Prasad Thammineni, my occasional co-blogger, responded to my post yesterday with a question on the SBA and venture capital. His question centered around the efforts of the NVCA (the VC’s public policy organization) to get the US’s SBA (Small Business Administration) to allow VC backed businesses to access SBIRs (Small Business Innovation Research grant-things.) Man, lots of abbreviations when talking about government groups!! And yes, the inclusion of my name in the title of this post is a blatant SEO-effort; I don’t want some other Healy Jones to win the SEO battle with these new Google profiles. Thanks, Healy Jones. (Ok, enough with the SEO.)
Prasad’s question:
Healy, I have a related question about VCs and funding start ups. I read an article this morning in WSJ about how VC firms would like the SBA to expand their investments beyond small businesses to venture backed firms. Do you think that VCs are going after the SBA because they are not able to raise enough funds from limited partners or because they some strategic advantage to getting the Govt to back investments? Do you think VC backed firms should be able to tap into the SBA pot?
Basically, VC’s want their companies to be able to access the same types of government funding that other small businesses can get. Since 2003 VC backed companies have not had access to certain government grants controlled by the SBA. The argument appears to be that VC backed companies would crowd out mom and pop businesses seeking this funding. VCs counter argument includes the ideas that the awards are designed to promote 1) innovation, something that VC backed companies do pretty darn well; and 2) commercialization of technology, something else that VC backed companies are known for.
Yes, VC backed companies would probably be better than mom and pop startups at writing the SBA applications. I can see funds running effective seminars or hiring application experts to help their portfolio companies. The mom and pop companies have a legitimate fear here. However, I do also think that VC’s usually expect a certain level of capital and time efficiency from their portfolio companies and the SBA may be well served to trust professional investors with (some of) their capital.
As to Prasad’s question as to why VC’s want access to this money, the answer is pretty simple. VCs like money and want as much of it as they can get. Regardless of how much capital VCs can or can’t get from limited partners, a good venture capitalist will want more free money for his/her portfolio companies.
Finally, yes I think that venture backed companies should have access to this capital. As a tax-payer I would hope that the government would use its capital as efficiently as possible, and I’m pretty sure some deserving VC backed companies would be among the best users of the SBA’s money.
I am obviously not an expert on the SBA; most VCs aren’t because it can’t really help our companies. I may have messed up some terminology here and welcome any corrections/clarifications on my understanding of the program.
Thanks,
Healy Jones
