Source: Gary Haber, June 7, 2013
SBA administrator Karen Mills says the organization will be making more money available to investors in early stage companies. Only six percent of venture capital today is going to early stage funding rounds of between $1 and $4 million, which creates the so-called “Valley of Death” for startups, Mills said.
The U.S. Small Business Administration is making more money available to investors in early-stage companies. SBA administrator Karen Mills announced the new funding this week at a G8 session on social impact investing in London.
“All across the country today there are promising startups looking to scale their businesses and to bring innovative, game changing ideas to market. The ability of these businesses to access long-term, patient capital is critical to their success and to the growth of the American economy,” she said in a news release.
She said that only 6 percent of venture capital today is going to early-stage funding rounds of between $1 million and $4 million, which creates a so-called “Valley of Death” for startups.
To help businesses through the valley, Mills said the agency is increasing its leverage from $150 million to $200 million for early-stage funds.
The agency’s next solicitation for its small-business investment company (SBIC) early-stage fund will be opening in the fall of 2013.
The SBA also will increase its allocation to its impact investment fund from $80 million in SBIC leverage to $150 million.
In both programs, the SBA offers low-interest loans to private investment groups and funds.
“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,” Mill said. “Here’s how it works: We provide a 1-to-1 match with private capital, capped at $50 million. Funds participating in the program must deploy 50 percent of total capital in early stage companies. There is a minimum private capital raise of $20 million. All investment decisions are made by the private fund managers,” she said in an open letter.
She added that 70 percent of venture capital in the nation goes to just three states: California, New York and Massachusetts. And fully 40 percent of all venture capital in the nation goes to just Silicon Valley.
“There are enormous opportunities for investors and venture capital funds to finance innovative early stage firms outside of these traditional start-ups hubs. The market is less crowded and the field is ripe with outstanding entrepreneurs with experience across a broad array of growth industries,” she said.
For more information about early stage funds and the new solicitation, go to the SBA website.
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