The SBA 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.
In the programs first year, it attracted 33 applications and gave “Green-Lightsâ€ to six qualified funds to continue the licensing process after raising private capital.
The SBA has committed up to $1 billion in SBA guaranteed leverage over a five year period to those selected for the Early Stage Innovation Funds. Licensed Funds can receive up to a maximum of $50 million in SBA-guaranteed funding to match any capital they’ve private raised. At least 50 percent of their investment dollars must be in early stage small businesses.
“This initiative promotes innovation and creates jobs by encouraging private sector investment in early stage small businesses,â€ 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.â€
Early stage companies that are high-growth potential usually experience problems raising funding between the $1 million and the $4 million level. 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 fund investing at those levels. By licensing and guaranteeing leverage to funds focused on early/seed stage investments, the SBA hopes to target this gap.
More information on the Early Stage Innovation Fund initiative and the regulations governing these SBICs may be found at www.sba.gov/inv/earlystage