Minnesota senator Amy Klobuchar’s New Business Preservation Act would help startups based in underserved parts of the country by matching VC funding dollar for dollar.
A Senate bill introduced Thursday takes an intriguing approach to supporting new businesses threatened by the current economic crisis: helping them attract venture capital.
The New Business Preservation Act, sponsored by Senator Amy Klobuchar (D-MN), would provide a one-to-one government match for investments in high-potential, scalable startups outside the traditional VC belts that get a disproportionate amount of funding. The bill, co-sponsored by Senators Chris Coons (D-DE), Angus King (I-ME) and Tim Kaine (D-VA), also was submitted separately to the Appropriations Committee for consideration as part of the upcoming stimulus measure.
An equity-support program for new businesses represents the next stage of commercializing technology and encouraging innovation. Similar to opportunity zones, it is an effort to pump capital into underserved parts of the country. The bill was conceived late last year but the coronavirus, with its potential to destroy fragile young companies and dry up investment, moved it to the front burner.
The $2 billion the legislation allocates is divided into two parts. The larger amount–$1.5 billion–goes to the first group of investments. Another $500 million is for follow-on investments for companies doing well after their first rounds. Eighty percent of funding would be directed to the Midwest, Southeast, and Southwest. Returns from exits would be reinvested in the next generation of new businesses, creating a sustainable funding resource.
Funds would be allocated to states based on population, with the numbers for California, New York, and Massachusetts reduced to adjust for the concentration of VC money already there. Investments would be made through the private investors. “So this is not Solyndra,” says John Dearie, founder and president of the Center for American Entrepreneurship, an advocacy organization for startups and a supporter of the bill. “This is not the federal government picking winners and losers.”