Sba Seed Money Plan Goes Begging
Written by Scott Blake on April 25, 2013
By Scott Blake
A federal program to provide seed money for small businesses through investment fund partners has gotten off to a slow start.
To date, the US Small Business Administration has licensed only one investment fund manager — a firm in North Carolina — under its Early Stage Innovation Fund program.
"To the best of my knowledge, we have no pending applicants from Florida," SBA spokesman Dennis Byrne in Washington said this week.
"It’s a new program, so that may be why the [applicants] are slow coming along," he added.
The program is unique in that it licenses and regulates privately owned and managed investment funds that use their own capital, plus funds borrowed with an SBA guarantee, to make equity and debt investments in qualifying small businesses.
The SBA doesn’t invest directly into small businesses through the program, but provides the funding to qualified investment fund managers with expertise in certain sectors or industries to help fledgling companies grow.
The SBA’s South Florida District Office in Miami has been promoting the program.
"South Florida entrepreneurs need financial resources to start or expand a business," said SBA South Florida District Director Francisco "Pancho" Marrero. "Investing in small businesses is an investment in the community."
The agency has committed up to $1 billion in SBA-guaranteed leverage over a five-year period for selected Early Stage Innovation Funds as part of the agency’s longstanding Small Business Investment Company program.
Licensed Early Stage Innovation Funds can receive up to $50 million in SBA-guaranteed funding to match their privately raised capital. Early Stage Innovation Funds must invest at least half of their investment dollars in early stage small businesses.
Recently, the SBA called for applications from fund managers for year two of the five-year initiative. The deadline for filing for year two was March 1.
Hatteras Venture Partners of Durham, NC, is the first licensee under the program. Hatteras is a venture capital firm based in Research Triangle Park, NC, that focuses on seed and early stage opportunities in biopharmaceuticals, medical devices, diagnostics, and related opportunities in medicine.
The agency said Hatteras was selected because it demonstrated that it has a strong team with a clear, focused strategy and a track record of investing in an under-capitalized region.
According to the SBA, high-growth, early-stage companies commonly experience a gap in the availability of funding between the $1 million and $4 million levels. The gap is often referred to in the venture capital industry as the "valley of death."
Since January 2006, the SBA said, less than 10% of all US venture capital dollars went to seed funds investing at those levels, and about 70% of those dollars went to just three states: California, Massachusetts and New York.
"The Early Stage Innovation Funds initiative promotes American innovation and job creation by encouraging private sector investment in early stage small businesses," SBA Administrator Karen Mills said in a statement.
"And by licensing funds like Hatteras Venture Partners," she added, "we can expand entrepreneurs’ access to capital at no cost to taxpayers."
Details on the Early Stage Innovation Fund initiative and its regulations: www.sba.gov/inv/earlystage. Application details: www.federalregister.gov/articles/2012/12/18/2012-30431/small-business-investment-companies-early-stage-sbics.To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.