Creates the seed-NY investment fund to encourage and facilitate the creation or expansion of regional investment funds for research colleges, high-technology development and local development organizations.
TITLE OF BILL: An act to amend the New York state urban development corporation act, in relation to creating the seed-NY investment fund
PURPOSE OF THE BILL: Authorizes the New York State Urban Development Corporation (d.b.a Empire State Development Corporation - ESDC) to invest in regional equity funds to help finance the commercialization of new technologies.
SUMMARY OF SPECIFIC PROVISIONS: A new investment fund is created within ESDC that will make awards in regional equity funds providing seed capital for early stage commercialization of technologies. Criteria and procedures for the awards are established. Funds will be competitively awarded to entities with a demonstrated record for making syndicated equity-based seed-stage investments. Individual investments would not exceed five hundred thousand dollars, or seven hundred fifty thousand dollars in the ease of a biotechnology company, at anyone time and be matched by at least a one-to-one basis with funds other than state monies. Allocations to these companies would be in return for equity or debt securities or royalties. Due to the high risk involved and the economic development component attributed to these funds, the expected return on investment would be less than that which would be expected for a traditional venture capital fund in the private sector.
The corporation would require regional funds to file annual reports on the use of funds and is required to summarize and evaluate these reports for the legislature and the governor.
The new fund will replace the small business technology investment fund (SBTIF) and its assets would be liquidated to help finance the new fund.
The Governor is required to set aside an allocation of twenty-five million dollars from funding made available from the federal small business jobs act of 2010, P.L. 11-24, to provide assistance to established regional investment funds.
EFFECTS OF PRESENT LAW WHICH THIS BILL WOULD ALTER: A new section 45 is added to Chapter 174 of the laws of 1968 (the New York State Urban Development Corporation Act).
JUSTIFICATION: There is a need for commercialization assistance in New York and regional entities, aware of the strengths and potentials in their own economies, are well-suited to determine how to optimize the effectiveness of these awards. State-sponsored research has supported the invention of numerous ideas and products that could greatly
benefit society, but many of these inventions are never commercialized because New York universities, entrepreneurs at or associated with these universities, and many small business owners in New York State often do not have the resources or experience to develop their scientific discoveries.
Such assistance is frequently not available from market sources, such as venture capitalists and banks, at such an early stage of product development. A program of state assistance is needed to enable the successful commercialization of promising inventions and technologies.
The purposes of the SBTIF are not outlined in law, and this new program would clarify the state's role in supporting new companies.
This bill introduces the concept of "investing in investors" by enabling the foundation to decentralize its investment program. The State has many successful regional investment funds that can provide such assistance, which increases the chances of success of new ventures.
PRIOR LEGISLATIVE HISTORY: Similar to A. 9406-A of 2010.
FISCAL IMPLICATIONS: Federal funds will support the new program.
EFFECTIVE DATE: Immediately.
STATE OF NEW YORK ________________________________________________________________________ 4483 2011-2012 Regular Sessions IN SENATE April 6, 2011 ___________Introduced by Sen. ALESI -- read twice and ordered printed, and when printed to be committed to the Committee on Corporations, Authorities and Commissions AN ACT to amend the New York state urban development corporation act, in relation to creating the seed-NY investment fund THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. Chapter 174 of the laws of 1968 constituting the New York state urban development corporation act, is amended by adding a new section 45 to read as follows: S 45. THE SEED-NY INVESTMENT FUND. 1. DEFINITIONS. FOR THE PURPOSES OF THIS SECTION, THE FOLLOWING WORDS AND TERMS SHALL HAVE THE FOLLOWING MEANINGS UNLESS THE CONTEXT SHALL INDICATE ANOTHER OR DIFFERENT MEANING OR INTENT: (A) "REGIONAL INVESTMENT FUND" SHALL MEAN A LIMITED PARTNERSHIP, LIMITED LIABILITY PARTNERSHIP, A LIMITED LIABILITY COMPANY OR A NOT-FOR-PROFIT FUND UNDER EXPERIENCED PROFESSIONAL MANAGEMENT THAT IS FAMILIAR WITH SEED CAPITAL INVESTMENT, APPROPRIATE BUSINESS PRACTICES AND TECHNOLOGY-ORIENTED PRODUCTS AND SERVICES, AND FORMED FOR THE PURPOSE OF PROVIDING PRIVATE EQUITY TO TECHNOLOGY-BASED COMPANIES IN THEIR FORMATIVE STAGES, ENCOMPASSES AT LEAST TWO COUNTIES, AND INVESTS IN QUALIFIED ENTERPRISES LOCATED WITHIN NEW YORK STATE. (B) "QUALIFIED ENTERPRISE" SHALL MEAN: (I) A COMPANY OR A PROPOSED COMPANY THAT HAS OR WILL LOCATE ITS PRIN- CIPAL PLACE OF BUSINESS IN NEW YORK STATE, AND THAT IS, OR PROPOSES TO BE, ENGAGED IN THIS STATE IN RESEARCH AND DEVELOPMENT OR HIGH TECHNOLOGY MANUFACTURING, AND THAT DEMONSTRATES THE POTENTIAL FOR SUBSTANTIAL GROWTH AND JOB DEVELOPMENT IN AN EMERGING TECHNOLOGY FIELD AS DEFINED IN SECTION THIRTY-ONE HUNDRED TWO-E OF THE PUBLIC AUTHORITIES LAW OR AS ADOPTED BY THE CORPORATION; ANDEXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD09996-05-1 S. 4483 2
(II) IS FORMULATING, HAS FORMULATED, OR IS EXECUTING A DETAILED BUSI- NESS PLAN FOR PROOF-OF-CONCEPT OR INITIAL PRODUCT COMMERCIALIZATION. (C) "SEED CAPITAL" SHALL MEAN FINANCIAL ASSISTANCE TO A QUALIFIED ENTERPRISE, IN RETURN FOR EQUITY OR DEBT SECURITIES OR ROYALTIES. 2. INVESTMENTS IN REGIONAL INVESTMENT FUNDS. (A) THE CORPORATION SHALL MAKE INVESTMENTS TO ENCOURAGE AND FACILITATE THE CREATION OR EXPANSION OF REGIONAL INVESTMENT FUNDS THAT SERVE THE PURPOSES OF THIS SECTION. THE CORPORATION SHALL ADOPT CRITERIA AND GUIDELINES GOVERNING SUCH INVESTMENTS, WHICH SHALL: (I) DEMONSTRATE THE NEED FOR SEED CAPITAL IN THE REGION SERVED OR TO BE SERVED BY A REGIONAL INVESTMENT FUND; (II) DEMONSTRATE THAT SUPPORT FOR A REGIONAL INVESTMENT FUND EXISTS FROM LOCAL GOVERNMENTS, ECONOMIC DEVELOPMENT AGENCIES, AND BUSINESS COMMUNITIES WITHIN THE REGION OR AREA TO BE SERVICED BY SUCH FUND; (III) REQUIRE THAT THE REGIONAL INVESTMENT FUND HAS THE CAPACITY TO PERFORM DUE DILIGENCE IN MAKING INVESTMENT DECISIONS, AND TO PROVIDE MANAGEMENT EXPERTISE AND OTHER VALUE-ADDED SERVICES TO ITS PORTFOLIO COMPANIES WHICH SERVICES MAY INCLUDE ACCESS TO CAPITAL, BUSINESS EXPER- TISE, TECHNOLOGY COMMERCIALIZATION SERVICES AND A NETWORK OF RESOURCES IN ORDER TO ADVANCE THE DEVELOPMENT OF NEW TECHNOLOGIES; (IV) REQUIRE THAT THE REGIONAL INVESTMENT FUND ESTABLISHES CONFLICT-OF-INTEREST PROVISIONS ACCEPTABLE TO THE CORPORATION; (V) TO THE MAXIMUM EXTENT FEASIBLE, REQUIRE THE REGIONAL INVESTMENT FUND WILL INVEST IN FIRMS WHICH HAVE THE GREATEST POTENTIAL FOR JOB CREATION; (VI) REQUIRE THAT INVESTMENTS MADE BY THE FOUNDATION IN A REGIONAL INVESTMENT FUND SHALL NOT EXCEED FIVE MILLION DOLLARS AND, SHALL BE MATCHED BY THE REGIONAL FUND ON AT LEAST A ONE-TO-ONE BASIS WITH MONIES, OTHER THAN STATE MONIES, UNLESS THE CORPORATION FINDS THAT A REDUCED MATCHING REQUIREMENT WILL FURTHER THE PURPOSES OF THIS SECTION; AND (VII) REQUIRE THAT INVESTMENTS MADE BY A REGIONAL INVESTMENT FUND THAT INCLUDE FUNDS RECEIVED FROM THE CORPORATION SHALL BE MADE ONLY FOR THE FINANCING AUTHORIZED BY SUBDIVISION THREE OF THIS SECTION. (B) (I) THE CORPORATION SHALL MAKE INVESTMENTS IN QUALIFIED REGIONAL INVESTMENT FUNDS VIA THE ISSUANCE OF A REQUEST FOR PROPOSALS TO REGIONAL AND LOCAL ECONOMIC DEVELOPMENT ORGANIZATIONS, TECHNOLOGY DEVELOPMENT ORGANIZATIONS, RESEARCH UNIVERSITIES, AND INVESTMENT FUNDS THAT PROVIDE SMALL-SCALE INVESTMENTS IN HIGH-TECHNOLOGY COMPANIES IN NEW YORK STATE. (II) WHEN AWARDING FUNDS PURSUANT TO THIS SUBDIVISION, THE CORPORATION SHALL ASSURE ADEQUATE GEOGRAPHIC DISTRIBUTION TO THE EXTENT FEASIBLE. 3. REGIONAL INVESTMENT FUNDS. (A) REGIONAL INVESTMENT FUNDS RECEIVING INVESTMENTS FROM THE CORPORATION UNDER THIS SECTION SHALL USE SUCH FUNDS AND THE REQUIRED MATCHING FUNDS TO PROVIDE SEED CAPITAL AND FOLLOW-ON FINANCING TO QUALIFIED ENTERPRISES, PROVIDED THAT THE REGIONAL INVEST- MENT FUND SHALL NOT: (I) INVEST AN AMOUNT IN ANY SINGLE QUALIFIED ENTERPRISE THAT EXCEEDS FIFTY PERCENT OF THE TOTAL INVESTMENT FROM ALL OTHER SOURCES IN ANY SUCH ENTERPRISE; OR (II) INVEST OVER FIVE HUNDRED THOUSAND DOLLARS IN ANY INDIVIDUAL COMPANY, OR SEVEN HUNDRED FIFTY THOUSAND DOLLARS IN THE CASE OF ANY INDIVIDUAL BIOTECHNOLOGY COMPANY, AT ANY ONE TIME. (B) A REGIONAL INVESTMENT FUND, BEFORE APPROVING ANY APPLICATION FOR FINANCIAL ASSISTANCE UNDER THIS SECTION, SHALL FIND THAT: (I) THE QUALIFIED ENTERPRISE AND ITS PRODUCT OR PROCESS HAVE A REASON- ABLE CHANCE OF BEING COMMERCIALLY SUCCESSFUL;S. 4483 3
(II) THE EMPLOYMENT CREATED OR MAINTAINED AS A RESULT OF THE FUND'S INVESTMENT WILL BE IN NEW YORK STATE; AND (III) PROVISIONS ARE IN PLACE FOR THE REPAYMENT OF THE FUNDS IF THE COMPANY RECEIVING ASSISTANCE LEAVES THE STATE. 4. REGIONAL INVESTMENT FUND REPORTING. THE CORPORATION SHALL REQUIRE ANY REGIONAL INVESTMENT FUND RECEIVING INVESTMENTS UNDER THIS SECTION TO FILE A REPORT WITH THE CORPORATION BY DECEMBER FIRST, TWO THOUSAND TWELVE AND ANNUALLY THEREAFTER. SUCH REPORT SHALL INCLUDE: (A) THE TOTAL AMOUNT OF FUNDS COMMITTED TO THE REGIONAL INVESTMENT FUND AND THE AMOUNT THAT HAS BEEN INVESTED; (B) THE NET ASSET VALUE OF THE FUND; (C) THE AMOUNT INVESTED IN EACH PORTFOLIO COMPANY FROM THE FUND AND FROM OTHER SOURCES; (D) THE TYPE OF PRODUCT OR TECHNOLOGY BEING DEVELOPED BY EACH PORTFO- LIO COMPANY; (E) THE LOCATION OF EACH PORTFOLIO COMPANY; (F) THE NUMBER OF JOBS PROJECTED TO BE CREATED AND RETAINED; AND (G) SUCH OTHER INFORMATION AS THE CORPORATION DEEMS NECESSARY. 5. REPORT OF THE CORPORATION. THE CORPORATION SHALL SUBMIT TO THE GOVERNOR AND THE LEGISLATURE A SUMMARY AND EVALUATION OF THE REPORTS SUBMITTED TO THE CORPORATION PURSUANT TO SUBDIVISION FOUR OF THIS SECTION AND AN EVALUATION OF THE PERFORMANCE OF THE REGIONAL INVESTMENT FUNDS ON OR BEFORE FEBRUARY FIRST, TWO THOUSAND THIRTEEN AND ANNUALLY THEREAFTER. 6. SMALL BUSINESS INVESTMENT FUND ASSETS AND LIABILITIES. (A) ALL OF THE ASSETS AND LIABILITIES OF THE SMALL BUSINESS TECHNOLOGY INVESTMENT FUND ESTABLISHED PURSUANT TO APPROPRIATIONS MADE BY VARIOUS CHAPTERS OF THE LAW INCLUDING, BUT NOT LIMITED TO CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED EIGHTY-ONE, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED EIGHTY-FIVE, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED EIGHTY-SIX, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED EIGHTY- SEVEN, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED EIGHTY-EIGHT, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED EIGHTY-NINE, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED NINETY, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED NINETY-ONE, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED NINETY-TWO, CHAPTER FIFTY-THREE OF THE LAWS OF NINETEEN HUNDRED NINETY-THREE, CHAPTER FIFTY-THREE OF THE LAWS OF NINE- TEEN HUNDRED NINETY-FOUR, AND CHAPTER FIFTY-THREE OF THE LAWS OF NINE- TEEN HUNDRED NINETY-FIVE, SHALL BE MADE AVAILABLE FOR THE SEED-NY INVESTMENT FUND ESTABLISHED PURSUANT TO THIS SECTION. (B) THE CORPORATION SHALL PREPARE A PLAN, WITHIN NINETY DAYS FOLLOWING THE EFFECTIVE DATE OF THIS SECTION, TO LIQUIDATE ALL CURRENT ASSETS AND LIABILITIES OF THE SMALL BUSINESS TECHNOLOGY INVESTMENT FUND. (C) THE PUBLICLY-TRADED ASSETS AND ANY WORKING CAPITAL SHALL BE MADE FULLY AVAILABLE TO THE SEED-NY INVESTMENT FUND ESTABLISHED PURSUANT TO THIS SECTION. (D) THE CORPORATION SHALL ALSO TAKE WHATEVER ACTIONS ARE NECESSARY TO LIQUIDATE THE REMAINING ASSETS OF THE SMALL BUSINESS TECHNOLOGY INVEST- MENT FUND AS SOON AS PRACTICABLE, BUT NOT MORE THAN TWO YEARS FOLLOWING THE EFFECTIVE DATE OF THIS SECTION. S 2. The governor, on or before June 27, 2011 and as part of the state's application that will be submitted to the United States treasury department to receive funding from the Federal Small Business Jobs Act of 2010 (P.L. 11-240), shall allocate not less than $25,000,000 of New York's portion of such federal moneys to the seed-NY investment fund for the purpose of providing assistance to established regional investmentS. 4483 4
funds. Upon receipt of the federal moneys, the governor and the legisla- ture shall immediately appropriate the amount allocated to the seed-NY investment fund in the state's application to the New York state urban development corporation for the purpose of carrying out the provisions of section 45 of the New York state urban development corporation act as added by section one of this act. S 3. This act shall take effect immediately.