SUPPORTING AMERICA'S INNOVATORS ACT OF 2017

On 2017-04-06, Representative Nydia M. Velázquez (D-NY-7) delivered a floor speech titled "SUPPORTING AMERICA'S INNOVATORS ACT OF 2017" in the House.

SUPPORTING AMERICA'S INNOVATORS ACT OF 2017

Congressional Record, Volume 163 Issue 60 (Thursday, April 6, 2017) [Congressional Record Volume 163, Number 60 (Thursday, April 6, 2017)] [House] [Pages H2759-H2767] From the Congressional Record Online through the Government Publishing Office [ www.gpo.gov ] {time} 0915 SUPPORTING AMERICA'S INNOVATORS ACT OF 2017 Mr. HUIZENGA. Mr. Speaker, pursuant to House Resolution 242, I call up the bill (H.R. 1219) to amend the Investment Company Act of 1940 to expand the investor limitation for qualifying venture capital funds under an exemption from the definition of an investment company, and ask for its immediate consideration in the House. The Clerk read the title of the bill. The SPEAKER pro tempore (Mr. Simpson). Pursuant to House Resolution 242, the bill is considered read. The text of the bill is as follows: H.R. 1219 Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE. This Act may be cited as the ``Supporting America's Innovators Act of 2017''. SEC. 2. INVESTOR LIMITATION FOR QUALIFYING VENTURE CAPITAL FUNDS. Section 3(c)(1) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(1)) is amended-- (1) in the matter preceding subparagraph (A), by inserting ``(or, in the case of a qualifying venture capital fund, 250 persons)'' after ``one hundred persons''; and (2) by adding at the end the following: ``(C)(i) The term `qualifying venture capital fund' means a venture capital fund that has not more than $10,000,000 in aggregate capital contributions and uncalled committed capital, with such dollar amount to be indexed for inflation once every 5 years by the Commission, beginning from a measurement made by the Commission on a date selected by the Commission, rounded to the nearest $1,000,000. ``(ii) 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.''. The SPEAKER pro tempore. The gentleman from Michigan (Mr. Huizenga) and the gentlewoman from California (Ms. Maxine Waters) each will control 30 minutes. The Chair recognizes the gentleman from Michigan. General Leave Mr. HUIZENGA. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days in which to revise and extend their remarks and to submit extraneous materials on the bill under consideration. The SPEAKER pro tempore. Is there objection to the request of the gentleman from Michigan? There was no objection. Mr. HUIZENGA. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, we all know that small businesses and entrepreneurs are the heartbeat of the American economy. Access to financial capital is vital for entrepreneurs seeking to start up, operate, or expand their businesses. However, gaining access to capital has remained an enduring challenge for many small businesses. The financial crisis and the Great Recession made the situation worse, frankly, as capital became increasingly hard to access from institutional banks and various capital market players. While conditions have improved somewhat in recent years, many entrepreneurs continue to struggle with accessing the capital they need to compete and to grow. In order to succeed, these companies need capital and credit, the lifeblood for growth, expansion, and job creation. Yet the government continues to construct arbitrary walls that cut them off from essential financing, as smaller companies are caught in a sea of regulatory red tape created by Washington bureaucrats. We know that 60 percent of all net new jobs that have come into this country, that have been created here in the United States, come from these small businesses. They are oftentimes S corporations, LLCs, sole proprietorships. Small companies often have such owners also be operators. They are working alongside their fellow employees. That 60 percent of those jobs that have been created here in the United States isn't just a one-time blip. That is over the last 20 years, the last two decades, that we have seen that trend. Congress has made strides in tailoring the regulatory environment for smaller companies, no doubt, most notably when we passed, with strong bipartisan support, the Jumpstart Our Business Startups, or JOBS, Act in 2012. This was a bipartisan bill that was signed into law by President Obama. The JOBS Act's benefits are notable as more and more companies use its provisions to raise investment capital in both the public and private markets. The JOBS Act has raised the cap on investors in a privately held company from 500 to 2,000 investors, but the limit on the number of investors acting as a coordinated group to invest in a company remained at 100, where it has been since 1940, some 77 years ago. As noted by Kevin Laws of AngelList in his written testimony before our Capital Markets Subcommittee: ``With online fundraising and general solicitation becoming more common because of the JOBS Act, companies are bumping up against the limit more frequently. The current limit . . . now acts as a brake on the amount of money the company wanted to raise, leaving tens of millions of dollars on the table that did not go into startups.'' While H.R. 1219, the Supporting America's Innovators Act, a bipartisan bill introduced by the vice chairman of our Financial Services Committee, Representative Patrick McHenry, and Nydia Velazquez of New York, would amend the cap currently contained in the Investment Company Act to allow 250 investors for a ``qualified venture capital fund,'' therefore enhancing angel investors' ability to provide important funding to small businesses. This bill is a very modest increase to the current exemption that has been in place for nearly 77 years. Modernizing this cap is long overdue and reflects today's capital markets and the reality of the increasingly important role that angel investors and others play as they commit the funds necessary to help small businesses grow. The Securities and Exchange Commission, unfortunately, continues to ignore the backlog of good ideas to spur capital formation, which is recommended by entrepreneurs, small businesses, and market participants from their annual SEC Government-Business Forum on Capital Formation. This is a forum that is put together annually. They take and solicit ideas. They want to hear from people that are in the marketplace to figure out what ways they could go to improve that. Unfortunately, they have not acted on [[Page H2760]] this, and in the SEC's absence, Congress must act to promote market efficiency and capital formation. I think we can all agree that we support smart regulation that protects investors and maintains orderly and efficient markets. But outdated, excessive, and unnecessary regulation whose costs outweigh benefits is dumb regulation that overburdens smaller companies. Let's provide some regulatory relief by enacting the bipartisan bill that will ease the burdens on small businesses and job creators and help foster capital formation and get Americans back to work. Mr. Speaker, I would also like to note, in a hearing that we had on this bill last Congress, it passed our committee 52-2, including the ranking member voting for it. There were no dissenting minority views that were offered, and no amendments were offered at the Rules Committee on this. We have got a lot of consensus. I believe this is the right thing to do to move forward. Mr. Speaker, I reserve the balance of my time. Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such time as I may consume. Mr. Speaker, H.R. 1219, the Supporting America's Innovators Act, is legislation that certainly shows that sometimes we can get together and we can support a good idea. This act is such a thing. It shows how well we can work together to craft bipartisan solutions that support our Nation's innovators and the jobs that they create. Last Congress, Mr. McHenry came to me with a problem: Sophisticated angel investors who fund promising startup businesses want to pool their money together, but the law effectively caps them at 100 investors per fund. If more than 100 people want to invest, the fund is forced to exclude some of them from the deal to avoid registration and regulation as an ``investment company'' under the securities laws. That means investors willing to commit capital are being turned away and startups are losing out on important early-stage funding. Because of Congresswoman Nydia Velazquez and Mr. Patrick McHenry working together, working out any concerns that had been identified on either side of the aisle, we now, today, have a piece of legislation, a bill, that would narrowly increase the investor limitation from 100 to 250 persons for certain venture capital funds, provided that the fund does not have more than $10 million in total investor capital. This type of fund structure is used today by AngelList, an angel investing platform that connects investors meeting certain income and asset thresholds with one another so they can pool their money into special-purpose funds which then invest them in a particular startup company. Importantly, both the companies and the investors benefit from this structure. Compared with making hundreds of smaller direct investments, a company, for example, only has as a single point of contact, the angel fund advised by a fiduciary, rather than hundreds of investors who must all individually approve corporate actions such as mergers and acquisitions and expanding ownership. Investors also like this structure because they can delegate monitoring the startups they invest in to the investment adviser to the fund. Such monitoring may be significant, considering that investors, recognizing that most early-stage companies fail, typically diversify their investments among 30 to 80 companies. H.R. 1219 reasonably promotes this fund structure for startup investments by providing a narrowly tailored exemption for certain ve

Referenced legislation: HRES242, HRES242, S444, HR1219, HR4852, HR4854, HR4855