The U.S. Small Business Administration is inviting experienced early stage investment fund managers to apply for licensing as Early Stage Innovation Funds as part of SBA’s Small Business Investment Company capital investment program. The deadline for filing the Management Application Questionnaires (MAQs) for the Early Stage Innovation Fund program is March 1, 2013, 5 p.m. EST.
Application details are in the call notice published in today’s Federal Register: https://www.federalregister.gov/articles/2012/12/18/2012-30431/small-business-investment-companies-early-stage-sbics.
Last year, in its first year, the program attracted 33 applications and gave “Green-Lights” to six qualified funds to continue through the licensing process after raising their private capital.
The agency has committed up to $1 billion in SBA guaranteed leverage over a five-year period to selected Early Stage Innovation Funds using its current program authorization. Licensed Early Stage Innovation Funds can receive up to a maximum of $50 million in SBA-guaranteed funding to match their privately raised capital. Early Stage Innovation Funds must invest at least 50 percent of their investment dollars in early stage small businesses.
“This initiative promotes innovation and creates jobs by encouraging private sector investment in early stage small businesses,” said SBA Administrator Karen Mills. “Early stage small businesses face difficult challenges accessing capital in this financial climate, while venture capital funds are finding it difficult to raise money from institutional investors. By licensing and providing SBA financial backing to Early Stage Innovation Funds, we hope to expand entrepreneurs’ access to capital and encourage innovation as part of President Obama’s ongoing Start-Up America Initiative launched in 2011.”
High-growth potential, early stage companies commonly experience a gap in 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 targets this gap by licensing and guaranteeing leverage to funds focused on early/seed stage investments. SBA’s improved licensing times complement the Early Stage Innovation Fund program.
SBICs are privately-owned and managed investment firms that are licensed and regulated by SBA. SBICs use a combination of funds raised from private sources and money raised through the use of SBA guarantees to make equity and mezzanine capital investments in small businesses. There are nearly 300 SBICs with more than $17 billion in capital under management.
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 respect to licensing, capital requirements, distributions, and capital impairment 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, and Entrepreneurs & Small Business Owners. The site also includes useful SBIC forms, up-to-date news and reports, and detailed information and descriptions of the Impact Investment Initiative and Early Stage Innovation Fund.