IIB 

111TH CONGRESS 

1ST SESSION H. R. 3738 

IN THE SENATE OF THE UNITED STATES 

NOVEMBER 19, 2009 

Received; read twice and referred to the Committee on Small Business and 

Entrepreneurship 

AN ACT 

To amend the Small Business Investment Act of 1958 to 

establish a program for the Small Business Administration to provide financing to support early-stage small 

businesses in targeted industries, 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, 


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Small Business Early3 Stage Investment Act of 2009’’. 

4 SEC. 2. SMALL BUSINESS EARLY-STAGE INVESTMENT PRO5 GRAM. 

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 tar16 geted industries in accordance 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 incorporated body, limited 

23 liability company, or limited partnership organized and 

24 chartered or otherwise existing under Federal or State law 

25 for the purpose of performing the functions and con26 ducting the activities contemplated under the program and 


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1 any small business investment company may submit to the 

2 Administrator an application to participate in the pro3 gram. 

4 ‘‘(b) REQUIREMENTS FOR APPLICATION.—An appli5 cation to participate in the program shall include the fol6 lowing: 

7 ‘‘(1) A business plan describing how the appli8 cant intends to make successful venture capital in9 vestments in early-stage small businesses in targeted 

10 industries. 

11 ‘‘(2) Information regarding the relevant venture 

12 capital investment qualifications and backgrounds of 

13 the individuals responsible for the management of 

14 the applicant. 

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

16 applicant meets the selection criteria under section 

17 399D. 

18 ‘‘(c) APPLICATIONS FROM SMALL BUSINESS INVEST19 MENT COMPANIES.—The Administrator shall establish an 

20 abbreviated application process for small business invest21 ment companies that have received a license under section 

22 301 and that are applying to participate in the program. 

23 Such abbreviated process shall incorporate a presumption 

24 that such small business investment companies satisfacVerDate Nov 24 2008 00:05 Nov 20, 2009 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3738.RFS H3738

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1 torily meet the selection criteria under paragraphs (3) and 

2 (5) of section 399D(b). 

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

4 COMPANIES. 

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

6 date on which the Administrator receives an application 

7 from an applicant under section 399C, the Administrator 

8 shall make a final determination to approve or disapprove 

9 such applicant to participate in the program and shall 

10 transmit such determination to the applicant in writing. 

11 ‘‘(b) SELECTION CRITERIA.—In making a determina12 tion under subsection (a), the Administrator shall consider 

13 each of the following: 

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

15 the goals specified in the business plan of the appli16 cant. 

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

18 applicant will create or preserve jobs, both directly 

19 and indirectly. 

20 ‘‘(3) The character and fitness of the manage21 ment of the applicant. 

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

23 management of the applicant. 


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1 ‘‘(5) The extent to which the applicant will con2 centrate investment activities on early-stage small 

3 businesses in targeted industries. 

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

5 achieve profitability. 

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

7 applicant with respect to establishing a profitable in8 vestment track record. 

9 ‘‘SEC. 399E. GRANTS. 

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

11 one or more grants to a participating investment company. 

12 ‘‘(b) GRANT AMOUNTS.— 

13 ‘‘(1) NON-FEDERAL CAPITAL.—A grant made 

14 to a participating investment company under the 

15 program may not be in an amount that exceeds the 

16 amount of the capital of such company that is not 

17 from a Federal source and that is available for in18 vestment on or before the date on which a grant is 

19 drawn upon. Such capital may include legally bind20 ing commitments with respect to capital for invest21 ment. 

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

23 The aggregate amount of all grants made to a par24 ticipating investment company under the program 

25 may not exceed $100,000,000. 


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1 ‘‘(c) GRANT PROCESS.—In making a grant under the 

2 program, the Administrator shall commit a grant amount 

3 to a participating investment company and the amount of 

4 each such commitment shall remain available to be drawn 

5 upon by such company— 

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

7 year period beginning on the date on which each 

8 such commitment is first drawn upon; and 

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

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

11 on which each such commitment is first drawn upon, 

12 with not more than 2 additional 1-year periods avail13 able at the discretion of the Administrator. 

14 ‘‘SEC. 399F. INVESTMENTS IN EARLY-STAGE SMALL BUSI15 NESSES IN TARGETED INDUSTRIES. 

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

17 grant under the program, a participating investment com18 pany shall make all of the investments of such company 

19 in small business concerns, of which at least 50 percent 

20 shall be early-stage small businesses in targeted indus21 tries. 

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

23 a grant amount committed to a participating investment 

24 company under section 399E, the Administrator shall 

25 evaluate the compliance of such company with the requireVerDate Nov 24 2008 00:05 Nov 20, 2009 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3738.RFS H3738

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1 ments under this section if such company has drawn upon 

2 50 percent of such commitment. 

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

4 ‘‘Each investment made by a participating invest5 ment company under the program shall be treated as com6 prised of capital from grants under the program according 

7 to the ratio that capital from grants under the program 

8 bears to all capital available to such company for invest9 ment. 

10 ‘‘SEC. 399H. GRANT INTEREST. 

11 ‘‘(a) GRANT INTEREST.— 

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

13 a grant under the program, a participating invest14 ment company shall convey a grant interest to the 

15 Administrator in accordance with paragraph (2). 

16 ‘‘(2) EFFECT OF CONVEYANCE.—The grant in17 terest conveyed under paragraph (1) shall have all 

18 the rights and attributes of other investors attrib19 utable to their interests in the participating invest20 ment company, but shall not denote control or vot21 ing rights to the Administrator. The grant interest 

22 shall entitle the Administrator to a pro rata portion 

23 of any distributions made by the participating in24 vestment company equal to the percentage of capital 

25 in the participating investment company that the 


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1 grant comprises. The Administrator shall receive dis2 tributions from the participating investment com3 pany at the same times and in the same amounts as 

4 any other investor in the company with a similar in5 terest. The investment company shall make alloca6 tions of income, gain, loss, deduction, and credit to 

7 the Administrator with respect to the grant interest 

8 as if the Administrator were an investor. 

9 ‘‘(b) MANAGER PROFITS.—As a condition of receiv10 ing a grant under the program, the manager profits inter11 est payable to the managers of a participating investment 

12 company under the program shall not exceed 20 percent 

13 of profits, exclusive of any profits that may accrue as a 

14 result of the capital contributions of any such managers 

15 with respect to such company. Any excess of this amount, 

16 less taxes payable thereon, shall be returned by the man17 agers and paid to the investors and the Administrator in 

18 proportion to the capital contributions and grants paid in. 

19 No manager profits interest (other than a tax distribution) 

20 shall be paid prior to the repayment to the investors and 

21 the Administrator of all contributed capital and grants 

22 made. 

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

24 of receiving a grant under the program, a participating 

25 investment company shall make all distributions to all inVerDate Nov 24 2008 00:05 Nov 20, 2009 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H3738.RFS H3738

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1 vestors in cash and shall make distributions within a rea2 sonable time after exiting investments, including following 

3 a public offering or market sale of underlying investments. 

4 ‘‘SEC. 399I. FUND. 

5 ‘‘There is hereby created within the Treasury a sepa6 rate fund for grants which shall be available to the Admin7 istrator subject to annual appropriations as a revolving 

8 fund to be used for the purposes of the program. All 

9 amounts received by the Administrator, including any 

10 moneys, property, or assets derived by the Administrator 

11 from operations in connection with the program, shall be 

12 deposited in the fund. All expenses and payments, exclud13 ing administrative expenses, pursuant to the operations of 

14 the Administrator under the program shall be paid from 

15 the fund. 

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

17 ‘‘To the extent not inconsistent with requirements 

18 under this part, the Administrator may apply sections 

19 309, 311, 312, 313, and 314 to activities under this part 

20 and an officer, director, employee, agent, or other partici21 pant in a participating investment company shall be sub22 ject to the requirements under such sections. 

23 ‘‘SEC. 399K. DEFINITIONS. 

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


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1 ‘‘(1) EARLY-STAGE SMALL BUSINESS IN A TAR2 GETED INDUSTRY.—The term ‘early-stage small 

3 business in a targeted industry’ means a small busi4 ness concern that— 

5 ‘‘(A) is domiciled in a State; 

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

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

8 previous 3 years; and 

9 ‘‘(C) is engaged primarily in researching, 

10 developing, manufacturing, producing, or bring11 ing to market goods, products, or services with 

12 respect to any of the following business sectors: 

13 ‘‘(i) Agricultural technology. 

14 ‘‘(ii) Energy technology. 

15 ‘‘(iii) Environmental technology. 

16 ‘‘(iv) Life science. 

17 ‘‘(v) Information technology. 

18 ‘‘(vi) Digital media. 

19 ‘‘(vii) Clean technology. 

20 ‘‘(viii) Defense technology. 

21 ‘‘(ix) Photonics technology. 

22 ‘‘(2) PARTICIPATING INVESTMENT COMPANY.— 

23 The term ‘participating investment company’ means 

24 an applicant approved under section 399D to par25 ticipate in the program. 


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1 ‘‘(3) SMALL BUSINESS CONCERN.—The term 

2 ‘small business concern’ has the same meaning given 

3 such term under section 3(a) of the Small Business 

4 Act (15 U.S.C. 632(a)). 

5 ‘‘SEC. 399L. AUTHORIZATION OF APPROPRIATIONS. 

6 ‘‘There is authorized to be appropriated to carry out 

7 the program $200,000,000 for the first full fiscal year be8 ginning after the date of the enactment of this part.’’. 

9 SEC. 3. PROHIBITIONS ON EARMARKS. 

10 None of the funds appropriated for the program es11 tablished under part D of title III of the Small Business 

12 Investment Act of 1958, as added by this Act, may be 

13 used for a Congressional earmark as defined in clause 9(d) 

14 of rule XXI of the Rules of the House of Representatives. 

15 SEC. 4. REGULATIONS. 

16 Except as otherwise provided in this Act or in amend17 ments made by this Act, after an opportunity for notice 

18 and comment, but not later than 180 days after the date 

19 of the enactment of this Act, the Administrator shall issue 


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1 regulations to carry out this Act and the amendments 

2 made by this Act. 

Passed the House of Representatives November 18, 

2009. 

Attest: LORRAINE C. MILLER, 

Clerk. 


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