A Senior House Republican is leading efforts to replace an SBA VC program that has spilled copious red ink since the dotcom boom went bust. The Small Business Investment Company (SBIC) Participating Securities (PS) program made speculative, mostly equity investments in entrepreneurial startups with little access to VC funds, either because of their locations (outside Silicon Valley, Boston and a few other places) or their business types (non-IT, nonsoftware, etc.). The supposedly self-supporting program has lost about $2.7 billion since the tech bubble burst.
The Bush administration wants to drop the program entirely. But Rep. Don Manzullo (R-IL), chairman of the House Small Business Committee, is trying to restructure it instead. He introduced the SBIC Participating Debenture Act of 2005 (H.R. 3429) in July. It would convert the PS program into a Participating Debentures (PD) program. SBICs would have to repay the SBA out of their revenue for the interest payments the SBA makes on their behalf to institutional investors, who buy debentures.
Lee Mercer, president of the National Association of Small Business Investment Companies, says the bill assures that a new PD program would be self-supporting. But the Bush administration thinks the bill has some weaknesses. Jaime A. GuzmÃ¡n-Fournier, associate administrator for the SBA's Office of Investment, says the PS program may have too many structural problems to risk trying to resuscitate it.
How do entrepreneurs feel about it? Mark A. Redding, CEO of Banner Services Corp., a metal products manufacturer with 60 employees in Carol Stream, Illinois, says he could not have purchased the then-failing company in 2003 without equity from the PS program. He says, "Now, a viable small business, formerly in decline, is regenerating itself after 44 years in business."
Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.