SBA Seeks Applications from Fund Managers for Early Stage Capital Program
May 1, 2012
WASHINGTON, DC – May 1, 2012 – The U.S. Small Business Administrationis inviting experienced early stage investment fund managers to applyfor licensing as Early Stage Innovation Funds as part of SBA’s SmallBusiness Investment Company capital investment program.
LicensedEarly Stage Innovation Funds can receive SBA-guaranteed funding tomatch their privately raised capital up to a maximum of $50 million. Early Stage Innovation Funds must invest at least 50 percent of theirinvestment dollars in early stage small businesses.
“This initiative is intended to promote American innovation and jobcreation by encouraging private sector investment in early stage smallbusinesses,” said SBA Administrator Karen Mills.
“Early stage small businesses face difficult challenges accessingcapital. At the same time, in this financial climate, venture capitalfunds are finding it difficult to raise money from institutionalinvestors. By licensing and providing SBA financial backing to EarlyStage Innovation Funds, we hope to expand entrepreneurs’ access tocapital and encourage innovation as part of President Obama’s Start-UpAmerica Initiative launched last year.”
As part of the Start-Up America Initiative, SBA intends to commit upto $1 billion in SBA guaranteed leverage over a five-year period toselected Early Stage Innovation Funds using its current programauthorization.
High-growth potential, early stage companies commonly experience a gapin the availability of funding between $1 million and $4 million levels.This gap is often referred to in the venture capital industry as the“Valley of Death.” Since January 2006, less than 10 percent of all U.S.venture capital dollars went to seed funds investing at those levels,and 69 percent of those dollars went to just three states: California,Massachusetts, and New York.
The Early Stage Innovation Fund initiative will target this gap bylicensing and guaranteeing leverage to funds focused on early/seed stageinvestments.
SBICs are privately-owned and managed investment firms that are licensedand regulated by SBA. SBICs use a combination of funds raised fromprivate sources and money raised through the use of SBA guarantees tomake equity and mezzanine capital investments in small businesses. Thereare nearly 300 SBICs with more than $17 billion in capital undermanagement.
A final rule, effective April 27, 2012, was published in the Federal Register at http://www.gpo.gov/fdsys/pkg/FR-2012-04-27/pdf/2012-10120.pdf.It sets forth regulations for Early Stage Innovation Funds with respectto licensing, capital requirements, distributions, and capitalimpairment among other things.
More information on the Early Stage Innovation Fund initiative and the regulations governing these SBICs may be found at www.sba.gov/inv/earlystage.
For more information about the SBA’s Investment Division, SBIC program,Impact Investment Initiative and Early Stage Innovation Funds, go to www.sba.gov/INV.The web site offers much useful information including segments for:SBIC Applicants, SBIC Licensees, Private Partners & LPs, andEntrepreneurs & Small Business Owners. The site also includes usefulSBIC forms, up-to-date news and reports, and detailed information anddescriptions of the Impact Investment Initiative and Early StageInnovation Fund.
