U.S. Small Business Administration (SBA) Administrator Karen G. Mills announced today, during remarks at a G8 session on social impact investing, in London, England, that the agency’s next solicitation for its Small Business Investment Company (SBIC) Early Stage Fund will be opening in the fall of 2013.
As part of the announcement, Mills announced that the agency has expanded by $50 million the amount of leverage it is investing in funds during this second Early Stage solicitation from $150 million to $200 million. In addition to the new solicitation for Early Stage funds, and increase in investment leverage, the SBA also announced that it had increased its allocation size for its Impact Investment Fund. Previously, an Impact Investment Fund could only receive up to $80 million in SBIC leverage, but now these funds can receive up to $150 million – – a $70 million increase. The agency also recently expanded the definition of impact investing to include rural communities. Both funds operate through the SBA’s SBIC program.
Research shows that early stage companies face difficulty accessing capital, particularly those without the necessary assets or cash flow for traditional bank funding. Early stage financing rounds between $1 million and $4 million are often referred to as the so called “Valley of Death,” with only about 6 percent of all venture capital financing deployed during this stage. The SBA’s Early Stage Fund is designed to help fill that gap.
Mills, representing the U.S., participated in the G8 Social Impact Investing Forum to discuss the National Impact Initiative (NII). The meeting brought together 150 government and private sector leaders discussing how to increase impact investing in order to accelerate economic recovery and boost job creation.
“By increasing the amount we are investing in both early stage and impact investing, we are expanding the playing field and injecting new energy and momentum into our economy, bolstering new business starts and leveraging the greatest driver of innovation and job creation in the world—the entrepreneur,” said Mills. “At the SBA, and across the Administration, we know that when you embrace an inclusive vision of entrepreneurship, one that draws entrepreneurs from all demographics, backgrounds and locations, not only do the businesses succeed, America succeeds.”
The Obama Administration has taken great strides to promote social enterprise domestically and internationally in recent years. These varied initiatives can be described as a “National Impact Initiative,” an integrated effort to expand this work as an element of a broad economic strategy.
Mills shared the Administration’s perspective and encouraged that other nations should support these trends that can create jobs and can generate public benefit as a strategy in industrialized nations or as an expanding element of our international aid and investment toolbox.
The SBIC program, an established and successful program that operates at no cost to taxpayers, began in 1958 to supplement the flow of private equity capital and long-term loan funds to small businesses. 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. When an SBIC invests in a small business, it can scale up and create jobs. SBA estimates that for Fiscal Year 2012 SBIC financings created or sustained over 68,000 jobs. There are nearly 300 SBICs with more than $18 billion in capital under management.
Impact Investing is the practice of channeling capital toward businesses that generate economic return and public benefit.
For more information on SBA’s Early Stage SBIC Initiative go to http://www.sba.gov/category/lender-navigation/sba-loan-programs/sbic-program/general-information/early-stage-sbic-initi
For more information on the Start-Up America Impact Investment SBIC Initiative go to http://www.sba.gov/category/lender-navigation/sba-loan-programs/sbic-program/general-information/impact-investment-sbic