[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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