I 

113TH CONGRESS 

1ST SESSION H. R. 30 

To amend the Small Business Investment Act of 1958, to provide for a 

small business early-stage investment program, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 3, 2013 

Ms. VELA ́ZQUEZ introduced the following bill; which was referred to the Committee on Small Business, and in addition to the Committee on Ways and 

Means, for a period to be subsequently determined by the Speaker, in 

each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To amend the Small Business Investment Act of 1958, to 

provide for a small business early-stage investment program, and for other purposes. 

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 Invest5 ment Enhancement and Tax Relief Act’’. 


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1 TITLE I—SMALL BUSINESS 

2 EARLY-STAGE INVESTMENT 

3 PROGRAM 

4 SEC. 101. SMALL BUSINESS EARLY-STAGE INVESTMENT 

5 PROGRAM. 

6 Title III of the Small Business Investment Act of 

7 1958 (15 U.S.C. 681 et seq.) is amended by adding at 

8 the end the following: 

9 ‘‘PART D—SMALL BUSINESS EARLY-STAGE 

10 INVESTMENT PROGRAM 

11 ‘‘SEC. 399A. ESTABLISHMENT OF PROGRAM. 

12 ‘‘The Administrator shall establish and carry out an 

13 early-stage investment program (hereinafter referred to in 

14 this part as the ‘program’) to provide equity investment 

15 financing to support early-stage small businesses in ac16 cordance with this part. 

17 ‘‘SEC. 399B. ADMINISTRATION OF PROGRAM. 

18 ‘‘The program shall be administered by the Adminis19 trator acting through the Associate Administrator de20 scribed under section 201. 

21 ‘‘SEC. 399C. APPLICATIONS. 

22 ‘‘(a) IN GENERAL.—Any existing or newly formed in23 corporated body, limited liability company, or limited part24 nership organized and chartered or otherwise existing 

25 under Federal or State law for the purpose of performing 


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1 the functions and conducting the activities contemplated 

2 under the program and any manager of any small business 

3 investment company may submit to the Administrator an 

4 application to participate in the program. 

5 ‘‘(b) REQUIREMENTS FOR APPLICATION.—An appli6 cation to participate in the program shall include the fol7 lowing: 

8 ‘‘(1) A business plan describing how the appli9 cant intends to make successful venture capital in10 vestments in early-stage small businesses and direct 

11 capital to small business concerns in targeted indus12 tries or other business sectors. 

13 ‘‘(2) Information regarding the relevant venture 

14 capital investment qualifications and backgrounds of 

15 the individuals responsible for the management of 

16 the applicant. 

17 ‘‘(3) A description of the extent to which the 

18 applicant meets the selection criteria under section 

19 399D. 

20 ‘‘(c) APPLICATIONS FROM MANAGERS OF SMALL

21 BUSINESS INVESTMENT COMPANIES.—The Administrator 

22 shall establish an abbreviated application process for ap23 plicants that are managers of small business investment 

24 companies that are licensed under section 301 and that 

25 are applying to participate in the program. Such abbreVerDate Mar 15 2010 04:09 Jan 08, 2013 Jkt 029200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H30.IH H30

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1 viated process shall incorporate a presumption that such 

2 managers satisfactorily meet the selection criteria under 

3 paragraphs (3) and (5) of section 399D(b). 

4 ‘‘SEC. 399D. SELECTION OF PARTICIPATING INVESTMENT 

5 COMPANIES. 

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

7 date on which the Administrator receives an application 

8 from an applicant under section 399C, the Administrator 

9 shall make a determination to conditionally approve or dis10 approve such applicant to participate in the program and 

11 shall transmit such determination to the applicant in writ12 ing. A determination to conditionally approve an applicant 

13 shall identify all conditions necessary for a final approval 

14 and shall provide a period of not less than one year for 

15 satisfying such conditions. 

16 ‘‘(b) SELECTION CRITERIA.—In making a determina17 tion under subsection (a), the Administrator shall consider 

18 each of the following: 

19 ‘‘(1) The likelihood that the applicant will meet 

20 the goals specified in the business plan of the appli21 cant. 

22 ‘‘(2) The likelihood that the investments of the 

23 applicant will create or preserve jobs, both directly 

24 and indirectly. 


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1 ‘‘(3) The character and fitness of the manage2 ment of the applicant. 

3 ‘‘(4) The experience and background of the 

4 management of the applicant. 

5 ‘‘(5) The extent to which the applicant will con6 centrate investment activities on early-stage small 

7 businesses. 

8 ‘‘(6) The likelihood that the applicant will 

9 achieve profitability. 

10 ‘‘(7) The experience of the management of the 

11 applicant with respect to establishing a profitable in12 vestment track record. 

13 ‘‘(8) The extent to which the applicant will con14 centrate investment activities on small business con15 cerns in targeted industries. 

16 ‘‘(c) FINAL APPROVAL.—For each applicant provided 

17 a conditional approval under subsection (a), the Adminis18 trator shall provide final approval to participate in the 

19 program not later than 90 days after the date the appli20 cant satisfies the conditions specified by the Administrator 

21 under such subsection or, in the case of applicants whose 

22 partnership or management agreements conform to mod23 els approved by the Administrator, the Administrator shall 

24 provide final approval to participate in the program not 

25 later than 30 days after the date the applicant satisfies 


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1 the conditions specified under such subsection. If an appli2 cant provided conditional approval under subsection (a) 

3 fails to satisfy the conditions specified by the Adminis4 trator in the time period designated under such sub5 section, the Administrator shall revoke the conditional ap6 proval. 

7 ‘‘SEC. 399E. EQUITY FINANCINGS. 

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

9 one or more equity financings to a participating invest10 ment company. 

11 ‘‘(b) EQUITY FINANCING AMOUNTS.— 

12 ‘‘(1) NON-FEDERAL CAPITAL.—An equity fi13 nancing made to a participating investment company 

14 under the program may not be in an amount that 

15 exceeds the amount of the capital of such company 

16 that is not from a Federal source and that is avail17 able for investment on or before the date on which 

18 an equity financing is drawn upon. Such capital may 

19 include legally binding commitments with respect to 

20 capital for investment. 

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

22 The aggregate amount of all equity financings made 

23 to a participating investment company under the 

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


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

2 equity financing under the program, the Administrator 

3 shall commit an equity financing amount to a partici4 pating investment company and the amount of each such 

5 commitment shall remain available to be drawn upon by 

6 such company— 

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

8 year period beginning on the date on which each 

9 such commitment is first drawn upon; and 

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

11 fees during the 10-year period beginning on the date 

12 on which each such commitment is first drawn upon, 

13 with not more than 2 additional 1-year periods avail14 able at the discretion of the Administrator. 

15 ‘‘(d) COMMITMENT OF FUNDS.—The Administrator 

16 shall make commitments for equity financings not later 

17 than 2 years after the date funds are appropriated for the 

18 program. 

19 ‘‘SEC. 399F. INVESTMENTS IN EARLY-STAGE SMALL BUSI20 NESSES. 

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

22 equity financing under the program, a participating in23 vestment company shall make all of the investments of 

24 such company in small business concerns, of which at least 

25 50 percent shall be early-stage small businesses. 


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1 ‘‘(b) EVALUATION OF COMPLIANCE.—With respect to 

2 an equity financing amount committed to a participating 

3 investment company under section 399E, the Adminis4 trator shall evaluate the compliance of such company with 

5 the requirements under this section if such company has 

6 drawn upon 50 percent of such commitment. 

7 ‘‘SEC. 399G. PRO RATA INVESTMENT SHARES. 

8 ‘‘Each investment made by a participating invest9 ment company under the program shall be treated as com10 prised of capital from equity financings under the program 

11 according to the ratio that capital from equity financings 

12 under the program bears to all capital available to such 

13 company for investment. 

14 ‘‘SEC. 399H. EQUITY FINANCING INTEREST. 

15 ‘‘(a) EQUITY FINANCING INTEREST.— 

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

17 an equity financing under the program, a partici18 pating investment company shall convey an equity fi19 nancing interest to the Administrator in accordance 

20 with paragraph (2). 

21 ‘‘(2) EFFECT OF CONVEYANCE.—The equity fi22 nancing interest conveyed under paragraph (1) shall 

23 have all the rights and attributes of other investors 

24 attributable to their interests in the participating in25 vestment company, but shall not denote control or 


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1 voting rights to the Administrator. The equity fi2 nancing interest shall entitle the Administrator to a 

3 pro rata portion of any distributions made by the 

4 participating investment company equal to the per5 centage of capital in the participating investment 

6 company that the equity financing comprises. The 

7 Administrator shall receive distributions from the 

8 participating investment company at the same times 

9 and in the same amounts as any other investor in 

10 the company with a similar interest. The investment 

11 company shall make allocations of income, gain, loss, 

12 deduction, and credit to the Administrator with re13 spect to the equity financing interest as if the Ad14 ministrator were an investor. 

15 ‘‘(b) MANAGER PROFITS.—As a condition of receiv16 ing an equity financing under the program, the manager 

17 profits interest payable to the managers of a participating 

18 investment company under the program shall not exceed 

19 20 percent of profits, exclusive of any profits that may 

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

21 managers with respect to such company. Any excess of 

22 this amount, less taxes payable thereon, shall be returned 

23 by the managers and paid to the investors and the Admin24 istrator in proportion to the capital contributions and eq25 uity financings paid in. No manager profits interest (other 


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1 than a tax distribution) shall be paid prior to the repay2 ment to the investors and the Administrator of all contrib3 uted capital and equity financings made. 

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

5 of receiving an equity financing under the program, a par6 ticipating investment company shall make all distributions 

7 to all investors in cash and shall make distributions within 

8 a reasonable time after exiting investments, including fol9 lowing a public offering or market sale of underlying in10 vestments. 

11 ‘‘SEC. 399I. FUND. 

12 ‘‘There is hereby created within the Treasury a sepa13 rate fund for equity financings which shall be available 

14 to the Administrator subject to annual appropriations as 

15 a revolving fund to be used for the purposes of the pro16 gram. All amounts received by the Administrator, includ17 ing any moneys, property, or assets derived by the Admin18 istrator from operations in connection with the program, 

19 shall be deposited in the fund. All expenses and payments, 

20 excluding administrative expenses, pursuant to the oper21 ations of the Administrator under the program shall be 

22 paid from the fund. 

23 ‘‘SEC. 399J. APPLICATION OF OTHER SECTIONS. 

24 ‘‘To the extent not inconsistent with requirements 

25 under this part, the Administrator may apply sections 


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1 309, 311, 312, 313, and 314 to activities under this part 

2 and an officer, director, employee, agent, or other partici3 pant in a participating investment company shall be sub4 ject to the requirements under such sections. 

5 ‘‘SEC. 399K. ANNUAL REPORTING. 

6 ‘‘The Administrator shall report on the performance 

7 of the program in the annual performance report of the 

8 Administration. 

9 ‘‘SEC. 399L. DEFINITIONS. 

10 ‘‘In this part, the following definitions apply: 

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

12 term ‘early-stage small business’ means a small busi13 ness concern that— 

14 ‘‘(A) is domiciled in a State; and 

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

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

17 previous 3 years. 

18 ‘‘(2) PARTICIPATING INVESTMENT COMPANY.— 

19 The term ‘participating investment company’ means 

20 an applicant approved under section 399D to par21 ticipate in the program. 

22 ‘‘(3) TARGETED INDUSTRIES.—The term ‘tar23 geted industries’ means any of the following business 

24 sectors: 

25 ‘‘(A) Agricultural technology. 


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1 ‘‘(B) Energy technology. 

2 ‘‘(C) Environmental technology. 

3 ‘‘(D) Life science. 

4 ‘‘(E) Information technology. 

5 ‘‘(F) Digital media. 

6 ‘‘(G) Clean technology. 

7 ‘‘(H) Defense technology.’’. 

8 TITLE II—SMALL BUSINESS 

9 INVESTMENT 

10 SEC. 201. TAX CREDIT FOR SMALL BUSINESS INVESTMENT. 

11 (a) IN GENERAL.—Subpart A of part IV of sub12 chapter A of chapter 1 of the Internal Revenue Code of 

13 1986 (relating to nonrefundable personal credits) is 

14 amended by inserting after section 25D the following new 

15 section: 

16 ‘‘SEC. 25E. SMALL BUSINESS INVESTMENT. 

17 ‘‘(a) IN GENERAL.—In the case of an individual, 

18 there shall be allowed as a credit against the tax imposed 

19 by this chapter an amount equal to 20 percent of the 

20 amount paid or incurred for qualified small business in21 vestments during the taxable year. 

22 ‘‘(b) LIMITATION.—With respect to any qualified 

23 small business investment in any corporation or partner24 ship, the amount paid or incurred by any taxpayer which 

25 is taken into account under subsection (a) shall not exceed 


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1 $250,000 ($500,000 in the case of a joint return), reduced 

2 by the amount taken into account under such subsection 

3 with respect to investments by the taxpayer in such cor4 poration or partnership for all prior taxable years. 

5 ‘‘(c) QUALIFIED SMALL BUSINESS INVESTMENT.— 

6 For purposes of this section— 

7 ‘‘(1) IN GENERAL.—The term ‘qualified small 

8 business investment’ means any small business stock 

9 and any small business partnership interest. 

10 ‘‘(2) SMALL BUSINESS STOCK.—The term 

11 ‘small business stock’ means any stock in a domestic 

12 corporation acquired by the taxpayer at its original 

13 issue (directly or through an underwriter) solely in 

14 exchange for cash, if— 

15 ‘‘(A) such corporation is an eligible small 

16 business (as defined in section 41(b)(3)(D)(ii)); 

17 ‘‘(B) such corporation is engaged primarily 

18 in the trade or business of manufacturing, proc19 essing, assembling, or researching and devel20 oping products or in the trade or business of 

21 agriculture, technology, or life science; 

22 ‘‘(C) such corporation has been in exist23 ence for less than 5 years as of such acquisi24 tion; 


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1 ‘‘(D) such corporation has fewer than 75 

2 employees as of such acquisition; 

3 ‘‘(E) more than 50 percent of the corpora4 tion’s employees perform substantially all of 

5 their services in the United States as of such 

6 acquisition; and 

7 ‘‘(F) such stock is designated by the cor8 poration for purposes of this paragraph. 

9 For purposes of subparagraph (E), stock shall not 

10 be treated as designated if such designation would 

11 result in the aggregate amount which may be taken 

12 into account under this section with respect to stock 

13 issued by such corporation to exceed $750,000, tak14 ing into account all taxpayers for all taxable years. 

15 ‘‘(3) SMALL BUSINESS PARTNERSHIP INTER16 EST.—The term ‘small business partnership interest’ 

17 means any capital or profits interest in a domestic 

18 partnership acquired by the taxpayer from the part19 nership solely in exchange for cash, if— 

20 ‘‘(A) such partnership is an eligible small 

21 business (as defined in section 41(b)(3)(D)(ii)); 

22 ‘‘(B) such partnership is engaged primarily 

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1 oping products or in the trade or business of 

2 agriculture, technology, or life science; 

3 ‘‘(C) such partnership has been in exist4 ence for less than 5 years as of such acquisi5 tion; 

6 ‘‘(D) such partnership has fewer than 75 

7 employees as of such acquisition; 

8 ‘‘(E) more than 50 percent of the partner9 ship’s employees perform substantially all of 

10 their services in the United States as of such 

11 acquisition; and 

12 ‘‘(F) such capital or profits interest is des13 ignated by partnership for purposes of this 

14 paragraph. 

15 For purposes of subparagraph (E), a capital or prof16 its interest shall not be treated as designated if such 

17 designation would result in the aggregate amount 

18 which may be taken into account under this section 

19 with respect to interests in such partnership to ex20 ceed $750,000, taking into account all taxpayers for 

21 all taxable years. 

22 ‘‘(d) CARRYFORWARD OF UNUSED CREDIT.—If the 

23 credit allowable under subsection (a) exceeds the limita24 tion imposed by section 26(a) for such taxable year re25 duced by the sum of the credits allowable under this subVerDate Mar 15 2010 04:09 Jan 08, 2013 Jkt 029200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\H30.IH H30

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1 part (other than this section), such excess shall be carried 

2 to the succeeding taxable year and added to the credit al3 lowable under this section. Such excess shall not be taken 

4 into account under this subsection for such succeeding 

5 taxable year or any taxable year succeeding such year.’’. 

6 (b) CLERICAL AMENDMENT.—The table of sections 

7 of such subpart is amended by inserting after the item 

8 relating to section 25D the following new item: 

‘‘Sec. 25E. Small business investment.’’. 

9 (c) REPORT TO CONGRESS.—The Secretary of the 

10 Treasury shall conduct a study and report to Congress on 

11 the effectiveness of the credit allowed under section 25E 

12 of the Internal Revenue Code of 1986 (as added by this 

13 section), and similar State tax credits, in providing incen14 tives for investment in qualified small businesses. There 

15 are authorized to be appropriated $500,000 to carry out 

16 the purposes of this subsection. 

17 (d) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years beginning after 

19 the date of the enactment of this Act. 

Æ 


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