‘‘(ii) general partner carried interest 1 allocations, fees and vesting schedules; 2 ‘‘(iii) adequate fund infrastructure 3 and supporting back office services; and 4 ‘‘(iv) evidence of fund raising traction 5 and capability. 6 ‘‘(c) FEES.— 7 ‘‘(1) IN GENERAL.—The Administration shall 8 prescribe fees to be paid by each applicant for a li- 9 cense to operate as a participating investment fund 10 under the program. 11 ‘‘(2) USE OF AMOUNTS.—Fees collected under 12 this subsection— 13 ‘‘(A) shall be deposited in the account for 14 salaries and expenses of the Administration; 15 and 16 ‘‘(B) are authorized to be appropriated 17 solely to cover the costs of licensing examina- 18 tions. 19 ‘‘SEC. 399D. PROVISION OF LEVERAGE TO PARTICIPATING 20 INVESTMENT FUNDS. 21 ‘‘(a) IN GENERAL.—Not later than 60 days after the 22 date on which the Administrator approves and issues a 23 license under section 399C to operate as a participating 24 investment fund under the program, the Administrator 25 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 10 •S 3483 IS may provide not more than $1 of leverage for every $1 1 of private capital raised by the participating investment 2 fund. 3 ‘‘(b) MAXIMUM LEVERAGE.—The maximum amount 4 of outstanding leverage made available in any given fiscal 5 year— 6 ‘‘(1) to any participating investment fund may 7 not exceed $500,000,000; and 8 ‘‘(2) to all participating investment funds in ag- 9 gregate may not exceed $1,000,000,000. 10 ‘‘(c) PRIVATE CAPITAL REQUIREMENT.— 11 ‘‘(1) IN GENERAL.—The private capital of a 12 participating investment fund shall be not less than 13 $250,000,000. 14 ‘‘(2) FINANCIAL INSTITUTION INVESTMENTS.— 15 Any national bank, or any member bank of the Fed- 16 eral Reserve System or nonmember insured bank to 17 the extent permitted under applicable State law, 18 may invest in any one or more participating invest- 19 ment funds, or in any entity established to invest 20 solely in participating investment funds, except that 21 in no event shall the total amount of such invest- 22 ments of any such bank exceed 5 percent of the cap- 23 ital and surplus of the bank. 24 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 11 •S 3483 IS ‘‘(d) LEVERAGE FEE.—The Administrator shall 1 charge and collect a leverage fee of not more than 5.5 per- 2 cent and not less than 3 percent of the face amount of 3 the leverage issued. 4 ‘‘SEC. 399E. BORROWING POWER. 5 ‘‘(a) IN GENERAL.—Each participating investment 6 fund shall have the authority to borrow money and issue 7 debentures and preferred securities, subject to such limita- 8 tions and regulations as the Administration may prescribe. 9 ‘‘(b) LIMITATION.—Of the leverage provided by the 10 Administrator to a participating investment fund under 11 section 399D— 12 ‘‘(1) not less than 70 percent shall be issued as 13 debentures under subsection (a); and 14 ‘‘(2) not more than 30 percent may be issued 15 as preferred securities under subsection (a). 16 ‘‘(c) FEDERAL FINANCING BANK.—The Federal Fi- 17 nancing Bank may acquire a debenture issued by a par- 18 ticipating investment fund company under subsection (a). 19 ‘‘(d) PURCHASE AND GUARANTEE BY SBA.— 20 ‘‘(1) IN GENERAL.—The Administration may 21 purchase or guarantee the timely payment of all 22 principal and interest as scheduled on debentures or 23 preferred securities issued by participating invest- 24 ment funds under subsection (a), subject to such 25 VerDate Sep 11 2014 02:24 Mar 23, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S3483.IS S3483 kjohnson on DSK79L0C42PROD with BILLS 12 •S 3483 IS limitations and regulations as the Administration 1 may prescribe. 2 ‘‘(2) FULL FAITH AND CREDIT.—The full faith 3 and credit of the United States is pledged to the 4 payment of all amounts which may be required to be 5 paid under any guarantee under this subsection. 6 ‘‘(e) THIRD-PARTY DEBT.—The Administrator— 7 ‘‘(1) shall not permit a participating investment 8 fund having outstanding leverage to incur third- 9 party debt that would create or contribute to an un- 10 reasonable risk of default or loss to the Federal Gov- 11 ernment; and 12 ‘‘(2) shall permit such participating investment 13 funds to incur third-party debt only on such terms 14 and subject to such conditions as may be established 15 by the Administrator, by regulation or otherwise. 16 ‘‘(f) CALCULATION OF SUBSIDY RATE.—All fees, in- 17 terest, and profits received and retained by the Adminis- 18 tration under this section and section 399D shall be in- 19 cluded in the calculations made by the Director of the Of- 20 fice of Management and Budget to offset t [Text truncated for display. 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