MicroCap Small Business Investing Act of 2023

I 118TH CONGRESS 1ST SESSION H. R. 3717 To establish a MicroCap small business investment company designation, and for other purposes. IN THE HOUSE OF REPRESENTATIVES MAY 25, 2023 Mr. NEGUSE (for himself and Mrs. KIM of California) introduced the following bill; which was referred to the Committee on Small Business A BILL To establish a MicroCap small business investment company designation, 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 ‘‘MicroCap Small Busi- 4 ness Investing Act of 2023’’. 5 SEC. 2. MICROCAP SMALL BUSINESS INVESTMENT COM- 6 PANY DESIGNATION. 7 (a) IN GENERAL.—Title III of the Small Business 8 Investment Act of 1958 (15 U.S.C. 681 et seq.) is amend- 9 ed— 10 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •HR 3717 IH (1) in section 301(c), by adding at the end the 1 following: 2 ‘‘(5) MICROCAP SMALL BUSINESS INVESTMENT 3 COMPANY LICENSE.— 4 ‘‘(A) IN GENERAL.—Notwithstanding any 5 other provision of law, the Administrator may 6 approve an application and issue not more than 7 10 licenses annually under this subsection with 8 respect to any applicant— 9 ‘‘(i) that would otherwise be issued a 10 license under this subsection, except that 11 the management of the applicant does not 12 satisfy the qualification requirements 13 under paragraph (3)(A)(ii) to the extent 14 that such requirements relate to invest- 15 ment experience and track record, includ- 16 ing any such requirements further set 17 forth in section 107.305 of title 13, Code 18 of Federal Regulations, or any successor 19 regulation; 20 ‘‘(ii) for which the fund managers 21 have— 22 ‘‘(I) a documented record of suc- 23 cessful business experience; 24 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •HR 3717 IH ‘‘(II) a record of business man- 1 agement success; or 2 ‘‘(III) knowledge in the par- 3 ticular industry or business in which 4 the investment strategy is being pur- 5 sued; and 6 ‘‘(iii) that, in addition to any other re- 7 quirement applicable to the applicant 8 under this title or the rules issued to carry 9 out this title (including section 10 121.301(c)(2) of title 13, Code of Federal 11 Regulations, or any successor regulation), 12 will make not less than 25 percent of its 13 investments in— 14 ‘‘(I) low-income communities, as 15 that term is defined in section 45D(e) 16 of the Internal Revenue Code of 1986; 17 ‘‘(II) a community that has been 18 designated as a qualified opportunity 19 zone under section 1400Z–1 of the In- 20 ternal Revenue Code of 1986; 21 ‘‘(III) businesses primarily en- 22 gaged in research and development; 23 ‘‘(IV) manufacturers; 24 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •HR 3717 IH ‘‘(V) businesses primarily owned 1 or controlled by individuals in under- 2 served communities before receiving 3 capital from the applicant; and 4 ‘‘(VI) rural areas, as that term is 5 defined by the Bureau of the Census. 6 ‘‘(B) PRIORITY; STREAMLINED PROCESS.— 7 With respect to an application for a license pur- 8 suant to this paragraph, the Administrator 9 shall— 10 ‘‘(i) give priority to an applicant for 11 such a license that is located in an under- 12 licensed State; and 13 ‘‘(ii) establish a streamlined process 14 for applicants submitting such an applica- 15 tion. 16 ‘‘(C) TIMING FOR ISSUANCE OF LI- 17 CENSE.—Notwithstanding paragraph (2), with 18 respect to an application for a license submitted 19 to the Administrator pursuant to this para- 20 graph, the Administrator shall— 21 ‘‘(i) not later than 60 days after the 22 date on which the application is submitted 23 to the Administrator, process and provide 24 complete feedback with respect to any pre- 25 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •HR 3717 IH license application requirements applicable 1 to the applicant; 2 ‘‘(ii) not restrict the submission of 3 any application materials; and 4 ‘‘(iii) not later than 90 days after the 5 date on which the application is submitted 6 to the Administrator— 7 ‘‘(I) approve the application and 8 issue a license for such operation to 9 the applicant, if the requirements for 10 the license are satisfied; or 11 ‘‘(II) based upon facts in the 12 record— 13 ‘‘(aa) disapprove the appli- 14 cation; and 15 ‘‘(bb) provide the applicant 16 with— 17 ‘‘(AA) a clear, written 18 explanation of the reason for 19 the disapproval; and 20 ‘‘(BB) a chance to rem- 21 edy any issues with the ap- 22 plication and immediately 23 reapply, with technical as- 24 sistance provided as needed 25 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •HR 3717 IH and a new determination 1 made by the Administrator 2 not later than 30 days after 3 the date on which the appli- 4 cant re-submits the applica- 5 tion. 6 ‘‘(D) LEVERAGE.—A company licensed 7 pursuant to this paragraph shall— 8 ‘‘(i) not be eligible to receive leverage 9 in an amount that is more than 10 $25,000,000; and 11 ‘‘(ii) access leverage in an amount 12 that is not more than 100 percent of the 13 private capital of the applicant. 14 ‘‘(E) INVESTMENT COMMITTEE.— 15 ‘‘(i) IN GENERAL.—Each company li- 16 censed pursuant to this paragraph shall 17 have not fewer than 2 independent mem- 18 bers on the investment committee of the 19 company in a manner that complies with 20 the following requirements: 21 ‘‘(I) The independent members of 22 the investment committee are or have 23 been licensed managers of small busi- 24 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •HR 3717 IH ness investment companies within the 1 preceding 10-year period. 2 ‘‘(II) No small business invest- 3 ment company described in subclause 4 (I) may adversely affected by the rela- 5 tionship of the independent members 6 of the investment committee with the 7 company licensed pursuant to this 8 paragraph. 9 ‘‘(III) The independent members 10 of the investment committee are re- 11 quired to approve each investment 12 made by the company. 13 ‘‘(IV) The independent members 14 of the investment committee shall not 15 be paid a management fee, but may 16 receive paid expenses and a portion of 17 any carried interest. 18 ‘‘(ii) LEVERAGE LIMITS.—Any lever- 19 age associated with a company licensed 20 pursuant to this paragraph shall not be 21 counted toward the leverage limits of the 22 independent members of the investment 23 committee of the company under this 24 title.’’; and 25 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •HR 3717 IH (2) in section 303(d) (15 U.S.C. 683(d)), by in- 1 serting ‘‘(or, with respect to a company licensed 2 under section 301(c)(5), 50 percent)’’ after ‘‘25 per- 3 cent’’. 4 (b) SBA REQUIREMENTS.— 5 (1) DEFINITIONS.—In this subsection— 6 (A) the term ‘‘Administrator’’ means the 7 Administrator of the Small Business Adminis- 8 tration; and 9 (B) the term ‘‘covered company’’ means an 10 entity that is licensed to operate as a small 11 business investment company pursuant to para- 12 graph (5) of section 301(c) of the Small Busi- 13 ness Investment Act of 1958 (15 U.S.C. 14 681(c)), as added by subsection (a). 15 (2) RULES.—Not later than 90 days after the 16 date of enactment of this Act, the Administrator 17 shall issue rules to carry out this section and the 18 amendments made by this section. 19 (3) ANNUAL REPORT.—Not later than 1 year 20 after the date of enactment of this Act, and annually 21 thereafter, the Administrator shall publicly publish a 22 report that details, for the year covered by the re- 23 port— 24 VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •HR 3717 IH (A) the number of covered companies li- 1 censed by the Administrator; 2 (B) the industries in which covered compa- 3 nies have invested; 4 (C) the geographic locations of covered 5 companies; and 6 (D) the aggregate performance of covered 7 companies. 8 Æ VerDate Sep 11 2014 18:42 Jun 19, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6301 E:\BILLS\H3717.IH H3717 pbinns on DSKJLVW7X2PROD with $$_JOB