II 113th CONGRESS 1st Session S. 1285 IN THE SENATE OF THE UNITED STATES July 11, 2013 Ms. Baldwin introduced the following bill; which was read twice and referred to the Committee on Small Business and Entrepreneurship A BILL To amend the Small Business Investment Act of 1958 to enhance the Small Business Investment Company Program and provide for a small business early-stage investment program.

1. Short title This Act may be cited as the Small Business Innovation Act of 2013 . 2. Program authorization Section 303(b) of the Small Business Investment Act of 1958 ( 15 U.S.C. 683(b) ) is amended, in the matter preceding paragraph (1), in the first sentence, by inserting after issued by such companies the following: , in a total amount that does not exceed $4,000,000,000 each fiscal year (adjusted annually to reflect increases in the Chained Consumer Price Index for All Urban Consumers (C–CPI–U), as published by the Bureau of Labor Statistics of the Department of Labor) . 3. Family of funds Section 303(b)(2)(B) of the Small Business Investment Act of 1958 ( 15 U.S.C. 683(b)(2)(B) ) is amended by striking $225,000,000 and inserting $350,000,000 . 4. Small business early-stage investment program Title III of the Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.) is amended by adding at the end the following: D Small business early-stage investment program 399A. Definitions In this part: (1) Early-stage small business The term early-stage small business means a small business concern that— (A) is domiciled in a State or Indian country (as defined in section 1151 of title 18, United States Code); and (B) has not generated gross annual sales revenues exceeding $15,000,000 in any of the most recent 3 full years before the date on which the Administrator makes an equity financing to a participating investment company under section 399E. (2) Eligible applicant The term eligible applicant means— (A) an incorporated body, limited liability company, or limited partnership organized and chartered or otherwise existing under Federal or State law for the purpose of performing the functions and conducting the activities contemplated under the program; or (B) a manager of a small business investment company. (3) Participating investment company The term participating investment company means an applicant approved under section 399E to participate in the program. (4) Program The term program means the early-stage investment program established under section 399B. (5) Small business concern The term small business concern has the same meaning given that term in section 3(a) of the Small Business Act (15 U.S.C. 632(a)). (6) Small business concern in a targeted industry The term small business concern in a targeted industry means a small business concern that is engaged primarily in researching, developing, manufacturing, producing, or bringing to market goods, products, or services in a targeted industry. (7) Targeted industry The term targeted industry means any of the following business sectors: (A) Advanced manufacturing. (B) Agricultural technology. (C) Biotechnology. (D) Clean energy technology. (E) Digital media. (F) Environmental technology. (G) Information technology. (H) Life sciences. (I) Water technology. 399B. Establishment of program The Administrator shall establish and carry out an early-stage investment program to provide equity financing to support early-stage small businesses in accordance with this part. 399C. Administration of program The Administrator, acting through the Associate Administrator described in section 201, shall administer the program. 399D. Applications (a) Requirements for application An application to participate in the program shall include— (1) a business plan describing how the eligible applicant intends to make successful venture capital investments in early-stage small businesses and direct capital to small business concerns in targeted industries or other business sectors; (2) information regarding the relevant venture capital investment qualifications and backgrounds of the individuals responsible for the management of the eligible applicant; and (3) a description of the extent to which the eligible applicant meets the selection criteria under section 399E. (b) Applications from managers of small business investment companies The Administrator shall establish an abbreviated application process to participate in the program for applicants that are managers of small business investment companies that are licensed under section 301. The abbreviated application process shall incorporate a presumption that managers of small business investment companies that are licensed under section 301 satisfactorily meet the selection criteria under paragraphs (3) and (5) of section 399E(b). 399E. Selection of participating investment companies (a) In general Not later than 90 days after the date on which the Administrator receives an application from an eligible applicant under section 399D, the Administrator shall make a determination to conditionally approve or disapprove the eligible applicant to participate in the program and shall transmit the determination to the eligible applicant electronically and in writing. A determination to conditionally approve an eligible applicant shall identify all conditions the eligible applicant is required to satisfy for the Administrator to provide final approval to the eligible applicant to participate in the program, and shall provide a period of not less than 1 year for the eligible applicant to satisfy the conditions. (b) Selection criteria In making a determination under subsection (a), the Administrator shall consider— (1) the likelihood that the eligible applicant will meet the goals specified in the business plan of the eligible applicant; (2) the likelihood that the investments of the eligible applicant will create or preserve jobs in the United States, both directly and indirectly; (3) the character and fitness of the management of the eligible applicant; (4) the experience and background of the management of the eligible applicant; (5) the extent to which the eligible applicant will concentrate investment activities on early-stage small businesses; (6) the likelihood that the eligible applicant will achieve profitability; (7) the experience of the management of the eligible applicant with respect to establishing a profitable investment track record; (8) the extent to which the eligible applicant will concentrate investment activities on small business concerns in targeted industries; and (9) the extent to which the eligible applicant will concentrate investment activities on small business concerns in targeted industries that have received funds from an agency of the Federal Government, including— (A) the National Institutes of Health; (B) the National Science Foundation; and (C) funds received under the Small Business Innovation Research Program or the Small Business Technology Transfer Program, as such terms are defined under section 9 of the Small Business Act ( 15 U.S.C. 638 ). (c) Final approval (1) In general Not later than 90 days after the date on which an eligible applicant satisfies the conditions identified by the Administrator under subsection (a), the Administrator shall provide final approval to the eligible applicant to participate in the program. (2) Exception Not later than 30 days after the date on which an eligible applicant, the partnership or management agreement of which conforms to models approved by the Administrator, satisfies the conditions identified by the Administrator under subsection (a), the Administrator shall provide final approval to the eligible applicant to participate in the program. (3) Revocation of conditional approval If an eligible applicant fails to satisfy the conditions identified by the Administrator under subsection (a) in the time period required by that subsection, the Administrator shall revoke the conditional approval. 399F. Equity financings (a) In general The Administrator may make 1 or more equity financings to a participating investment company. (b) Equity financing amounts (1) Non-Federal capital An equity financing made to a participating investment company under the program may not be in an amount that exceeds the amount of the capital of the participating investment company that is not from a Federal source and that is available for investment on or before the date on which an equity financing is drawn upon by the participating investment company. The capital of the participating investment company may include legally binding commitments with respect to capital for investment. (2) Limitation on aggregate amount The aggregate amount of all equity financings made to a participating investment company under the program may not exceed $100,000,000. (c) Equity financing process In making an equity financing under the program, the Administrator shall commit an equity financing amount to a participating investment company, and the amount of each commitment shall remain available to be drawn upon by a participating investment company— (1) for new-named investments, during the 5-year period beginning on the date on which the commitment is first drawn upon by the participating investment company; and (2) for follow-on investments and management fees, during the 10-year period beginning on the date on which the commitment is first drawn upon by the participating investment company, with not more than 2 additional 1-year periods available at the discretion of the Administrator. (d) Commitment of funds Not later than 2 years after the date on which funds are appropriated for the program, the Administrator shall make commitments for equity financings. 399G. Investments in early-stage small businesses (a) In general As a condition of receiving an equity financing under the program, a participating investment company shall make all of the investments of the participating investment company made with amounts received under the program, including securities, promissory notes, or other obligations, in small business concerns, of which at least 50 percent of the total amount of such investments shall be in early-stage small businesses in targeted industries. (b) Evaluation of compliance After a participating investment company has expended not less than 50 percent of the amount of an equity financing commitment made under section 399F, the Administrator shall evaluate the compliance of the participating investment company with the requirements under subsection (a). (c) Waiver The Administrator may waive the requirements for a participating investment company under subsection (a) if the Administrator determines that it is in the best interest of the long term solvency of the fund established in section 399J. 399H. Pro rata investment shares Each investment made by a participating investment company under the program shall be treated as comprised of capital from equity financings under the program according to the ratio that capital from equity financings under the program bears to all capital available to the participating investment company for investment. 399I. Equity financing interest (a) Equity financing Interest (1) In general As a condition of receiving an equity financing under the program, a participating investment company shall convey an equity financing interest to the Administrator in accordance with paragraph (2). (2) Effect of conveyance The equity financing interest conveyed under paragraph (1)— (A) shall have all the rights and attributes of other investors attributable to their interests in the participating investment company; (B) shall not denote control or voting rights to the Administrator; and (C) shall entitle the Administrator to a pro rata portion of any distributions made by the participating investment company equal to the percentage of capital in the participating investment company that the equity financing comprises, which shall be made at the same times and in the same amounts as any other investor in the participating investment company with a similar interest. (3) Allocations A participating investment company shall make allocations of income, gain, loss, deduction, and credit to the Administrator with respect to the equity financing interest as if the Administrator were an investor. (b) Manager profits As a condition of receiving an equity financing under the program, the manager profits interest payable to the managers of a participating investment company under the program shall not exceed 20 percent of profits, exclusive of any profits that may accrue as a result of the capital contributions of any such managers with respect to the participating investment company. Any excess of manager profits interest, less taxes payable thereon, shall be returned by the managers and paid to the investors and the Administrator in proportion to the capital contributions and equity financings paid in. No manager profits interest (other than a tax distribution) shall be paid before the repayment to the investors and the Administrator of all contributed capital and equity financings made. (c) Distribution requirements As a condition of receiving an equity financing under the program, a participating investment company shall make all distributions to all investors in cash and shall make distributions within a reasonable time after exiting investments, including following a public offering or market sale of underlying investments. 399J. Fund There is established in the Treasury a separate account (in this section referred to as the fund ) for equity financings which shall be available to the Administrator, subject to annual appropriations, as a revolving fund to be used for the purposes of the program. All amounts received by the Administrator under the program, including any moneys, property, or assets derived by the Administrator from operations in connection with the program, shall be deposited in the fund. 399K. Application of other sections To the extent not inconsistent with requirements under this part, the Administrator may apply sections 309, 311, 312, 313, and 314 to activities under this part, and an officer, director, employee, agent, or other participant in a participating investment company shall be subject to the requirements under such sections. 399L. Annual reporting The Administrator shall include information on the performance of the program in the annual performance report of the Administration required to be submitted under section 10(a) of the Small Business Act (15 U.S.C. 639(a)). .