[Congressional Record Volume 162, Number 107 (Tuesday, July 5, 2016)]
[House]
[Pages H4235-H4236]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




              SUPPORTING AMERICA'S INNOVATORS ACT OF 2016

  Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 4854) 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, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 4854

       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 2016''.

     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) by inserting after ``one hundred persons'' the 
     following: ``(or, with respect to a qualifying venture 
     capital fund, 250 persons)''; and
       (2) by adding at the end the following:
       ``(C) The term `qualifying venture capital fund' means any 
     venture capital fund (as defined pursuant to section 
     203(l)(1) of the Investment Advisers Act of 1940 (15 U.S.C. 
     80b-3(l)(1)) with no more than $10,000,000 in invested 
     capital, as such dollar amount is annually adjusted by the 
     Commission to reflect the change in the Consumer Price Index 
     for All Urban Consumers published by the Bureau of Labor 
     Statistics of the Department of Labor.''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New 
Jersey (Mr. Garrett) and the gentlewoman from California (Ms. Maxine 
Waters) each will control 20 minutes.
  The Chair recognizes the gentleman from New Jersey.


                             General Leave

  Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members 
have 5 legislative days in which to revise and extend their remarks and 
include extraneous material on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New Jersey?
  There was no objection.
  Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of H.R. 4854, Supporting America's 
Innovators Act of 2016; and I want to thank the sponsor of the 
legislation, the gentleman from North Carolina (Mr. McHenry).
  Mr. Speaker, it is no secret that 7 years after our last recession 
apparently ended, our economy continues to trudge along at historically 
weak rates of growth and job creation.
  Three points: The most recent jobs report showed that only 38,000 
jobs were created during the month of May. That was the worst report 
since 2010;
  New business startups in the country are near a 20-year low;
  And, finally, American families and small businesses are finding it 
extremely difficult to obtain credit in order to expand their 
businesses or purchase a home.
  More than ever, Mr. Speaker, Americans are looking at us, their 
elected Representatives in Congress, to help get our economy back on 
track and create opportunities for people that have struggled for too 
long.
  Fortunately, over the last 5 years, the Financial Services Committee 
has stepped up to the plate and passed a number of bipartisan pieces of 
legislation. Most notably, in 2012, Congress passed the JOBS Act, which 
is one of the few bright spots. In April, the Capital Markets and GSE 
Subcommittee held a hearing to examine the positive impacts that the 
JOBS Act has had, and to consider further ways that we can work across 
the aisle to promote job growth. But for just about every measure the 
JOBS Act has been a resounding success, there is more that Congress can 
be doing.
  So today, Mr. Speaker, the House will consider a couple of measures 
that will build upon the success of the JOBS Act. The first is this 
one. This measure is Supporting America's Innovation Act of 2016.
  What will the bill do?
  First, it would fix what is known as the 99 investor problem. That 
is, under current securities law, once a venture capital fund gains 
more than 99 investors, it would have to become registered with the SEC 
under the Investment Company Act of 1940.
  Just in case there is any confusion, registering with the SEC isn't 
free. It creates a number of costs and regulatory burdens on small 
venture funds that hinder the ability to deploy vital capital for 
startup businesses.
  What is more, the current investor cap was put in place way back in 
1940, at a time when nobody had ever heard of Silicon Valley, and 
venture capital did not play anywhere near the role it does today.
  So while the JOBS Act raised the registration threshold for private 
companies from 500 to 2,000 investors, it did not concurrently raise 
the threshold for investors acting as a coordinated group.
  As Kevin Laws, COO of AngelList, told our subcommittee back in April:

       With online fundraising and general solicitation becoming 
     more common because of the JOBS Act, companies are bumping up 
     against the limit more frequently. The limit of 99 investors 
     now acts as a brake on the amount of capital that they can 
     raise.

  So, Mr. Speaker, in conclusion, the solution envisioned under this 
legislation is simple. It simply bumps the number from 100 to 250, and 
it clarifies that registration would not be triggered until the fund 
crossed a threshold of $10 million invested in a particular company.
  This legislation is simple. It is straightforward. It would allow 
venture capital funds to continue to play the important role they do in 
our economy without any of the burden having to deal with any 
unnecessary regulation.
  So, once again, I thank the sponsor of the underlying bill, and I 
urge my colleagues to support it.
  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 and Members, this bill, H.R. 4854, is an example of how 
the two sides can work together. I worked with Mr. McHenry on this 
legislation. It just goes to show that when the opposite side of the 
aisle is not focused on trying to destroy and undo Dodd-Frank, we can 
get to doing some credible legislation.
  So I am very, very pleased about this legislation. It is another 
piece of legislation intended to help our Nation's

[[Page H4236]]

startups and the venture capitalists who take a chance on them by 
providing a targeted exemption for certain venture capital funds.
  It is also a piece of legislation that appropriately balances the 
ability of a startup to raise capital with the need to protect 
investors in the startup. When we fail to strike this balance, 
investors suffer, small businesses suffer; and when taken to the 
extreme, our entire economy can suffer.
  During consideration of this bill in committee, Mr. McHenry and I 
offered an amendment to create a new exemption for qualifying venture 
capital funds that have no more than 250 investors and only $10 million 
in invested capital. These smaller funds will allow angel investor 
groups to better pool their resources among more accredited investors 
to make targeted, high-impact investments in the very companies they 
create the most jobs: startups.
  This structure is used today by AngelList, a company that matches 
investors meeting certain income and asset thresholds to pool their 
money into a special purpose fund and invest together in startup 
companies.

                              {time}  1800

  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 a single point of contact, the angel 
fund advised by fiduciary, rather than hundreds of investors who all 
must individually approve corporate actions such as acquisitions and 
expanding ownership.
  Investors also like this structure because they can delegate 
monitoring the startups they invest in to the investment adviser to 
fund. Such monitoring may be significant, considering that investors 
typically diversify among 30 to 80 companies.
  H.R. 4854, as amended, is appropriately tailored to only certain 
venture capital funds, which must invest at least 80 percent of their 
committed capital in the equity of small companies. Under the bill, 
those funds must have no more than 250 investors and no more than $10 
million in this invested capital, ensuring that they are small enough 
that investors are able to monitor and manage their investments with 
the funds.
  This language ensures that we aren't creating a loophole for other 
investment companies, like mutual funds, to avoid regulation, nor are 
we providing relief to other private funds, like hedge funds or private 
equity funds, that have very little restrictions and investor 
protections.
  Finally, I would like to express my appreciation of Mr. McHenry's 
efforts to make changes to this bill addressing some of the concerns of 
investor advocates, like the Consumer Federation of America and 
Americans for Financial Reform. His efforts have made this a good bill 
that deserves our support.
  Mr. Speaker, I reserve the balance of my time.
  Mr. GARRETT. Mr. Speaker, at this time, I yield such time as he may 
consume to the gentleman from North Carolina (Mr. McHenry), the sponsor 
of the legislation.
  Mr. McHENRY. Mr. Speaker, I thank the chairman of the Capital Markets 
and Government Sponsored Enterprises Subcommittee, and I rise today to 
support the Supporting America's Innovators Act.
  Mr. Speaker, these days, American small businesses are facing a 
capital crisis. This is particularly true for early-stage companies and 
startups.
  Despite the headlines from Silicon Valley, the truth is that the vast 
majority of early-stage companies are not securing venture capital 
funding. Indeed, almost 80 percent of startup investment goes to just 
three States in these United States.
  Meanwhile, angel investing for these early-stage companies is 
challenging. Investing in startup companies is inherently risky, which 
is why the wealthy investors who qualify to become angels often shy 
away from it.
  This is why we need to address the challenges facing angel investing. 
This is accomplished by changing our mindset and creating a regulatory 
framework that encourages innovation and growth, while ensuring that 
shareholder and investor protections remain strong.
  Ranking Member Waters and I proposed an amendment that would increase 
the cap of investors from 100 to 250 for accredited investors of angel 
funds, and this would only apply to qualifying venture funds narrowly 
tailored to early-stage investing.
  What we have before us in the full House is a great work of 
compromise, and I thank the ranking member, Ms. Waters, for her 
diligent work, working with my staff and her staff together over many 
long hours to come up with this compromise that we have that will, I 
believe, garner bipartisan support like it did in the Financial 
Services Committee. I do thank the ranking member for working 
diligently to make this outcome possible.
  The result of our proposed amendment and what we have before us 
allows for early-stage companies to raise the capital they need by 
opening up angel investing to more accredited investors.
  This is a good bill. It is a compromise bill, and I am pleased that 
this legislation enjoyed wide support. I urge my colleagues to support 
it and vote for it, and let's get this thing done and signed by the 
President.
  Ms. MAXINE WATERS of California. Mr. Speaker and Members, again, I am 
very pleased to join with Mr. McHenry on this legislation. I really 
have no further requests for time, and I am going to yield back the 
balance of my time because I am so looking forward to getting back to 
the discussion that we are going to have later on this evening on guns 
and gun violence.
  I want my constituents to know I have not abandoned that issue. 
Others have not abandoned that issue. We look forward to really 
debating whether or not we are going to make sure that people who are 
on the no-fly list certainly can't buy guns, and we want universal 
background checks. I know this has nothing to do with this bill, but I 
will just take this opportunity to say that.
  Mr. Speaker, I yield back the balance of my time.
  Mr. GARRETT. Mr. Speaker, I yield such time as he may consume to the 
gentleman from North Carolina (Mr. McHenry).
  Mr. McHENRY. Mr. Speaker, I rise today because of the economic 
importance of what we are doing. We are trying to help grow the 
economy, create jobs across this country in a more fruitful way than 
just in pockets of prosperity across this country. In areas that are 
like my district in rural western North Carolina or the ranking 
member's district that is an urban district, we want to have prosperity 
in all 50 States, in all communities, and the economic opportunities 
that our constituents are desirous of, and I urge the adoption of this 
bill to help expand economic opportunity.
  Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
  Again, I thank the gentleman, and I thank the bipartisan nature of 
what we are doing here on the floor this evening with this legislation 
and the two pieces of legislation that follow. It shows the American 
public that this House, when we work together across the aisle and 
focus our attention on these important economic issues, can get things 
done.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from New Jersey (Mr. Garrett) that the House suspend the 
rules and pass the bill, H.R. 4854, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. GARRETT. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this motion will be postponed.

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