IB
Union Calendar No. 452
106TH CONGRESS
2D SESSION
H. R. 4530
[Report No. 106–785]
To amend the Small Business Investment Act of 1958 to direct the Adminis-
trator of the Small Business Administration to establish a New Markets
Venture Capital Program, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 24, 2000
Ms. VELA´ZQUEZ (for herself, Mr. TALENT, Mr. KING, Ms. MILLENDER-
MCDONALD, Mrs. KELLY, Mr. DAVIS of Illinois, Mr. ENGLISH, Mrs.
MCCARTHY of New York, Mrs. BONO, Mr. PASCRELL, Mr. SWEENEY,
Mr. HINOJOSA, Mrs. CHRISTENSEN, Mr. BRADY of Pennsylvania, Mr.
UDALL of New Mexico, Mr. MOORE, Mrs. JONES of Ohio, Mr. GON-
ZALEZ, Mr. PHELPS, Mrs. NAPOLITANO, Mr. BAIRD, Ms. BERKLEY, Mr.
UDALL of Colorado, Ms. STABENOW, Mr. KANJORSKI, and Mr. BARRETT
of Wisconsin) introduced the following bill; which was referred to the
Committee on Small Business
JULY 25, 2000
Committed to the Committee of the Whole House on the State of the Union
and ordered to be printed
A BILL
To amend the Small Business Investment Act of 1958 to
direct the Administrator of the Small Business Adminis-
tration to establish a New Markets Venture Capital Pro-
gram, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘New Markets Venture
Capital Program Act of 2000’’.
SEC. 2. NEW MARKETS VENTURE CAPITAL PROGRAM.
Title III of the Small Business Investment Act of
1958 (15 U.S.C. 681 et seq.) is amended—
(1) in the heading for the title, by striking
‘‘SMALL BUSINESS INVESTMENT COMPA-
NIES’’ and inserting ‘‘INVESTMENT DIVISION
PROGRAMS’’;
(2) by inserting before the heading for section
301 the following:
‘‘PART A—SMALL BUSINESS INVESTMENT COMPANIES’’5
; and
(3) by adding at the end the following:
‘‘PART B—NEW MARKETS VENTURE CAPITAL PROGRAM
‘‘SEC. 351. DEFINITIONS.
‘‘In this part, the following definitions apply:
‘‘(1) DEVELOPMENTAL
VENTURE
CAPITAL.—
The term ‘developmental venture capital’ means cap-
ital in the form of equity investments in businesses
made with a primary objective of fostering economic
development in low- or moderate-income geographic
areas.
‘‘(2) LOW- OR MODERATE-INCOME GEOGRAPHIC
AREA.—The term ‘low- or moderate-income geo-
graphic area’ means—
‘‘(A) a census tract, or the equivalent
county division as defined by the Bureau of the
Census for purposes of defining poverty areas,
in which—
‘‘(i) the poverty rate is not less than
20 percent;
‘‘(ii) in the case of a census tract or
division located within a metropolitan area,
the median family income for such tract or
division does not exceed the greater of 80
percent of the statewide median family in-
come or 80 percent of the metropolitan
area median family income; or
‘‘(iii) in the case of a census tract or
division not located within a metropolitan
area, the median family income for such
tract or division does not exceed 80 per-
cent of the statewide median family in-
come; or
‘‘(B) any area located within—
‘‘(i) a historically underutilized busi-
ness zone (HUBZone), as defined in sec-
tion 3(p) of the Small Business Act (15
U.S.C. 632(p));
‘‘(ii) an urban empowerment zone or
an urban enterprise community, as des-
ignated by the Secretary of the Depart-
ment of Housing and Urban Development;
or
‘‘(iii) a rural empowerment zone or a
rural enterprise community, as designated
by the Secretary of the Department of Ag-
riculture.
‘‘(3) NEW MARKETS VENTURE CAPITAL COM-
PANY.—The term ‘New Markets Venture Capital
company’ means a company that—
‘‘(A) has been granted final approval by
the Administration under section 354(e); and
‘‘(B) has entered into a participation
agreement with the Administration.
‘‘(4) OPERATIONAL
ASSISTANCE.—The term
‘operational assistance’ means management, mar-
keting, and other technical assistance that assists a
small business concern with business development.
‘‘(5) PARTICIPATION
AGREEMENT.—The term
‘participation agreement’ means an agreement, be-
tween the Administration and a company granted
final approval under section 354(e), that—
‘‘(A) details the company’s operating plan
and investment criteria; and
‘‘(B) requires the company to make invest-
ments in smaller enterprises at least 80 percent
of which are located in low- or moderate-income
geographic areas.
‘‘(6) SPECIALIZED
SMALL
BUSINESS
INVEST-
MENT COMPANY.—The term ‘specialized small busi-
ness investment company’ means any small business
investment company that—
‘‘(A) invests solely in small business con-
cerns that contribute to a well-balanced na-
tional economy by facilitating ownership in such
concerns by persons whose participation in the
free enterprise system is hampered because of
social or economic disadvantages;
‘‘(B) is organized or chartered under State
business or nonprofit corporations statutes, or
formed as a limited partnership; and
‘‘(C) was licensed under section 301(d), as
in effect before September 30, 1996.
‘‘SEC. 352. PURPOSES.
‘‘The purposes of the New Markets Venture Capital
Program established under this part are—
‘‘(1) to promote economic development and the
creation of wealth and job opportunities in low- or
moderate-income geographic areas and among indi-
viduals living in such areas by encouraging develop-
mental venture capital investments in smaller enter-
prises primarily located in such areas; and
‘‘(2) to establish a developmental venture cap-
ital program, with the mission of addressing the
unmet equity investment needs of small enterprises
located in low- and moderate-income geographic
areas, to be administered by the Administration—
‘‘(A) to enter into participation agreements
with New Markets Venture Capital companies;
‘‘(B) to guarantee debentures of New Mar-
kets Venture Capital companies to enable each
such company to make developmental venture
capital investments in smaller enterprises in
low- or moderate-income geographic areas; and
‘‘(C) to make grants to New Markets Ven-
ture Capital companies, and to other entities,
for the purpose of providing operational assist-
ance to smaller enterprises financed, or ex-
pected to be financed, by such companies.
‘‘SEC. 353. ESTABLISHMENT.
‘‘In accordance with this part, the Administration
shall establish a New Markets Venture Capital Program,
under which the Administration may—
‘‘(1) enter into participation agreements with
companies granted final approval under section
354(e) for the purposes set forth in section 352;
‘‘(2) guarantee the debentures issued by New
Markets Venture Capital companies as provided in
section 355; and
‘‘(3) make grants to New Markets Venture
Capital companies, and to other entities, under sec-
tion 358.
‘‘SEC. 354. SELECTION OF NEW MARKETS VENTURE CAP-
ITAL COMPANIES.
‘‘(a) ELIGIBILITY.—A company shall be eligible to
apply to participate, as a New Markets Venture Capital
company, in the program established under this part if—
‘‘(1) the company is a newly formed for-profit
entity or a newly formed for-profit subsidiary of an
existing entity;
‘‘(2) the company has a management team with
experience in community development financing or
relevant venture capital financing; and
‘‘(3) the company has a primary objective of
economic development of low- or moderate-income
geographic areas.
‘‘(b) APPLICATION.—To participate, as a New Mar-
kets Venture Capital company, in the program established
under this part a company meeting the eligibility require-
ments set forth in subsection (a) shall submit an applica-
tion to the Administration that includes—
‘‘(1) a business plan describing how the com-
pany intends to make successful developmental ven-
ture capital investments in identified low- or mod-
erate-income geographic areas;
‘‘(2) information regarding the community de-
velopment finance or relevant venture capital quali-
fications and general reputation of the company’s
management;
‘‘(3) a description of how the company intends
to work with community organizations and to seek
to address the unmet capital needs of the commu-
nities served;
‘‘(4) a proposal describing how the company
will use the grant funds provided under this part to
provide operational assistance to smaller enterprises
financed by the company, including information re-
garding whether the company will use licensed pro-
fessionals, where applicable, on the company’s staff
or from an outside entity;
‘‘(5) with respect to binding commitments to be
made to the company under this part, an estimate
of the ratio of cash to in-kind contributions;
‘‘(6) a description of the criteria to be used to
evaluate whether and to what extent the company
meets the objectives of the program established
under this part;
‘‘(7) information regarding the management
and financial strength of any parent firm, affiliated
firm, or any other firm essential to the success of
the company’s business plan; and
‘‘(8) such other information as the Administra-
tion may require.
‘‘(c) CONDITIONAL APPROVAL.—
‘‘(1) IN
GENERAL.—From among companies
submitting applications under subsection (b), the
Administration shall, in accordance with this sub-
section, conditionally approve companies to partici-
pate in the New Markets Venture Capital Program.
‘‘(2) SELECTION CRITERIA.—In selecting com-
panies under paragraph (1), the Administration
shall consider the following:
vided by persons on the company’s staff or by
persons outside of the company.
‘‘(H) Any other factors deemed appro-
priate by the Administration.
‘‘(3) NATIONWIDE DISTRIBUTION.—The Admin-
istration shall select companies under paragraph (1)
in such a way that promotes investment nationwide.
‘‘(d) REQUIREMENTS TO BE MET FOR FINAL AP-
PROVAL.—The Administration shall grant each condi-
tionally approved company a period of time, not to exceed
2 years, to satisfy the following requirements:
‘‘(1) CAPITAL
REQUIREMENT.—Each condi-
tionally approved company must raise not less than
$5,000,000 of private capital or binding capital com-
mitments from 1 or more investors (other than
agencies or departments of the Federal Government)
who meet criteria established by the Administration.
‘‘(2) NONADMINISTRATION
RESOURCES
FOR
OPERATIONAL
ASSISTANCE.—In order to provide
operational assistance to smaller enterprises ex-
pected to be financed by the company, each condi-
tionally approved company—
‘‘(A) must have binding commitments (for
contribution in cash or in kind)—
‘‘(i) from any sources other than the
Administration that meet criteria estab-
lished by the Administration;
‘‘(ii) payable or available over a
multiyear period acceptable to the Admin-
istration (not to exceed 10 years); and
‘‘(iii) in an amount not less than 30
percent of the total amount of capital and
commitments raised under paragraph (1);
‘‘(B) must have purchased an annuity—
‘‘(i) from an insurance company ac-
ceptable to the Administration;
‘‘(ii) using funds (other than the
funds raised under paragraph (1)) from
any source other than the Administration;
and
‘‘(iii) that yields cash payments over a
multiyear period acceptable to the Admin-
istration (not to exceed 10 years) in an
amount not less than 30 percent of the
total amount of capital and commitments
raised under paragraph (1); or
‘‘(C) must have binding commitments (for
contributions in cash or in kind) of the type de-
scribed in subparagraph (A) and must have
purchased an annuity of the type described in
subparagraph (B), which in the aggregate make
available, over a multiyear period acceptable to
the Administration (not to exceed 10 years), an
amount not less than 30 percent of the total
amount of capital and commitments raised
under paragraph (1).
‘‘(e) FINAL APPROVAL.—The Administration shall
grant to a company conditionally approved under sub-
section (c) final approval to participate in the program es-
tablished under this part after the company has met the
requirements set forth in subsection (d).
‘‘SEC. 355. DEBENTURES.
‘‘(a) IN GENERAL.—The Administration may guar-
antee the timely payment of principal and interest, as
scheduled, on debentures issued by any New Markets Ven-
ture Capital company.
‘‘(b) TERMS AND CONDITIONS.—The Administration
may make guarantees under this section on such terms
and conditions as it deems appropriate, except that the
term of any debenture guaranteed under this section shall
not exceed 15 years.
‘‘(c) FULL FAITH AND CREDIT OF THE UNITED
STATES.—The full faith and credit of the United States
is pledged to pay all amounts that may be required to be
paid under any guarantee under this part.
‘‘(d) MAXIMUM GUARANTEE.—
‘‘(1) IN GENERAL.—Under this section, the Ad-
ministration may guarantee the debentures issued by
a New Markets Venture Capital company only to the
extent that the total face amount of outstanding
guaranteed debentures of such company does not ex-
ceed 150 percent of the private capital of the com-
pany, as determined by the Administration.
‘‘(2) 
TREATMENT
OF
CERTAIN
FEDERAL
FUNDS.—For the purposes of paragraph (1), private
capital shall include capital that is considered to be
Federal funds, if such capital is contributed by an
investor other than an agency or department of the
Federal Government.
‘‘SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFI-
CATES.
‘‘(a) ISSUANCE.—The Administration may issue trust
certificates representing ownership of all or a fractional
part of debentures issued by a New Markets Venture Cap-
ital company and guaranteed by the Administration under
this part, if such certificates are based on and backed by
a trust or pool approved by the Administration and com-
posed solely of guaranteed debentures.
‘‘(b) GUARANTEE.—
‘‘(1) IN GENERAL.—The Administration may,
under such terms and conditions as it deems appro-
priate, guarantee the timely payment of the principal
of and interest on trust certificates issued by the
Administration or its agents for purposes of this sec-
tion.
‘‘(2) LIMITATION.—Each guarantee under this
subsection shall be limited to the extent of principal
and interest on the guaranteed debentures that com-
pose the trust or pool.
‘‘(3) PREPAYMENT OR DEFAULT.—In the event
that a debenture in a trust or pool is prepaid, or in
the event of default of such a debenture, the guar-
antee of timely payment of principal and interest on
the trust certificates shall be reduced in proportion
to the amount of principal and interest such prepaid
debenture represents in the trust or pool. Interest on
prepaid or defaulted debentures shall accrue and be
guaranteed by the Administration only through the
date of payment of the guarantee. At any time dur-
ing its term, a trust certificate may be called for re-
demption due to prepayment or default of all deben-
tures.