SBA still looking for a few good Wisconsin fund managers
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It’s a government program that even the most rock-ribbed deficit hawk might like. It’s helped propel the fortunes of household brands like Costco, Apple, Staples, FedEx, Intel, and Sun Microsystems, has survived intact for more than 50 years, costs the American taxpayer nothing, and has provided thousands of small businesses with vital capital during their key growth stages.
Despite all that, it’s a fair bet that you haven’t heard of it. And that’s something that Pravina Raghavan would like to change.
“The small businesses underneath the SBIC program are usually high growth or businesses that are on a different trajectory, a faster trajectory.” — Pravina Raghavan, U.S. Small Business Administration
“I think when people tell us we’re the best-kept secret, it’s nice to know that we’re well thought of, but it’s not good to be a secret, and I think the SBIC program is part of that as well,” said Raghavan, a deputy associate administrator in the Office of Investment and Innovation for the U.S. Small Business Administration (SBA).
The SBIC (Small Business Investment Company) program has been around since 1958, and it’s funneling more capital to U.S. businesses each year through its private-public partnership model, setting a record of $3.5 billion invested in small businesses in fiscal year 2013.
The SBIC program differs from the SBA’s traditional loan programs in that small businesses are capitalized through investors’ privately owned and managed investment funds — what are known as SBICs. For every dollar an SBIC raises, the SBA provides about $2 of debt capital, borrowed from the government at low rates. The SBIC then takes those combined dollars and invests them in small businesses.
It’s a model that the SBA insists benefits small businesses, private investors, and the economy alike, and its success prompted Congress last year to increase the amount of SBIC debt the SBA can guarantee by $1 billion, from a previous high of $3 billion.
Still, for all of its evident success, Wisconsin remains one of a handful of states without an operating SBIC. That’s something Raghavan would like to address.
“There’s definitely more that we can do,” said Raghavan. “We don’t have an SBIC in Wisconsin right now, but I’d love to have maybe two in the state. I definitely think we haven’t hit the breadth of what we could do. We still have a lot of money in funding, and a lot of people don’t understand that market as well. It’s not something you traditionally think of the SBA for. So most of the time you think of the SBA, you think, ‘Oh, I can go there for a $2 million loan.’ You don’t normally think, ‘Oh, I can go to the SBA and get equity investment in my company.’”
According to Raghavan, the program often serves companies that have gotten past the first hurdle of their startup phase and are looking for a bit more capital than the SBA’s traditional loan programs can offer. For example, many of the companies are looking to buy other companies or expand into new territories.
“The small businesses underneath the SBIC program are usually high growth or businesses that are on a different trajectory, a faster trajectory,” said Raghavan.
In addition to its traditional SBIC, the SBA in the past few years has introduced Impact and Early Stage SBICs. Impact SBICs invest in traditionally underserved areas (including in economically distressed regions), while Early Stage SBIC licenses go to managers with experience funding companies in their earliest stages of growth.
The key to all the SBICs, however, is finding good private partners.
According to Raghavan, the licensing process is a rigorous one, and includes looking at teams’ track records, their philosophy, their strategy, and their management background. The SBA also contacts managers’ previous portfolio companies and brings their applications to an investment committee before giving them the green light.