I 

111TH CONGRESS 

1ST SESSION H. R. 3738 

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. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 7, 2009 

Mr. NYE introduced the following bill; which was referred to the Committee 

on Small Business 

A BILL 

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, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Small Business Early5 Stage Investment Act of 2009’’. 


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1 SEC. 2. SMALL BUSINESS EARLY-STAGE INVESTMENT PRO2 GRAM. 

3 Title III of the Small Business Investment Act of 

4 1958 (15 U.S.C. 681 et seq.) is amended by adding at 

5 the end the following: 

6 ‘‘PART D—SMALL BUSINESS EARLY-STAGE 

7 INVESTMENT PROGRAM 

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

9 ‘‘The Administrator shall establish and carry out an 

10 early-stage investment program (hereinafter referred to in 

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

12 financing to support early-stage small businesses in tar13 geted industries in accordance with this part. 

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

15 ‘‘The program shall be administered by the Adminis16 trator acting through the Associate Administrator de17 scribed under section 201. 

18 ‘‘SEC. 399C. APPLICATIONS. 

19 ‘‘(a) IN GENERAL.—Any incorporated body, limited 

20 liability company, or limited partnership organized and 

21 chartered or otherwise existing under Federal or State law 

22 for the purpose of performing the functions and con23 ducting the activities contemplated under the program and 

24 any small business investment company may submit to the 

25 Administrator an application to participate in the pro26 gram. 


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1 ‘‘(b) REQUIREMENTS FOR APPLICATION.—An appli2 cation to participate in the program shall include the fol3 lowing: 

4 ‘‘(1) A business plan describing how the appli5 cant intends to make successful venture capital in6 vestments in early-stage small businesses in targeted 

7 industries. 

8 ‘‘(2) Information regarding the relevant venture 

9 capital investment qualifications and backgrounds of 

10 the individuals responsible for the management of 

11 the applicant. 

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

13 applicant meets the selection criteria under section 

14 399D. 

15 ‘‘(c) APPLICATIONS FROM SMALL BUSINESS INVEST16 MENT COMPANIES.—The Administrator shall establish an 

17 abbreviated application process for small business invest18 ment companies that have received a license under section 

19 301 and that are applying to participate in the program. 

20 Such abbreviated process shall incorporate a presumption 

21 that such small business investment companies satisfac22 torily meet the selection criteria under paragraphs (3) and 

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


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

2 COMPANIES. 

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

4 date on which the Administrator receives an application 

5 from an applicant under section 399C, the Administrator 

6 shall make a final determination to approve or disapprove 

7 such applicant to participate in the program and shall 

8 transmit such determination to the applicant in writing. 

9 ‘‘(b) SELECTION CRITERIA.—In making a determina10 tion under subsection (a), the Administrator shall consider 

11 each of the following: 

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

13 the goals specified in the business plan of the appli14 cant. 

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

16 applicant will create or preserve jobs, both directly 

17 and indirectly. 

18 ‘‘(3) The character and fitness of the manage19 ment of the applicant. 

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

21 management of the applicant. 

22 ‘‘(5) The extent to which the applicant will con23 centrate investment activities on early-stage small 

24 businesses in targeted industries. 

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

26 achieve profitability. 


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

2 applicant with respect to establishing a profitable in3 vestment track record. 

4 ‘‘SEC. 399E. GRANTS. 

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

6 one or more grants to a participating investment company. 

7 ‘‘(b) GRANT AMOUNTS.— 

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

9 to a participating investment company under the 

10 program may not be in an amount that exceeds the 

11 amount of the capital of such company that is not 

12 from a Federal source and that is available for in13 vestment on or before the date on which a grant is 

14 drawn upon. Such capital may include legally bind15 ing commitments with respect to capital for invest16 ment. 

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

18 The aggregate amount of all grants made to a par19 ticipating investment company under the program 

20 may not exceed $100,000,000. 

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

22 program, the Administrator shall commit a grant amount 

23 to a participating investment company and the amount of 

24 each such commitment shall remain available to be drawn 

25 upon by such company— 


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

2 year period beginning on the date on which each 

3 such commitment is first drawn upon; and 

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

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

6 on which each such commitment is first drawn upon, 

7 with not more than 2 additional 1-year periods avail8 able at the discretion of the Administrator. 

9 ‘‘SEC. 399F. INVESTMENTS IN EARLY-STAGE SMALL BUSI10 NESSES IN TARGETED INDUSTRIES. 

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

12 grant under the program, a participating investment com13 pany shall make all of the investments of such company 

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

15 shall be early-stage small businesses in targeted indus16 tries. 

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

18 a grant amount committed to a participating investment 

19 company under section 399E, the Administrator shall 

20 evaluate the compliance of such company with the require21 ments under this section if such company has drawn upon 

22 50 percent of such commitment. 

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

24 ‘‘Each investment made by a participating invest25 ment company under the program shall be treated as comVerDate Nov 24 2008 02:38 Oct 08, 2009 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3738.IH H3738

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1 prised of capital from grants under the program according 

2 to the ratio that capital from grants under the program 

3 bears to all capital available to such company for invest4 ment. 

5 ‘‘SEC. 399H. GRANT INTEREST. 

6 ‘‘(a) GRANT INTEREST.— 

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

8 a grant under the program, a participating invest9 ment company shall convey a grant interest to the 

10 Administrator in accordance with paragraph (2). 

11 ‘‘(2) EFFECT OF CONVEYANCE.—The grant in12 terest conveyed under paragraph (1) shall have all 

13 the rights and attributes of other investors attrib14 utable to their interests in the participating invest15 ment company, but shall not denote control or vot16 ing rights to the Administrator. The grant interest 

17 shall entitle the Administrator to a pro rata portion 

18 of any distributions made by the participating in19 vestment company equal to the percentage of capital 

20 in the participating investment company that the 

21 grant comprises. The Administrator shall receive dis22 tributions from the participating investment com23 pany at the same times and in the same amounts as 

24 any other investor in the company with a similar in25 terest. The investment company shall make allocaVerDate Nov 24 2008 02:38 Oct 08, 2009 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3738.IH H3738

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1 tions of income, gain, loss, deduction, and credit to 

2 the Administrator with respect to the grant interest 

3 as if the Administrator were an investor. 

4 ‘‘(b) MANAGER PROFITS.—As a condition of receiv5 ing a grant under the program, the manager profits inter6 est payable to the managers of a participating investment 

7 company under the program shall not exceed 20 percent 

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

9 result of the capital contributions of any such managers 

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

11 less taxes payable thereon, shall be returned by the man12 agers and paid to the investors and the Administrator in 

13 proportion to the capital contributions and grants paid in. 

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

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

16 the Administrator of all contributed capital and grants 

17 made. 

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

19 of receiving a grant under the program, a participating 

20 investment company shall make all distributions to all in21 vestors in cash and shall make distributions within a rea22 sonable time after exiting investments, including following 

23 a public offering or market sale of underlying investments. 


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1 ‘‘SEC. 399I. FUND. 

2 ‘‘There is hereby created within the Treasury a sepa3 rate fund for grants which shall be available to the Admin4 istrator subject to annual appropriations as a revolving 

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

6 amounts received by the Administrator, including any 

7 moneys, property, or assets derived by the Administrator 

8 from operations in connection with the program, shall be 

9 deposited in the fund. All expenses and payments, exclud10 ing administrative expenses, pursuant to the operations of 

11 the Administrator under the program shall be paid from 

12 the fund. 

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

14 ‘‘To the extent not inconsistent with requirements 

15 under this part, the Administrator may apply sections 

16 309, 311, 312, 313, and 314 to activities under this part 

17 and an officer, director, employee, agent, or other partici18 pant in a participating investment company shall be sub19 ject to the requirements under such sections. 

20 ‘‘SEC. 399K. DEFINITIONS. 

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

22 ‘‘(1) EARLY-STAGE SMALL BUSINESS IN A TAR23 GETED INDUSTRY.—The term ‘early-stage small 

24 business in a targeted industry’ means a small busi25 ness concern that— 

26 ‘‘(A) is domiciled in a State; 


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1 ‘‘(B) has not generated gross annual reve2 nues exceeding $15,000,000 in any of the pre3 vious 3 years; and 

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

5 developing, manufacturing, producing, or bring6 ing to market goods, products, or services with 

7 respect to any of the following business sectors: 

8 ‘‘(i) Agricultural technology. 

9 ‘‘(ii) Energy technology. 

10 ‘‘(iii) Environmental technology. 

11 ‘‘(iv) Life science. 

12 ‘‘(v) Information technology. 

13 ‘‘(vi) Digital media. 

14 ‘‘(vii) Clean technology. 

15 ‘‘(viii) Defense technology. 

16 ‘‘(2) PARTICIPATING INVESTMENT COMPANY.— 

17 The term ‘participating investment company’ means 

18 an applicant approved under section 399D to par19 ticipate in the program. 

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

21 ‘small business concern’ has the same meaning given 

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

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


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

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

3 the program $250,000,000 for the first full fiscal year be4 ginning after the date of the enactment of this part.’’. 

Æ 


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