I 
116TH CONGRESS 
2D SESSION 
H. R. 6403 
To establish the Innovation and Startups Equity Investment Program in 
the Department of the Treasury, through which the Secretary of the 
Treasury shall allocate money to certain States to assist high-potential 
scalable startups access venture capital to commercialize innovations, 
create jobs, and accelerate economic growth, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 26, 2020 
Mr. PHILLIPS (for himself, Mr. KHANNA, Mr. RYAN, and Ms. SEWELL of Ala-
bama) introduced the following bill; which was referred to the Committee 
on Financial Services 
A BILL 
To establish the Innovation and Startups Equity Investment 
Program in the Department of the Treasury, through 
which the Secretary of the Treasury shall allocate money 
to certain States to assist high-potential scalable startups 
access venture capital to commercialize innovations, cre-
ate jobs, and accelerate economic growth, and for other 
purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘New Business Preser-
vation Act’’. 
SEC. 2. DEFINITIONS. 
In this Act: 
(1) APPROVED
STATE
PROGRAM.—The term 
‘‘approved State program’’ means a State program 
that is approved by the Secretary in accordance with 
the standards established under section 3(b)(1). 
(2) COVERED
INVESTMENT.—The term ‘‘cov-
ered investment’’ means an equity investment in a 
startup using amounts made available to carry out 
the covered programs. 
(3) COVERED PROGRAMS.—The term ‘‘covered 
programs’’ means the Program and the program 
carried out under section 4. 
(4) EQUITY INVESTMENT.—The term ‘‘equity 
investment’’— 
(A) means an investment for an ownership 
interest in an entity, the financial return with 
respect to which is principally aligned with the 
financial return of the plurality of ownership in-
terests in the entity; and 
(B) includes a debt instrument that can be 
converted to an equity ownership interest in an 
entity based on future events. 
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(5) EXIT.—The term ‘‘exit’’, with respect to a 
startup in which there is a covered investment, 
means— 
(A) the acquisition of the startup; 
(B) after an initial public offering with re-
spect to the startup, the sale of a share of the 
startup that was obtained through the covered 
investment; or 
(C) the voluntary purchase of ownership 
interests by the startup, investors, or existing 
shareholders. 
(6) FEDERAL CONTRIBUTION.—The term ‘‘Fed-
eral contribution’’ means a contribution made— 
(A) by a participating State to, or for the 
account of, an approved State program; and 
(B) with Federal funds allocated to the 
participating State by the Secretary. 
(7) FOLLOW-ON INVESTMENT.—The term ‘‘fol-
low-on investment’’ means a subsequent equity in-
vestment in a startup in which there was originally 
a separate and distinct equity investment under— 
(A) a program carried out under the State 
Small Business Credit Initiative Act of 2010 
(12 U.S.C. 5701 et seq.); or 
(B) the Program. 
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(8) MARKET
RATE
MANAGEMENT
FEE
AND 
PROFIT INTEREST.—The term ‘‘market rate man-
agement fee and profit interest’’ means the usual 
and customary compensation structure paid to fund 
managers for fund investment management services 
under agreements with private sector limited part-
ners. 
(9) PARTICIPATING STATE.—The term ‘‘partici-
pating State’’ means a State that participates in the 
Program after having satisfied the approval criteria 
under section 3(c). 
(10) PROGRAM.—The term ‘‘Program’’ means 
the Innovation and Startups Equity Investment Pro-
gram established under section 3(a). 
(11) QUALIFYING AREA.—The term ‘‘qualifying 
area’’ means an area of the United States outside of 
the major venture capital centers, as determined in 
the rule making conducted by the Secretary under 
section 3(e). 
(12) RULE; RULE MAKING.—The terms ‘‘rule’’ 
and ‘‘rule making’’ have the meanings given those 
terms in section 551 of title 5, United States Code. 
(13) 
SECRETARY.—The 
term 
‘‘Secretary’’ 
means the Secretary of the Treasury. 
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(14) STARTUP.—The term ‘‘startup’’ means a 
business entity that— 
(A) has been in existence for less than 10 
years; 
(B) has the intention or potential to— 
(i) significantly scale with respect to 
revenue and job creation; 
(ii) develop innovative products or 
services; and 
(iii) deliver high returns on invest-
ment; and 
(C) is headquartered in a qualifying area. 
(15) STATE.— 
(A) IN
GENERAL.—The term ‘‘State’’ 
means— 
(i) a State of the United States; and 
(ii) the District of Columbia. 
(B) RULE OF CONSTRUCTION.—The Com-
monwealth of Puerto Rico, the United States 
Virgin Islands, Guam, American Samoa, and 
the Commonwealth of the Northern Mariana Is-
lands shall collectively be considered to be 1 
State for the purposes of this Act. 
(16) STATE PROGRAM.—The term ‘‘State pro-
gram’’ means a program established by a State to 
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provide equity investment in startups or venture 
capital funds that are headquartered in qualifying 
areas, without regard to whether those qualifying 
areas are located in the State. 
(17) VENTURE
CAPITAL
FUND.—The term 
‘‘venture capital fund’’ has the meaning given the 
term in section 275.203(l)–1 of title 17, Code of 
Federal Regulations, or any successor regulation. 
SEC. 3. ISEI PROGRAM. 
(a) ESTABLISHMENT.—There is established in the 
Department of the Treasury the Innovation and Startups 
Equity Investment Program— 
(1) which shall be administered by the Sec-
retary; and 
(2) under which— 
(A) the Secretary shall, in accordance with 
the provisions of this section, allocate to partici-
pating States— 
(i) the amount appropriated under 
section 8(a)(1); and 
(ii) any future amounts appropriated 
to carry out the Program under the au-
thorization provided under section 8(b); 
(B) participating States to which funds are 
allocated 
under 
subparagraph 
(A) 
shall, 
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through approved State programs, provide eq-
uity investment in startups; and 
(C) money (including securities) returned 
to States after exits with respect to the invest-
ments described in subparagraph (B) shall be 
reinvested through follow-on investments, as 
further provided in section 5. 
(b) DUTIES OF THE SECRETARY.—In administering 
the Program, the Secretary shall— 
(1) establish minimum standards for a State 
program to be considered an approved State pro-
gram; 
(2) provide technical assistance to States for 
designing State programs and implementing ap-
proved State programs; 
(3) disseminate information relating to best 
practices with respect to the design and implementa-
tion described in paragraph (2); 
(4) perform any managerial or administrative 
function that is necessary to maintain the integrity 
of the Program; and 
(5) provide oversight of the Program, including 
by reviewing whether each approved State program 
is in compliance with the requirements of the Pro-
gram. 
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(c) APPROVAL CRITERIA.— 
(1) PARTICIPATING STATES.—A State may be-
come a participating State if— 
(A) the State— 
(i) designates a specific department or 
agency of the State, or an entity supported 
by the State, to implement and administer 
a State program of the State; or 
(ii) has a contractual arrangement— 
(I) with a participating State 
that has an approved State program; 
and 
(II) through which the partici-
pating State described in subclause 
(I) will implement and administer the 
State program of the State; 
(B) the State takes all legal actions nec-
essary to enable the entity that, under subpara-
graph (A), will implement the State program of 
the State to carry out that implementation; 
(C) the State submits to the Secretary an 
application described in paragraph (2)(B) dur-
ing a time period to be established by the Sec-
retary; and 
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(v) includes an agreement by the 
State to submit to the Secretary any re-
ports required under the Program, includ-
ing those required under section 7. 
(2) APPROVED STATE PROGRAMS.— 
(A) MODELS.—The Secretary may certify 
a State program that uses either of the fol-
lowing structures as an approved State pro-
gram: 
(i) A program in which a State-sup-
ported entity or a private investment firm 
(referred to in this clause as the ‘‘man-
ager’’) directly invests in startups in ac-
cordance with the following requirements: 
(I) A State agency may not serve 
as the manager of the program. 
(II) Any investment made under 
the program shall have not less than 
50 percent of the investment funded 
using nongovernment sources. 
(III) A State-sponsored entity or 
nonprofit organization serving as the 
manager under the program may 
charge a market rate annual manage-
ment fee. 
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(IV) The State may allow the 
manager under the program to receive 
a market-rate profit share. 
(V) The manager under the pro-
gram shall actively— 
(aa) educate minority-owned 
and women-owned startups re-
garding 
the 
process 
through 
which the manager makes equity 
investments; and 
(bb) pursue equity invest-
ments in startups described in 
item (aa). 
(ii) A program in which a State-sup-
ported entity or a private investment firm 
establishes a fund to invest in other invest-
ment funds in accordance with the fol-
lowing requirements: 
(I) The fund established under 
the program may charge a market 
rate management fee paid by the ad-
ministrator of the program with pro-
gram funds and receive a market rate 
management fee and profit interest. 
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(II) If the State has an above av-
erage per capita venture capital mar-
ket share, the State shall prioritize al-
locations by the fund established 
under the program to funds managed 
by first-time managers, women, and 
minorities. 
(III) The allocations made by the 
fund established under the program 
shall be in an amount that is not 
more than 20 percent of the capital 
raised by that fund, except that, with 
respect to a recipient fund described 
in subclause (II), that amount shall be 
50 percent. 
(B) APPLICATION.—A State that wishes to 
have a State program of the State certified by 
the Secretary as an approved State program 
shall submit to the Secretary an application 
that contains— 
(i) a venture capital supply and acces-
sibility study listing, which shall include— 
(I) a list of active, as of the date 
on which the application is submitted, 
venture capital funds in the State 
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with capital under management, seg-
regated by funds that actively invest 
in startups and funds that no longer 
actively invest in startups; 
(II) sources of equity investments 
in startups; and 
(III) a summary of investment 
activity in the State from accredited 
investors that are not venture capital 
funds; 
(ii) for the 10-year period preceding 
the date on which the State submits the 
application, a list of each State-sponsored 
program, the intent of which is to stimu-
late equity investment in startups, includ-
ing the policies implemented under each 
such program and the reported results of 
each such program; 
(iii) a list of active, as of the date on 
which the application is submitted, State 
pension fund investments in venture cap-
ital funds and similar types of investments; 
(iv) a final report on outcomes in the 
State under each program established 
under the State Small Business Credit Ini-
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tiative Act of 2010 (12 U.S.C. 5701 et 
seq.) (referred to in this subparagraph as 
the ‘‘Initiative’’), including— 
(I) the total amount expended in 
direct support of small businesses 
under the Initiative in the State; 
(II) the total amount of private 
capital leverage generated by each ap-
proved program under the Initiative in 
the State; 
(III) the amount of funds made 
available under the Initiative in the 
State that were not ultimately ex-
pended, if any; 
(IV) the amount of capital re-
turned to the State in the form of in-
vestment returns or loan repayments 
under the Initiative; and 
(V) the actual uses of residual 
funds generated from the Initiative in 
the State; 
(v) a policy regarding the resolution of 
conflicts of interest with respect to the 
State program, including a comparison 
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with that policy for the Department of the 
Treasury with respect to the Initiative; and 
(vi) an identification of which model 
described in subparagraph (A) the State 
intends to use for the State program of the 
State. 
(C) REVIEW OF APPLICATION.—Not later 
than 90 days after the date on which the Sec-
retary receives an application submitted by a 
State under subparagraph (B), the Secretary 
shall approve the application if the application 
satisfies all applicable requirements. 
(3) DURATION OF APPROVAL.— 
(A) IN GENERAL.—Except as provided in 
subparagraph (C), a State program that the 
Secretary certifies as an approved State pro-
gram under this subsection shall— 
(i) remain so certified for the 5-year 
period beginning on the date on which the 
Secretary certifies the program; and 
(ii) during the 5-year period described 
in clause (i), remain eligible to receive allo-
cations under the Program, except as oth-
erwise expressly provided in this section. 
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(B) RE-CERTIFICATION.—After the end of 
the 5-year period described in subparagraph 
(A)(i) with respect to an approved State pro-
gram, the Secretary may re-certify the approved 
State program after obtaining from the applica-
ble participating State any materials that the 
Secretary may require. 
(C) 
EXCEPTION
FOR
MATERIAL 
CHANGES.—If, during the 5-year period de-
scribed in subparagraph (A)(i) with respect to 
an approved State program, there are material 
changes made to the structure or administra-
tion of the approved State program, the appli-
cable participating State, in order to maintain 
the certification for the approved State pro-
gram, shall submit to the Secretary an updated 
application that contains any materials that the 
Secretary may require. 
(d) ALLOCATIONS.— 
(1) FORMULA.— 
(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), the amount of an alloca-
tion to a participating State under the Program 
shall be calculated as follows: 
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(i) With respect to an allocation made 
from the amount appropriated under sec-
tion 8(a)(1), the allocation shall be cal-
culated as follows: 
(I) Divide the total population of 
the State by the total population of 
the United States. 
(II) Multiply the total amount 
appropriated under section 8(a)(1) by 
the quotient obtained under subclause 
(I) with respect to the State. 
(ii) With respect to an allocation 
made from any amounts appropriated to 
carry out the Program under the author-
ization provided under section 8(b), the al-
location shall be calculated as follows: 
(I) Divide the total population of 
the State by the total population of 
the United States. 
(II) Multiply the quotient ob-
tained under subclause (I) with re-
spect to the State by the total amount 
made available to carry out the Pro-
gram for the fiscal year in which the 
allocation is made. 
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(B) STATES WITH A HIGH LEVEL OF VEN-
TURE CAPITAL ACTIVITY.— 
(i) PURPOSE.—The purpose of this 
subparagraph is to, for the purposes of the 
calculation under subparagraph (A) with 
respect to certain States, exclude areas 
with high levels of venture capital activity 
from the populations of those States. 
(ii) CALCULATION.—Subject to any 
rules issued under clause (iii), with respect 
to the calculation under subparagraph (A) 
for the States of California, Massachusetts, 
and New York, the total populations of 
those States shall be adjusted as follows: 
(I) With respect to California, 
the populations of the following coun-
ties shall be subtracted from the total 
population of that State: 
(aa) Marin County. 
(bb) Sonoma County. 
(cc) Napa County. 
(dd) Contra Costa County. 
(ee) Santa Clara County. 
(ff) San Mateo County. 
(gg) San Francisco County. 
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(hh) Los Angeles County. 
(ii) Orange County. 
(jj) Ventura County. 
(II) With respect to Massachu-
setts, the populations of the following 
counties shall be subtracted from the 
total population of that State: 
(aa) Essex County. 
(bb) Middlesex County. 
(cc) Suffolk County. 
(dd) Norfolk County. 
(III) With respect to New York, 
the populations of the following coun-
ties shall be subtracted from the total 
population of that State: 
(aa) Kings County. 
(bb) Queens County. 
(cc) New York County. 
(dd) Bronx County. 
(ee) Richmond County. 
(iii) RULE MAKING.—As the Secretary 
determines to be appropriate, the Secretary 
may issue rules to amend the list of coun-
ties under subclause (I), (II), or (III) of 
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clause (ii) in order to fulfill the purpose 
described in clause (i). 
(C) MINIMUM
ALLOCATION.—The alloca-
tion to a participating State under the Program 
shall be in an amount that is not less than— 
(i) with respect to an allocation made 
from the amount appropriated under sec-
tion 8(a)(1), 1 percent of that amount; and 
(ii) with respect to an allocation made 
from amounts appropriated in a fiscal year 
to carry out the Program under the au-
thorization provided under section 8(b), 1 
percent of the total amount made available 
to carry out the Program for that fiscal 
year. 
(2) DELIVERY.— 
(A) IN
GENERAL.—Subject to the other 
provisions of this paragraph, the Secretary 
shall— 
(i) apportion the amount allocated to 
a participating State under this subsection 
into thirds; 
(ii) transfer the first 1⁄3 described in 
clause (i) to a participating State not later 
than 30 days after the date on which the 
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Secretary approves the State program of 
the State; and 
(iii) transfer each successive 1⁄3 de-
scribed in clause (i) to a participating 
State when the State has certified to the 
Secretary that the State has expended, 
transferred, or obligated 80 percent of the 
most recently allocated 1⁄3 for Federal con-
tributions. 
(B) USE OF AMOUNTS.—Each amount al-
located to a participating State under this sub-
section shall remain available to the State— 
(i) for making Federal contributions; 
and 
(ii) in the case of each 1⁄3 transferred 
under subparagraph (A), for paying ad-
ministrative costs incurred by the State in 
implementing an approved State program 
of the State in an amount that is not more 
than 5 percent of that 1⁄3 amount. 
(C) WITHHOLDING.—The Secretary may 
withhold a 1⁄3 transfer under subparagraph (A) 
pending the results of a financial audit by the 
Secretary of the applicable approved State pro-
gram. 
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(D) EXCEPTION.—The Secretary may, in 
the discretion of the Secretary, transfer the full 
amount allocated to a participating State under 
this subsection in a single transfer if the State 
submits to the Secretary an application that 
demonstrates the need for such a method of 
transfer. 
(3) REMAINING
FUNDS.—If, after allocating 
funds to participating States under this subsection, 
there are amounts remaining from the amounts 
made available to carry out the Program (without 
regard to whether those amounts were made avail-
able under section 8(a)(1) or pursuant to the au-
thorization provided under section 8(b)), the Sec-
retary shall allocate the remaining amounts in ac-
cordance with paragraphs (1) and (2). 
(e) RULES.—Not later than 90 days after the date 
of enactment of this Act, the Secretary shall initiate a rule 
making to issue rules regarding the administration of the 
Program, which shall include the establishment of the 
minimum standards described in subsection (b)(1). 
SEC. 4. FOLLOW-ON INVESTMENTS. 
(a) IN GENERAL.—The Secretary shall allocate the 
amount appropriated under section 8(a)(2), and any fu-
ture amounts appropriated to carry out this section under 
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the authorization provided under section 8(b), to approved 
State programs to facilitate follow-on investments. 
(b) PROCESS.—To carry out the allocations under 
this section, the Secretary shall manage a competitive 
process, facilitated by an expert consultant from the pri-
vate sector, to award funding to approved State programs 
to provide follow-on investments. 
(c) AMOUNT.—A follow-on investment under sub-
section (b) shall be in an amount that is not less than 
$5,000,000 and not more than $50,000,000. 
(d) FEES.—With respect to the expert consultant de-
scribed in subsection (b)— 
(1) the Secretary may pay management fees to 
the consultant in an amount that is not more than 
0.5 percent of the co-investment funds managed by 
the consultant over the term of the program under 
this section; and 
(2) the consultant may receive not more than 
10 percent of the profit interest earned by the 
States participating in the program under this sec-
tion from the proceeds of successful follow-on invest-
ments. 
(e) RULES.—Not later than 180 days after the date 
of enactment of this Act, the Secretary shall issue rules— 
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(1) to determine the eligibility of States that 
wish to participate in the program established under 
this section, which shall include the exclusion under 
section 3(d)(1)(B)(ii); 
(2) to provide the manner in which States may 
make the follow-on investments described in this sec-
tion; 
(3) that shall permit multiple States to work to-
gether to invest in startups; and 
(4) to determine an appropriate time to make 
the allocations required under this section with re-
spect to follow-on investments in startups for which 
the original equity investments were made under the 
Program. 
SEC. 5. EXITS AND REPAYMENT. 
(a) EXITS.— 
(1) IN GENERAL.—If a State to which an allo-
cation is made under a covered program receives 
funds from an exit with respect to a covered invest-
ment, the State shall use those funds to further in-
vest in startups in the manner contemplated by the 
applicable covered program. 
(2) ENFORCEMENT.—The Secretary shall— 
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(A) require that each allocation agreement 
described in section 3(c)(1)(D) include the re-
quirement under paragraph (1); and 
(B) in any audit conducted of the State by 
the Secretary under a covered program, confirm 
that there is compliance with respect to the re-
quirement under paragraph (1). 
(b) FAILURE TO REINVEST.—If a State to which an 
allocation is made under a covered program receives funds 
from an exit with respect to a covered investment and fails 
to comply with any requirement under this Act, that State 
shall repay to the Secretary the amount of that allocation, 
including any realized gains. 
SEC. 6. EXPEDITED CONTRACTING. 
For the purposes of carrying out this Act, during the 
1-year period beginning on the date of enactment of this 
Act, the Secretary may enter into contracts without regard 
to any other provision of law regarding public contracts. 
SEC. 7. REPORTING. 
(a) QUARTERLY REPORTS FROM STATES TO THE 
SECRETARY.— 
(1) IN GENERAL.—Not later than 30 days after 
the first day of each calendar quarter that begins 
after the date on which the Secretary issues final 
rules in the rule making initiated under section 3(e), 
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each participating State that has received an alloca-
tion under the Program and each State to which 
funding is awarded under section 4(b) shall submit 
to the Secretary a report regarding the use, during 
the quarter preceding the quarter in which the State 
submits the report, of funds received under the ap-
plicable covered program. 
(2) CONTENTS.—In each report that a State is 
required to submit under paragraph (1), the State 
shall, with respect to the quarter covered by the re-
port— 
(A) indicate the total amount of funds dur-
ing the quarter that the State received under 
the covered programs and expended; and 
(B) contain a certification by the State 
that— 
(i) all of the information contained in 
the report is accurate; 
(ii) funds allocated to the State under 
the covered programs continue to be avail-
able and legally committed to an approved 
State program of the State, except for 
funds already expended by the State in 
carrying out the approved State program; 
and 
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(iii) the State is carrying out the ap-
proved State program of the State in ac-
cordance with this Act and rules issued 
under this Act. 
(b) ANNUAL REPORTS FROM STATES TO THE SEC-
RETARY.—Not later than March 31 of each year in which 
the covered programs are in effect, each participating 
State that has received an allocation under the Program 
and each State to which funding is awarded under section 
4(b) shall submit to the Secretary an annual report with 
respect to the year preceding the year in which the report 
is submitted, which shall include, for the year covered by 
the report— 
(1) the number of startups supported by an in-
vestment made through an approved State program 
of the State; 
(2) the total number of investments made 
through an approved State program of the State; 
(3) the amount of private capital leverage for 
each covered investment made through an approved 
State program of the State and collectively by the 
State under the covered programs and the source of 
any private capital match; 
(4) a breakdown of investments made through 
an approved State program of the State by, with re-
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