II 

113TH CONGRESS 

1ST SESSION S. 1285 

To amend the Small Business Investment Act of 1958 to enhance the Small 

Business Investment Company Program and provide for a small business 

early-stage investment program. 

IN THE SENATE OF THE UNITED STATES 

JULY 11, 2013 

Ms. BALDWIN 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 

enhance the Small Business Investment Company Program and provide for a small business early-stage investment program. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Business Inno5 vation Act of 2013’’. 

6 SEC. 2. PROGRAM AUTHORIZATION. 

7 Section 303(b) of the Small Business Investment Act 

8 of 1958 (15 U.S.C. 683(b)) is amended, in the matter preVerDate Mar 15 2010 22:17 Jul 11, 2013 Jkt 029200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1285.IS S1285

tkelley on DSK3SPTVN1PROD with BILLS
2 

•S 1285 IS

1 ceding paragraph (1), in the first sentence, by inserting 

2 after ‘‘issued by such companies’’ the following: ‘‘, in a 

3 total amount that does not exceed $4,000,000,000 each 

4 fiscal year (adjusted annually to reflect increases in the 

5 Chained Consumer Price Index for All Urban Consumers 

6 (C–CPI–U), as published by the Bureau of Labor Statis7 tics of the Department of Labor)’’. 

8 SEC. 3. FAMILY OF FUNDS. 

9 Section 303(b)(2)(B) of the Small Business Invest10 ment Act of 1958 (15 U.S.C. 683(b)(2)(B)) is amended 

11 by striking ‘‘$225,000,000’’ and inserting 

12 ‘‘$350,000,000’’. 

13 SEC. 4. SMALL BUSINESS EARLY-STAGE INVESTMENT PRO14 GRAM. 

15 Title III of the Small Business Investment Act of 

16 1958 (15 U.S.C. 681 et seq.) is amended by adding at 

17 the end the following: 

18 ‘‘PART D—SMALL BUSINESS EARLY-STAGE 

19 INVESTMENT PROGRAM 

20 ‘‘SEC. 399A. DEFINITIONS. 

21 ‘‘In this part: 

22 ‘‘(1) EARLY-STAGE SMALL BUSINESS.—The 

23 term ‘early-stage small business’ means a small busi24 ness concern that— 


tkelley on DSK3SPTVN1PROD with BILLS
3 

•S 1285 IS

1 ‘‘(A) is domiciled in a State or Indian 

2 country (as defined in section 1151 of title 18, 

3 United States Code); and 

4 ‘‘(B) has not generated gross annual sales 

5 revenues exceeding $15,000,000 in any of the 

6 most recent 3 full years before the date on 

7 which the Administrator makes an equity fi8 nancing to a participating investment company 

9 under section 399E. 

10 ‘‘(2) ELIGIBLE APPLICANT.—The term ‘eligible 

11 applicant’ means— 

12 ‘‘(A) an incorporated body, limited liability 

13 company, or limited partnership organized and 

14 chartered or otherwise existing under Federal 

15 or State law for the purpose of performing the 

16 functions and conducting the activities con17 templated under the program; or 

18 ‘‘(B) a manager of a small business invest19 ment company. 

20 ‘‘(3) PARTICIPATING INVESTMENT COMPANY.— 

21 The term ‘participating investment company’ means 

22 an applicant approved under section 399E to partici23 pate in the program. 


tkelley on DSK3SPTVN1PROD with BILLS
4 

•S 1285 IS

1 ‘‘(4) PROGRAM.—The term ‘program’ means 

2 the early-stage investment program established 

3 under section 399B. 

4 ‘‘(5) SMALL BUSINESS CONCERN.—The term 

5 ‘small business concern’ has the same meaning given 

6 that term in section 3(a) of the Small Business Act 

7 (15 U.S.C. 632(a)). 

8 ‘‘(6) SMALL BUSINESS CONCERN IN A TAR9 GETED INDUSTRY.—The term ‘small business con10 cern in a targeted industry’ means a small business 

11 concern that is engaged primarily in researching, de12 veloping, manufacturing, producing, or bringing to 

13 market goods, products, or services in a targeted in14 dustry. 

15 ‘‘(7) TARGETED INDUSTRY.—The term ‘tar16 geted industry’ means any of the following business 

17 sectors: 

18 ‘‘(A) Advanced manufacturing. 

19 ‘‘(B) Agricultural technology. 

20 ‘‘(C) Biotechnology. 

21 ‘‘(D) Clean energy technology. 

22 ‘‘(E) Digital media. 

23 ‘‘(F) Environmental technology. 

24 ‘‘(G) Information technology. 

25 ‘‘(H) Life sciences. 


tkelley on DSK3SPTVN1PROD with BILLS
5 

•S 1285 IS

1 ‘‘(I) Water technology. 

2 ‘‘SEC. 399B. ESTABLISHMENT OF PROGRAM. 

3 ‘‘The Administrator shall establish and carry out an 

4 early-stage investment program to provide equity financ5 ing to support early-stage small businesses in accordance 

6 with this part. 

7 ‘‘SEC. 399C. ADMINISTRATION OF PROGRAM. 

8 ‘‘The Administrator, acting through the Associate 

9 Administrator described in section 201, shall administer 

10 the program. 

11 ‘‘SEC. 399D. APPLICATIONS. 

12 ‘‘(a) REQUIREMENTS FOR APPLICATION.—An appli13 cation to participate in the program shall include— 

14 ‘‘(1) a business plan describing how the eligible 

15 applicant intends to make successful venture capital 

16 investments in early-stage small businesses and di17 rect capital to small business concerns in targeted 

18 industries or other business sectors; 

19 ‘‘(2) information regarding the relevant venture 

20 capital investment qualifications and backgrounds of 

21 the individuals responsible for the management of 

22 the eligible applicant; and 

23 ‘‘(3) a description of the extent to which the eli24 gible applicant meets the selection criteria under sec25 tion 399E. 


tkelley on DSK3SPTVN1PROD with BILLS
6 

•S 1285 IS

1 ‘‘(b) APPLICATIONS FROM MANAGERS OF SMALL

2 BUSINESS INVESTMENT COMPANIES.—The Administrator 

3 shall establish an abbreviated application process to par4 ticipate in the program for applicants that are managers 

5 of small business investment companies that are licensed 

6 under section 301. The abbreviated application process 

7 shall incorporate a presumption that managers of small 

8 business investment companies that are licensed under 

9 section 301 satisfactorily meet the selection criteria under 

10 paragraphs (3) and (5) of section 399E(b). 

11 ‘‘SEC. 399E. SELECTION OF PARTICIPATING INVESTMENT 

12 COMPANIES. 

13 ‘‘(a) IN GENERAL.—Not later than 90 days after the 

14 date on which the Administrator receives an application 

15 from an eligible applicant under section 399D, the Admin16 istrator shall make a determination to conditionally ap17 prove or disapprove the eligible applicant to participate in 

18 the program and shall transmit the determination to the 

19 eligible applicant electronically and in writing. A deter20 mination to conditionally approve an eligible applicant 

21 shall identify all conditions the eligible applicant is re22 quired to satisfy for the Administrator to provide final ap23 proval to the eligible applicant to participate in the pro24 gram, and shall provide a period of not less than 1 year 

25 for the eligible applicant to satisfy the conditions. 


tkelley on DSK3SPTVN1PROD with BILLS
7 

•S 1285 IS

1 ‘‘(b) SELECTION CRITERIA.—In making a determina2 tion under subsection (a), the Administrator shall con3 sider— 

4 ‘‘(1) the likelihood that the eligible applicant 

5 will meet the goals specified in the business plan of 

6 the eligible applicant; 

7 ‘‘(2) the likelihood that the investments of the 

8 eligible applicant will create or preserve jobs in the 

9 United States, both directly and indirectly; 

10 ‘‘(3) the character and fitness of the manage11 ment of the eligible applicant; 

12 ‘‘(4) the experience and background of the 

13 management of the eligible applicant; 

14 ‘‘(5) the extent to which the eligible applicant 

15 will concentrate investment activities on early-stage 

16 small businesses; 

17 ‘‘(6) the likelihood that the eligible applicant 

18 will achieve profitability; 

19 ‘‘(7) the experience of the management of the 

20 eligible applicant with respect to establishing a prof21 itable investment track record; 

22 ‘‘(8) the extent to which the eligible applicant 

23 will concentrate investment activities on small busi24 ness concerns in targeted industries; and 


tkelley on DSK3SPTVN1PROD with BILLS
8 

•S 1285 IS

1 ‘‘(9) the extent to which the eligible applicant 

2 will concentrate investment activities on small busi3 ness concerns in targeted industries that have re4 ceived funds from an agency of the Federal Govern5 ment, including— 

6 ‘‘(A) the National Institutes of Health; 

7 ‘‘(B) the National Science Foundation; and 

8 ‘‘(C) funds received under the Small Busi9 ness Innovation Research Program or the Small 

10 Business Technology Transfer Program, as 

11 such terms are defined under section 9 of the 

12 Small Business Act (15 U.S.C. 638). 

13 ‘‘(c) FINAL APPROVAL.— 

14 ‘‘(1) IN GENERAL.—Not later than 90 days 

15 after the date on which an eligible applicant satisfies 

16 the conditions identified by the Administrator under 

17 subsection (a), the Administrator shall provide final 

18 approval to the eligible applicant to participate in 

19 the program. 

20 ‘‘(2) EXCEPTION.—Not later than 30 days after 

21 the date on which an eligible applicant, the partner22 ship or management agreement of which conforms to 

23 models approved by the Administrator, satisfies the 

24 conditions identified by the Administrator under 

25 subsection (a), the Administrator shall provide final 


tkelley on DSK3SPTVN1PROD with BILLS
9 

•S 1285 IS

1 approval to the eligible applicant to participate in 

2 the program. 

3 ‘‘(3) REVOCATION OF CONDITIONAL AP4 PROVAL.—If an eligible applicant fails to satisfy the 

5 conditions identified by the Administrator under 

6 subsection (a) in the time period required by that 

7 subsection, the Administrator shall revoke the condi8 tional approval. 

9 ‘‘SEC. 399F. EQUITY FINANCINGS. 

10 ‘‘(a) IN GENERAL.—The Administrator may make 1 

11 or more equity financings to a participating investment 

12 company. 

13 ‘‘(b) EQUITY FINANCING AMOUNTS.— 

14 ‘‘(1) NON-FEDERAL CAPITAL.—An equity fi15 nancing made to a participating investment company 

16 under the program may not be in an amount that 

17 exceeds the amount of the capital of the partici18 pating investment company that is not from a Fed19 eral source and that is available for investment on 

20 or before the date on which an equity financing is 

21 drawn upon by the participating investment com22 pany. The capital of the participating investment 

23 company may include legally binding commitments 

24 with respect to capital for investment. 


tkelley on DSK3SPTVN1PROD with BILLS
10 

•S 1285 IS

1 ‘‘(2) LIMITATION ON AGGREGATE AMOUNT.— 

2 The aggregate amount of all equity financings made 

3 to a participating investment company under the 

4 program may not exceed $100,000,000. 

5 ‘‘(c) EQUITY FINANCING PROCESS.—In making an 

6 equity financing under the program, the Administrator 

7 shall commit an equity financing amount to a partici8 pating investment company, and the amount of each com9 mitment shall remain available to be drawn upon by a par10 ticipating investment company— 

11 ‘‘(1) for new-named investments, during the 5- 

12 year period beginning on the date on which the com13 mitment is first drawn upon by the participating in14 vestment company; and 

15 ‘‘(2) for follow-on investments and management 

16 fees, during the 10-year period beginning on the 

17 date on which the commitment is first drawn upon 

18 by the participating investment company, with not 

19 more than 2 additional 1-year periods available at 

20 the discretion of the Administrator. 

21 ‘‘(d) COMMITMENT OF FUNDS.—Not later than 2 

22 years after the date on which funds are appropriated for 

23 the program, the Administrator shall make commitments 

24 for equity financings. 


tkelley on DSK3SPTVN1PROD with BILLS
11 

•S 1285 IS

1 ‘‘SEC. 399G. INVESTMENTS IN EARLY-STAGE SMALL BUSI2 NESSES. 

3 ‘‘(a) IN GENERAL.—As a condition of receiving an 

4 equity financing under the program, a participating in5 vestment company shall make all of the investments of the 

6 participating investment company made with amounts re7 ceived under the program, including securities, promissory 

8 notes, or other obligations, in small business concerns, of 

9 which at least 50 percent of the total amount of such in10 vestments shall be in early-stage small businesses in tar11 geted industries. 

12 ‘‘(b) EVALUATION OF COMPLIANCE.—After a partici13 pating investment company has expended not less than 50 

14 percent of the amount of an equity financing commitment 

15 made under section 399F, the Administrator shall evalu16 ate the compliance of the participating investment com17 pany with the requirements under subsection (a). 

18 ‘‘(c) WAIVER.—The Administrator may waive the re19 quirements for a participating investment company under 

20 subsection (a) if the Administrator determines that it is 

21 in the best interest of the long term solvency of the fund 

22 established in section 399J. 

23 ‘‘SEC. 399H. PRO RATA INVESTMENT SHARES. 

24 ‘‘Each investment made by a participating invest25 ment company under the program shall be treated as com26 prised of capital from equity financings under the program 


tkelley on DSK3SPTVN1PROD with BILLS
12 

•S 1285 IS

1 according to the ratio that capital from equity financings 

2 under the program bears to all capital available to the par3 ticipating investment company for investment. 

4 ‘‘SEC. 399I. EQUITY FINANCING INTEREST. 

5 ‘‘(a) EQUITY FINANCING INTEREST.— 

6 ‘‘(1) IN GENERAL.—As a condition of receiving 

7 an equity financing under the program, a partici8 pating investment company shall convey an equity fi9 nancing interest to the Administrator in accordance 

10 with paragraph (2). 

11 ‘‘(2) EFFECT OF CONVEYANCE.—The equity fi12 nancing interest conveyed under paragraph (1)— 

13 ‘‘(A) shall have all the rights and at14 tributes of other investors attributable to their 

15 interests in the participating investment com16 pany; 

17 ‘‘(B) shall not denote control or voting 

18 rights to the Administrator; and 

19 ‘‘(C) shall entitle the Administrator to a 

20 pro rata portion of any distributions made by 

21 the participating investment company equal to 

22 the percentage of capital in the participating in23 vestment company that the equity financing 

24 comprises, which shall be made at the same 

25 times and in the same amounts as any other inVerDate Mar 15 2010 22:17 Jul 11, 2013 Jkt 029200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1285.IS S1285

tkelley on DSK3SPTVN1PROD with BILLS
13 

•S 1285 IS

1 vestor in the participating investment company 

2 with a similar interest. 

3 ‘‘(3) ALLOCATIONS.—A participating invest4 ment company shall make allocations of income, 

5 gain, loss, deduction, and credit to the Adminis6 trator with respect to the equity financing interest 

7 as if the Administrator were an investor. 

8 ‘‘(b) MANAGER PROFITS.—As a condition of receiv9 ing an equity financing under the program, the manager 

10 profits interest payable to the managers of a participating 

11 investment company under the program shall not exceed 

12 20 percent of profits, exclusive of any profits that may 

13 accrue as a result of the capital contributions of any such 

14 managers with respect to the participating investment 

15 company. Any excess of manager profits interest, less 

16 taxes payable thereon, shall be returned by the managers 

17 and paid to the investors and the Administrator in propor18 tion to the capital contributions and equity financings paid 

19 in. No manager profits interest (other than a tax distribu20 tion) shall be paid before the repayment to the investors 

21 and the Administrator of all contributed capital and equity 

22 financings made. 

23 ‘‘(c) DISTRIBUTION REQUIREMENTS.—As a condition 

24 of receiving an equity financing under the program, a par25 ticipating investment company shall make all distributions 


tkelley on DSK3SPTVN1PROD with BILLS
14 

•S 1285 IS

1 to all investors in cash and shall make distributions within 

2 a reasonable time after exiting investments, including fol3 lowing a public offering or market sale of underlying in4 vestments. 

5 ‘‘SEC. 399J. FUND. 

6 ‘‘There is established in the Treasury a separate ac7 count (in this section referred to as ‘the fund’) for equity 

8 financings which shall be available to the Administrator, 

9 subject to annual appropriations, as a revolving fund to 

10 be used for the purposes of the program. All amounts re11 ceived by the Administrator under the program, including 

12 any moneys, property, or assets derived by the Adminis13 trator from operations in connection with the program, 

14 shall be deposited in the fund. 

15 ‘‘SEC. 399K. APPLICATION OF OTHER SECTIONS. 

16 ‘‘To the extent not inconsistent with requirements 

17 under this part, the Administrator may apply sections 

18 309, 311, 312, 313, and 314 to activities under this part, 

19 and an officer, director, employee, agent, or other partici20 pant in a participating investment company shall be sub21 ject to the requirements under such sections. 

22 ‘‘SEC. 399L. ANNUAL REPORTING. 

23 ‘‘The Administrator shall include information on the 

24 performance of the program in the annual performance 

25 report of the Administration required to be submitted 


tkelley on DSK3SPTVN1PROD with BILLS
15 

•S 1285 IS

1 under section 10(a) of the Small Business Act (15 U.S.C. 

2 639(a)).’’. 

Æ 


tkelley on DSK3SPTVN1PROD with BILLS