Small Business Innovation Act of 2013

Summary: Small Business Innovation Act of 2013 - Amends the Small Business Investment Act of 1958 to authorize the Administrator of the Small Business Administration (SBA) to guarantee the payment of up to $4 billion per fiscal year for debentures or participating securities issued by small business investment companies (SBICs) to encourage the formation and growth of small businesses. Increases from $225 million to $350 million the maximum amount of outstanding leverage for two or more commonly-controlled SBICs. Direct the Administrator to establish and carry out an early-stage investment program to provide, through participating investment companies, equity financing to support early-stage businesses (gross annual sales of $15 million or less in any of the previous three years). Outlines investment company application requirements and selection and approval procedures. Allows the Administrator to make one or more equity financings to a participating company, with a limit of $100 million to any one company. Requires the company to make all of its investments in small businesses, of which at least 50% shall be early-stage small businesses in specified targeted industries. Establishes in the Treasury a separate account for equity financings under the program.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Small Business Innovation Act of 
2013''.

SEC. 2. PROGRAM AUTHORIZATION.

    Section 303(b) of the Small Business Investment Act of 1958 (15 
U.S.C. 683(b)) is amended, in the matter preceding paragraph (1), in 
the first sentence, by inserting after ``issued by such companies'' the 
following: ``, in a total amount that does not exceed $4,000,000,000 
each fiscal year (adjusted annually to reflect increases in the Chained 
Consumer Price Index for All Urban Consumers (C-CPI-U), as published by 
the Bureau of Labor Statistics of the Department of Labor)''.

SEC. 3. FAMILY OF FUNDS.

    Section 303(b)(2)(B) of the Small Business Investment Act of 1958 
(15 U.S.C. 683(b)(2)(B)) is amended by striking ``$225,000,000'' and 
inserting ``$350,000,000''.

SEC. 4. SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM.

    Title III of the Small Business Investment Act of 1958 (15 U.S.C. 
681 et seq.) is amended by adding at the end the following:

        ``PART D--SMALL BUSINESS EARLY-STAGE INVESTMENT PROGRAM

``SEC. 399A. DEFINITIONS.

    ``In this part:
            ``(1) Early-stage small business.--The term `early-stage 
        small business' means a small business concern that--
                    ``(A) is domiciled in a State or Indian country (as 
                defined in section 1151 of title 18, United States 
                Code); and
                    ``(B) has not generated gross annual sales revenues 
                exceeding $15,000,000 in any of the most recent 3 full 
                years before the date on which the Administrator makes 
                an equity financing to a participating investment 
                company under section 399E.
            ``(2) Eligible applicant.--The term `eligible applicant' 
        means--
                    ``(A) an incorporated body, limited liability 
                company, or limited partnership organized and chartered 
                or otherwise existing under Federal or State law for 
                the purpose of performing the functions and conducting 
                the activities contemplated under the program; or
                    ``(B) a manager of a small business investment 
                company.
            ``(3) Participating investment company.--The term 
        `participating investment company' means an applicant approved 
        under section 399E to participate in the program.
            ``(4) Program.--The term `program' means the early-stage 
        investment program established under section 399B.
            ``(5) Small business concern.--The term `small business 
        concern' has the same meaning given that term in section 3(a) 
        of the Small Business Act (15 U.S.C. 632(a)).
            ``(6) Small business concern in a targeted industry.--The 
        term `small business concern in a targeted industry' means a 
        small business concern that is engaged primarily in 
        researching, developing, manufacturing, producing, or bringing 
        to market goods, products, or services in a targeted industry.
            ``(7) Targeted industry.--The term `targeted industry' 
        means any of the following business sectors:
                    ``(A) Advanced manufacturing.
                    ``(B) Agricultural technology.
                    ``(C) Biotechnology.
                    ``(D) Clean energy technology.
                    ``(E) Digital media.
                    ``(F) Environmental technology.
                    ``(G) Information technology.
                    ``(H) Life sciences.
                    ``(I) Water technology.

``SEC. 399B. ESTABLISHMENT OF PROGRAM.

    ``The Administrator shall establish and carry out an early-stage 
investment program to provide equity financing to support early-stage 
small businesses in accordance with this part.

``SEC. 399C. ADMINISTRATION OF PROGRAM.

    ``The Administrator, acting through the Associate Administrator 
described in section 201, shall administer the program.

``SEC. 399D. APPLICATIONS.

    ``(a) Requirements for Application.--An application to participate 
in the program shall include--
            ``(1) a business plan describing how the eligible applicant 
        intends to make successful venture capital investments in 
        early-stage small businesses and direct capital to small 
        business concerns in targeted industries or other business 
        sectors;
            ``(2) information regarding the relevant venture capital 
        investment qualifications and backgrounds of the individuals 
        responsible for the management of the eligible applicant; and
            ``(3) a description of the extent to which the eligible 
        applicant meets the selection criteria under section 399E.
    ``(b) Applications From Managers of Small Business Investment 
Companies.--The Administrator shall establish an abbreviated 
application process to participate in the program for applicants that 
are managers of small business investment companies that are licensed 
under section 301. The abbreviated application process shall 
incorporate a presumption that managers of small business investment 
companies that are licensed under section 301 satisfactorily meet the 
selection criteria under paragraphs (3) and (5) of section 399E(b).

``SEC. 399E. SELECTION OF PARTICIPATING INVESTMENT COMPANIES.

    ``(a) In General.--Not later than 90 days after the date on which 
the Administrator receives an application from an eligible applicant 
under section 399D, the Administrator shall make a determination to 
conditionally approve or disapprove the eligible applicant to 
participate in the program and shall transmit the determination to the 
eligible applicant electronically and in writing. A determination to 
conditionally approve an eligible applicant shall identify all 
conditions the eligible applicant is required to satisfy for the 
Administrator to provide final approval to the eligible applicant to 
participate in the program, and shall provide a period of not less than 
1 year for the eligible applicant to satisfy the conditions.
    ``(b) Selection Criteria.--In making a determination under 
subsection (a), the Administrator shall consider--
            ``(1) the likelihood that the eligible applicant will meet 
        the goals specified in the business plan of the eligible 
        applicant;
            ``(2) the likelihood that the investments of the eligible 
        applicant will create or preserve jobs in the United States, 
        both directly and indirectly;
            ``(3) the character and fitness of the management of the 
        eligible applicant;
            ``(4) the experience and background of the management of 
        the eligible applicant;
            ``(5) the extent to which the eligible applicant will 
        concentrate investment activities on early-stage small 
        businesses;
            ``(6) the likelihood that the eligible applicant will 
        achieve profitability;
            ``(7) the experience of the management of the eligible 
        applicant with respect to establishing a profitable investment 
        track record;
            ``(8) the extent to which the eligible applicant will 
        concentrate investment activities on small business concerns in 
        targeted industries; and
            ``(9) the extent to which the eligible applicant will 
        concentrate investment activities on small business concerns in 
        targeted industries that have received funds from an agency of 
        the Federal Government, including--
                    ``(A) the National Institutes of Health;
                    ``(B) the National Science Foundation; and
                    ``(C) funds received under the Small Business 
                Innovation Research Program or the Small Business 
                Technology Transfer Program, as such terms are defined 
                under section 9 of the Small Business Act (15 U.S.C. 
                638).
    ``(c) Final Approval.--
            ``(1) In general.--Not later than 90 days after the date on 
        which an eligible applicant satisfies the conditions identified 
        by the Administrator under subsection (a), the Administrator 
        shall provide final approval to the eligible applicant to 
        participate in the program.
            ``(2) Exception.--Not later than 30 days after the date on 
        which an eligible applicant, the partnership or management 
        agreement of which conforms to models approved by the 
        Administrator, satisfies the conditions identified by the 
        Administrator under subsection (a), the Administrator shall 
        provide final approval to the eligible applicant to participate 
        in the program.
            ``(3) Revocation of conditional approval.--If an eligible 
        applicant fails to satisfy the conditions identified by the 
        Administrator under subsection (a) in the time period required 
        by that subsection, the Administrator shall revoke the 
        conditional approval.

``SEC. 399F. EQUITY FINANCINGS.

    ``(a) In General.--The Administrator may make 1 or more equity 
financings to a participating investment company.
    ``(b) Equity Financing Amounts.--
            ``(1) Non-federal capital.--An equity financing made to a 
        participating investment company under the program may not be 
        in an amount that exceeds the amount of the capital of the 
        participating investment company that is not from a Federal 
        source and that is available for investment on or before the 
        date on which an equity financing is drawn upon by the 
        participating investment company. The capital of the 
        participating investment company may include legally binding 
        commitments with respect to capital for investment.
            ``(2) Limitation on aggregate amount.--The aggregate amount 
        of all equity financings made to a participating investment 
        company under the program may not exceed $100,000,000.
    ``(c) Equity Financing Process.--In making an equity financing 
under the program, the Administrator shall commit an equity financing 
amount to a participating investment company, and the amount of each 
commitment shall remain available to be drawn upon by a participating 
investment company--
            ``(1) for new-named investments, during the 5-year period 
        beginning on the date on which the commitment is first drawn 
        upon by the participating investment company; and
            ``(2) for follow-on investments and management fees, during 
        the 10-year period beginning on the date on which the 
        commitment is first drawn upon by the participating investment 
        company, with not more than 2 additional 1-year periods 
        available at the discretion of the Administrator.
    ``(d) Commitment of Funds.--Not later than 2 years after the date 
on which funds are appropriated for the program, the Administrator 
shall make commitments for equity financings.

``SEC. 399G. INVESTMENTS IN EARLY-STAGE SMALL BUSINESSES.

    ``(a) In General.--As a condition of receiving an equity financing 
under the program, a participating investment company shall make all of 
the investments of the participating investment company made with 
amounts received under the program, including securities, promissory 
notes, or other obligations, in small business concerns, of which at 
least 50 percent of the total amount of such investments shall be in 
early-stage small businesses in targeted industries.
    ``(b) Evaluation of Compliance.--After a participating investment 
company has expended not less than 50 percent of the amount of an 
equity financing commitment made under section 399F, the Administrator 
shall evaluate the compliance of the participating investment company 
with the requirements under subsection (a).
    ``(c) Waiver.--The Administrator may waive the requirements for a 
participating investment company under subsection (a) if the 
Administrator determines that it is in the best interest of the long 
term solvency of the fund established in section 399J.

``SEC. 399H. PRO RATA INVESTMENT SHARES.

    ``Each investment made by a participating investment company under 
the program shall be treated as comprised of capital from equity 
financings under the program according to the ratio that capital from 
equity financings under the program bears to all capital available to 
the participating investment company for investment.

``SEC. 399I. EQUITY FINANCING INTEREST.

    ``(a) Equity Financing Interest.--
            ``(1) In general.--As a condition of receiving an equity 
        financing under the program, a participating investment company 
        shall convey an equity financing interest to the Administrator 
        in accordance with paragraph (2).
            ``(2) Effect of conveyance.--The equity financing interest 
        conveyed under paragraph (1)--
                    ``(A) shall have all the rights and attributes of 
                other investors attributable to their interests in the 
                participating investment company;
                    ``(B) shall not denote control or voting rights to 
                the Administrator; and
                    ``(C) shall entitle the Administrator to a pro rata 
                portion of any distributions made by the participating 
                investment company equal to the percentage of capital 
                in the participating investment company that the equity 
                financing comprises, which shall be made at the same 
                times and in the same amounts as any other investor in 
                the participating investment company with a similar 
                interest.
            ``(3) Allocations.--A participating investment company 
        shall make allocations of income, gain, loss, deduction, and 
        credit to the Administrator with respect to the equity 
        financing interest as if the Administrator were an investor.
    ``(b) Manager Profits.--As a condition of receiving an equity 
financing under the program, the manager profits interest payable to 
the managers of a participating investment company under the program 
shall not exceed 20 percent of profits, exclusive of any profits that 
may accrue as a result of the capital contributions of any such 
managers with respect to the participating investment company. Any 
excess of manager profits interest, less taxes payable thereon, shall 
be returned by the managers and paid to the investors and the 
Administrator in proportion to the capital contributions and equity 
financings paid in. No manager profits interest (other than a tax 
distribution) shall be paid before the repayment to the investors and 
the Administrator of all contributed capital and equity financings 
made.
    ``(c) Distribution Requirements.--As a condition of receiving an 
equity financing under the program, a participating investment company 
shall make all distributions to all investors in cash and shall make 
distributions within a reasonable time after exiting investments, 
including following a public offering or market sale of underlying 
investments.

``SEC. 399J. FUND.

    ``There is established in the Treasury a separate account (in this 
section referred to as `the fund') for equity financings which shall be 
available to the Administrator, subject to annual appropriations, as a 
revolving fund to be used for the purposes of the program. All amounts 
received by the Administrator under the program, including any moneys, 
property, or assets derived by the Administrator from operations in 
connection with the program, shall be deposited in the fund.

``SEC. 399K. APPLICATION OF OTHER SECTIONS.

    ``To the extent not inconsistent with requirements under this part, 
the Administrator may apply sections 309, 311, 312, 313, and 314 to 
activities under this part, and an officer, director, employee, agent, 
or other participant in a participating investment company shall be 
subject to the requirements under such sections.

``SEC. 399L. ANNUAL REPORTING.

    ``The Administrator shall include information on the performance of 
the program in the annual performance report of the Administration 
required to be submitted under section 10(a) of the Small Business Act 
(15 U.S.C. 639(a)).''.