Description of the core change(s) brought by this policy instrument
The legislation aims to incentivize a diversification of venture capital investment by establishing the Innovation and Startups Equity Investment Program.
This new program would allocate $2 billion in federal dollars ($1.5 billion initially, and $500 million in follow-on investment) to the states on a straightforward population basis to attract private venture capital by offering a 1-to-1 match of federal dollars with venture capital investment in promising startups, particularly in states outside the major venture capital centers.
Equity financing – which this program provides - does not require repayment but instead represents a long-term investment in the business.
The program will be self-sustaining, with any returns on investment being reinvested in new businesses in future years. If a state receives funds from an exit, the state shall use such funds to further invest in startups under the approved program. An exit is defined as the (1) acquisition of a startup in which a state has invested under the program; (2) sale of a share of such startup following an initial public offering; or (3) voluntary purchase of a state's ownership interest by the startup, investors, or existing shareholders.
Please list the implementing agencies
The program created by this legislation would be administered by the Treasury Department, which shall partner with states to invest alongside private venture capital companies in areas of the country that do not currently attract significant equity investment in new businesses.
Specifically, the bill requires Treasury to provide certain funds to participating states, which such states shall use to administer specified approved programs that provide equity investment in new businesses. Certain areas with high levels of venture capital activity are excluded from the calculation of funds allocated to a participating state. Treasury shall also award funds to approved state programs to provide follow-on investments.
Please name the policy advisor(s) or leader(s) who have been key in introducing and/or designing this policy instrument
U.S. Senator Amy Klobuchar (D-MN), and Senators Chris Coons (D-DE), Tim Kaine (D-VA), and Angus King (I-ME) introduced legislation.
If you marked "start-up" and/or "scale-up" firms, please provide the specific definitions used
The legislation proposes giving special consideration to businesses created by women and persons of color, who face additional barriers in accessing investment capital.
Stated goal/metrics of the policy instrument
Increase the geographic diversification of equity investment, with the goal of driving economic growth and job creation in regions of the country that are currently under-resourced.
Notes and additional context
The New Business Preservation Act is supported by the Progressive Policy Institute, Third Way, Small Business Majority, Center for American Entrepreneurship (CAE), Economic Innovation Group, Small Business and Entrepreneurship Council, and the Information Technology and Innovation Foundation (ITIF).
On March 31, 2020, CAE published the essay “The New Business Preservation Act and the Tradition of U.S. Federal Government Support for Entrepreneurship and Venture Capital,” by board member Ian Hathaway.
On May 6, 2020, a letter from ten leading entrepreneurship, innovation, and small business organizations to Congressional leadership urges the passage of the New Business Preservation Act.