Small Business Administration Office of Investment and Innovation
Small Business Administration SBIC and d SBIR Programs P
Ellen Kim Jeff Finkelman ...
Small Business Administration Office of Investment and Innovation
Small Business Administration SBIC and d SBIR Programs P
Ellen Kim Jeff Finkelman Ahson Wardak
January 2011
Importance of High Growth Companies Net new job creation (1994-2006)*
Gazelles
All other 10%
96%
90%
4% Companies
S Smallll fifirms create t ttwo outt off every three net new jobs in the U.S. economy A specific ifi subset b t off th these smallll businesses, “high-growth firms”, accounts for a disproportionate share of jjob g growth “High-growth” firms have different needs, face different barriers, and require q different p policies than the traditional “Main Street” small business
Jobs Created
* SBA study says that High Impact firms account for “Almost all” net job growth during the period. We have assumed this is 90% or above. Source: SBA Office of Advocacy, “High Impact Firms, Gazelles Revisited,” June 2008
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Small Business Administration
Background & Context
Early Stage Funding Gaps
• Angel investing down 44% • State Funds cut back State Funds cut back • Traditional self financing options (credit cards, home equity) far less available
Source: Kauffman Foundation, NVCA, UNH Venture Research Center
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Small Business Administration
Background & Context
• Venture down 37% in 2009 • More risk averse More risk averse • Only 725 first‐time deals in 2009
Increasing SBA SBA’ss value to High Growth Companies “Main Street” Capital
Contracting
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High Growth (“Gazelles”)
Loan Programs Loan Programs
SBIC program SBIC program
Government Contracting and Business Development Business Development
SBIR Program
Counseling
Small Business Administration
SBDCs, SCORE, Entrepreneurial Training
Background & Context
Small Business Administration Office of Investment and Innovation
The Small Business I Investment t t Company C Program P Meeting the Capital Needs of American Small Business
Program Overview
The SBIC Life Cycle
Program Performance
Table of Contents Program Overview: - The SBIC Program in Brief - Companies that have been funded by SBIC - Our Results in FY 2010
The SBIC Life Cycle
Program Performance
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Small Business Administration
SBIC Program
The SBIC Program g in Brief
SBIC Program
The SBIC Program is a multi‐billion dollar, government‐ sponsored investment fund created in 1958 to bridge the sponsored investment fund created in 1958 to bridge the gap between entrepreneurs’ need for capital and traditional sources of financing: • Th The program invests long‐term capital in privately‐ i t l t it l i i t l owned and managed investment firms licensed as Small Business Investment Companies (SBICs) • F For every $1 an SBIC raises from a private investor, $1 SBIC i f i i the SBA will provide $2 of debt capital, subject to a cap of $150 million • Once capitalized, SBICs make debt and equity investments in some of America’s most promising small businesses, helping them grow
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Small Business Administration
Our Results in Fiscal Year 2010
SBIC Program
The SBA issued $1.17 billion in new commitments to SBICs
$2.05 billion in financing dollars were invested in small businesses 1,331 small businesses were financed, 29% of which were in low‐to‐ moderate income areas or in minority or women‐owned moderate income areas or in minority or women owned businesses businesses An estimated 46,130 jobs were created
…all at ZERO cost to taxpayers… 8
Small Business Administration
SBIC Program
Table of Contents Program Overview
The SBIC Life Cycle -
SBIC Leverage Products and Investment Criteria Phase I: The Application Process Phase II: The Licensing Process Phase III: Portfolio Monitoring
Program Performance
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Small Business Administration
SBIC Program
SBIC Leverage g Products Regular Debenture
Discounted Debenture
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Amount:
Typically 2x (but up to a maximum of 3x) the capital raised from private investors
Term:
10 years with principal payment due at maturity NO prepayment penalty NO prepayment penalty
Interest:
Semi‐annual payment based on a spread above the 10‐ year Treasury bond
F Fees:
1% 1% commitment fee; 2% drawdown fee i f 2% d d f Annual fee due semi‐annually
Uses:
Investments in “small businesses” as defined by the SBA Office of Size Standards and federal regulations SBA Office of Size Standards and federal regulations, generally in later stage and “buyout” transactions. Real estate and project finance generally prohibited.
Small Business Administration
SBIC Leverage g Products Regular Debenture
Discounted Debenture
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SBIC Program
Amount:
Typically 2x (but up to a maximum of 3x) the capital raised from private investors
Term:
5 or 10 years with principal payment due at maturity NO prepayment penalty NO prepayment penalty
Interest:
Semi‐annual payment on 10 year bond only; based on spread above 10 year Treasury bond
F Fees:
1% 1% commitment fee; 2% drawdown fee i f 2% d d f Annual fee due semi‐annually for 10 year bond only
Uses:
The discounted debenture is appropriate for debt and equity funds with an investment focus on “small equity funds with an investment focus on small businesses” in low‐to‐moderate income areas or those providing energy‐saving products or services.
Small Business Administration
SBIC Program
SBIC Investment Requirements q Instruments SBICs may invest using: SBIC i t i ‐ Loans ‐ Debt with Equity features ‐ Equity
SBICs may invest: SBIC i t ‐ In businesses located anywhere in the U.S. or its territories
SBICs may not invest: ‐ More than 10% of the proposed total fund size in a single company without SBA approval
SBICs may not invest: ‐ In businesses with over 49% of their employees located outside the U.S.
Use of Proceeds
Control
SBICs may not y invest in: ‐ Project Finance ‐ Real Estate ‐ Financial Intermediaries
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Geography
Small Business Administration
SBICs may: y ‐ Control small businesses for up to seven years, a limit that may be extended with SBA approval
Size SBICs must SBIC t invest in Small i t i S ll Businesses, defined as: ‐ Businesses with a tangible net worth