New venture capital program eyed for small firms (Members of Congress Want New Program)

MSNBC ^ | Aug. 28, 2005 | Kent Hoover

[nickcarraway]

Members of Congress want to establish a new government-backed venture-capital program to replace one that's being phased out because of sizable losses.

The U.S. Small Business Administration stopped issuing licenses for the participating securities part of its Small Business Investment Company program last October.

Participating securities funds accounted for more than half of the $2.8 billion invested last year by SBIC-backed funds in small businesses.

SBICs are privately managed investment firms that raise money from private investors and receive government-backed long-term loans from the SBA.

They were created to provide capital to startups and early-stage businesses. These types of companies often have trouble getting conventional venture capital, particularly if they aren't high-tech firms located in Silicon Valley, Boston or other VC hot spots.

SBICs in the participating securities program make equity investments in companies. Louisville venture capital firms funded by the program are Chrysalis Ventures LLC and Prosperitas Investment Partners LP.

SBICs in the debenture program make loans to small businesses that have enough cash flow to cover the interest payments.

There are no guarantees on venture capital, however, and many SBICs made equity investments in companies that didn't become profitable.

Nearly 30 percent of SBICs licensed before 2001 have failed, and only five percent have repaid all of the money committed by the federal government.

After three years of liquidating failed SBICs, the participating securities program shows a loss of $1.7 billion.

"If present trends continue, SBA and the taxpayers stand to lose billions more," said Jaime A. Guzman-Fournier, the SBA's associate administrator for investment.

Given these losses, he said, "there is a question as to how and whether the government should be involved in venture capital outside of the current debenture program."

[nickcarraway]

The chairman of the House Small Business Committee is convinced that many small businesses won't get the venture capital they need without the government's help.

[lafroste]

Speaking as someone who has danced in this ballroom, I say let the program go. I found their hoops and paperwork bordering on the rediculous. That coupled with the fact that their services were "down" for more than a year as the program got shuffled to a different group of acamadecians, that SBIC's I was referred to either didn't exist, or were only interested in High technology (read "computers"), and wanted lots of fees up front, I gave up and raised money the old fashioned way: I persuaded private groups that investing in my company was a sound idea.

This is only a great loss to government nanny types. It won't stop dedicated entrepreneurs.

[Maceman]

many small businesses won't get the venture capital they need without the government's help.

With good reason, too. If it's a sound business concept with capable management, it will find capital privately.

If not, no need to stick the taxpayers with the inevitable losses.

[flashbunny]

How many different ways can the government waste money?

Apparently a number that high doesn't exist yet.

[nickcarraway]

If it's not a sound concept that can find capital privately, California can always have an initiative to spend $6 billion on it.