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While Build America Bonds expose the Federal Government to high levels of debt liability, the National InnovationBond program seeks to limit risk exposure by constraining subsidies for interest payments to tax credits instead of direct payments. The provisions of this Act also stipulate that such tax credits shall first be applied to the tax liability of the bonds themselves, further limiting Federal liability as such tax revenue would not exist without these bonds.

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SUMMARY

National Innovation Funds Act of 2011 – Establishes a Corporation for National Innovation and a National Innovation Bondprogram to provide incentives to small, fixed life-cycle venture capital funds for the purpose of acting as investmentintermediaries between the Federal Government and companies that pursue technological innovations deemed by Congress andthe President to be key national priorities, i.e. alternative power or fuel sources.The three forms of incentive created by this Act, investment of Federal funds, exclusive rights to market a subsidized financialinstrument, and access to Federal publicity support, shall greatly increase investment in innovative companies pursuing research,development and implementation that might otherwise fail to attract investment, thereby adding greater dynamism to theAmerican economy.The national technological priorities set by Congress and the President shall have direct commercial application. The enactmentof such limitations is intended, in part, to fill the gaps in ARPA (later DARPA) created by the restriction of research anddevelopment to only those projects which have a direct military application.

The Role of Venture Capital (VC) Funds:

VC funds selected to receive funds will be responsible for soliciting applications from potential start-up companies anddetermining which companies have the greatest potential for success. The Corporation will provide assistance and advisementas required, as well as promotion aimed at encouraging small companies conducting research and development on prioritytechnologies to apply for funding.VC funds selected to receive funding under this Act shall be small. Research shows that larger VC Funds tend to over-capitalizeearly stage companies and one of the purposes of this Act is to increase competitiveness and diversity in the American economy.VC funds shall be required to match federal funds, whether through independent fundraising or through the sale of NationalInnovation Bonds, however they shall not solicit or accept such funds from second or third party investment firms, or anymonies originating therein, in order to prevent such large firms from creating ‘dummy funds’ intended to compete for fundingunder this Act. Rules established herein are not however intended, and could not legally, bar such large firms from investingalongside selected VC funds. Large firms and the general public are encouraged to invest in these companies by purchasingAmerican Innovation Bonds as established by this Act, which includes provisions for other rigorous oversight mechanisms:

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The Securities and Exchange Commission shall have an unprecedented level of input in the activities of theCorporation, whose chairman shall exercise a veto over decisions made by the Corporation if such decisions oractivities are deemed to violate SEC regulations, and shall appoint members to the Inspector General OversightCommittee of the Corporation.

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The Corporation shall make frequent reports to Congress on the nature of its investment activities.

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Recipient Financial Institutions are required to provide 50 percent matching funds, and of those funds which areleveraged for this purpose, a 20 percent cash balance must be maintained and held in escrow by the U.S. Treasury.

Building on Existing Paradigms:

While this Act is modeled in part on the Corporation for National Service established by the National Service Trust Act of 1993,the Build America Bonds program established by the American Recovery and Reinvestment Act of 2009, and Ohio’s ThirdFrontier Program, the National Innovation Funds Act of 2011 is designed to address several flaws:

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These programs must evaluate potential grant recipients, thereby creating the need for a large number of governmentemployees and greater use of resources for administrative purposes.

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This Act seeks to limit the organizational profile necessary to achieve its stated goals by creating separation betweenpotential innovators and government sponsorship via investment intermediaries. By transferring the responsibility foridentifying, mentoring, and partially funding companies to small investment firms, this program will lower costs andmaximize benefits for the American economy.

RESHMA SAUJANI FOR CONGRESS1

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National Innovation Funds Act of 2011 (Introduced in House)

HR ****112th CONGRESS1st Session

H. R. ****

To establish a Corporation for National Innovation that shall be a Government Corporation as defined in section 103 of title 5,USC, to administer the programs established under this Act, and to establish a National Innovation Bond program to partiallyfund such programs.

IN THE HOUSE OF REPRESENTATIVES

January 3, 2011

Ms. SAUJANI shall introduce the following bill; which shall be referred to the Committee on Small Business, and in addition tothe Committee on Science and Technology, for a period to be subsequently determined by the Speaker, in each case forconsideration of such provisions as fall within the jurisdiction of the committee concerned.

A BILL

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SEC. 1. SHORT TITLE.

This Act may be cited as the `National Innovation Funds Act of 2011'.

SEC. 2. FINDINGS AND PURPOSE.

(a) FINDINGS— THE CONGRESS FINDS—(1) America is no longer the global leader in technological innovation and lags in several key areas such asInternet connectivity and development and implementation of alternative power and fuel sources, as well asother environmentally sustainable initiatives.(2) Promoting technological innovation will foster much needed diversification in the economy, create millionsof jobs, and ensure that America will remain a dynamic, competitive force in an increasingly global economy.(3) Technological innovation requires large, long-term investment.(4) The current financial system lacks incentive to provide funding for technological innovation and currentpublic investment strategies are insufficient.(b) PURPOSE— IT IS THE PURPOSE OF THE ACT TO—(1) Provide inventive and ability to small venture capital firms to lend monies and provide other support toAmerican innovators and entrepreneurs who have promising ideas but lack the funding and support necessaryto realize them.(2) Increase the competitiveness of the American economy.

RESHMA SAUJANI FOR CONGRESS2

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(3) Diversify the American economy so as to lessen dependence on the financial sector and other industries thenation relies on for economic growth.(4) Foster development of ‘green technologies’ that will create new economic sectors and thousands of new jobs.(5) Provide individual States with opportunities to invest in American innovation by matching investments forrecipients of funding, and create incentives for States to provide incubation hubs for innovation that will notonly fuel entrepreneurship and market growth, but will also foster industry innovation clusters.(6) Provide a new opportunity for all Americans to invest in and profit from the future success of Americaninnovation through purchase of National Innovation Bonds.(7) Build on the existing organizational small business support infrastructure of Federal, State, and localprograms and agencies to expand opportunities for all citizens to turn innovative ideas into successfulbusinesses.

TITLE I: PROGRAMS AND RELATED PROVISIONS

SEC. 3. FEDERAL INVESTMENT IN SUPPORT OF NATIONAL INNOVATION.

(a) PROVISION OF ASSISTANCE- The Corporation for National Innovation (hereafter referred to as “theCorporation”) shall distribute funds to eligible Financial Institutions as defined by section 4 of this title to—(1) invest in Companies that fulfill the requirements established in section 5 of this title; and(2) sell National Innovation Bonds as established in section 12 and facilitate and encourage the sale of suchinstruments by Financial Institutions for the sole purpose of raising required matching funds pursuant tosubsection (e).(b) AGREEMENTS WITH FEDERAL AGENCIES- The Corporation may enter into a contract or cooperativeagreement with another Federal agency to support a national innovation program carried out by that agency. Thesupport provided by the Corporation pursuant to the contract or cooperative agreement may not include the transferto the Federal agency of funds available to the Corporation under this Act.(c) RULES ON USE- The Corporation may by rule prescribe the manner and extent to which—(1) funds provided to Companies by Financial Institutions pursuant to section 4(a) of this title may be usedfor advertisement; and(2) that portion of the assistance available to cover administrative costs should be distributed between—(A) the original recipient Financial Institution of the funds authorized under section 11; and(B) the Companies receiving funds from such Financial Institutions. (d) MATCHING FUNDS REQUIREMENTS-(1) REQUIREMENTS- Financial Institutions must match Federal funds provided for investment at a rate of no less than 50 percent.(2) CALCULATION- In providing for matching funds the recipient Financial Institution—(A) shall provide for such share through a payment in cash or in kind, fairly evaluated, includingfacilities, equipment, or services, however payment in kind shall not exceed 15 percent of thematching funds required under this subsection;