Most lawyers read the affiliate provision in the CARES Act to mean that any VC-backed startup would need to affiliate with all the other startups in that VC’s portfolio. This isn't necessarily true
Section 301 is the one that actually governs SBA 7(a) loans. So, for Section 7(a) loans, startups do not have to find “affiliation” based on having two or more stockholders with roughly equal holdings who together are “large” compared to others. Instead, Section 301 looks to the power to “control” that is held by an equity holder (rather than a group of unrelated minority holders) where that holder “owns or has the power to control more than 50 percent of the [company’s] voting equity.” That’s an important difference, since few VCs own more than 50% of a startup (typically, a VC fund owns a minority stake in a startup). Answer these three questions to help determine your VC-backed startup’s eligibility: (1) does your VC hold 50% or more of your startup’s equity (calculated per Section 301(f)); or (2) even absent that, does any single VC control a majority of the startup’s board; or (3) even absent that, does any single VC control significant protective provisions, enabling that VC to block meaningful corporate action so that the VC controls the startup? If you answered no, to all three questions, that’s likely good news (but speak to counsel to be safe).