On January 12, 2015, the Small Business Administration (SBA) extended an
invitation for all early-stage fund managers to apply for the
Early Stage Small Business Investment Company (SBIC) program. To be considered,
any interested manager must submit (i) a management assessment questionnaire
(MAQ) describing the management team, (ii) the principal’s track record, and
(iii) the proposed investment strategy, fund structure, and economics of the
Early Stage SBIC. Managers must submit their respective MAQs by February 27,
2015, at 5 p.m. ET to be eligible for SBA Investment Committee interviews, which
will be held before May 1, 2015. Upon a successful interview, the SBA will issue
a green-light letter. Managers must then file their respective licenses by June
5, 2015, to receive such licenses by September 30, 2015. Following this
procedure would allow fund managers to receive regulatory approval on an
Each fund must meet the following criteria to qualify as an Early Stage SBIC:
- The fund must have at least $20 million in regulatory capital.
- Commitments must be conditioned upon receipt of an Early Stage SBIC
- The fund must be organized as a limited partnership, generally conforming
organizing documents to the Early Stage SBA Model Limited Partnership
- The fund’s principals must hold at least 75 percent of carried interest.
- The fund must invest at least 50 percent of investment dollars in “early
stage small businesses,” defined as those never having achieved positive cash
flow from operations in any fiscal year before the year of investment.
The Early Stage SBIC program was launched by the SBA on April 7, 2011, in
response to President Obama’s Startup America initiative. The Early Stage SBIC
program is intended to incentivize experienced fund managers to invest in small
businesses that would otherwise struggle to access credit and capital. The SBA
will continue to license applicants at least through fiscal year 2016.
Currently, the SBA will commit to only one tier of debenture leverage for any
investment in an early stage small business in a 12-month period.
The private equity practice group at McGuireWoods is dedicated to keeping
clients advised of new legislative and business developments as they occur. If
you have any questions regarding these issues, please feel free to contact any
of the authors or your primary attorney at McGuireWoods.