SBA Launches Initiative for Impact Investing and Early Stage Seed Financing

February 7, 2011

The U.S. Small Business Administration (SBA) recently announced that it will launch two different funds that will commit $2 billion over the next five years to match private capital raised by privately owned investment funds investing in promising startups and high-growth companies.

Impact Investment Fund

SBA will commit $1 billion to those funds that invest growth capital in companies located in underserved communities. This includes investing in economically distressed areas, as well as those companies in emerging sectors such as clean energy. SBA will provide up to a 2:1 match to private capital raised by these funds, partnering with private investors to target these “impact” investments.

Early Stage Innovation Fund

SBA will use the Early Stage Innovation Fund to target the dearth of financing options that early stage companies face. For high-growth companies, access to capital is extremely limited in the $1 million -4 million range. Over the past four years, only 6% of all venture capital has been deployed in that range, with 70% of those financings going to companies in California, Massachusetts and New York. The Early Stage Innovation Fund aims to fill this gap, providing a 1:1 match to private capital raised by seed and early stage funds.

SBA will use its existing infrastructure and authority to undertake these matching funds. SBA-guaranteed bonds will match private capital raised by these privately owned and managed investment funds, which SBA hopes will accelerate capital support for startups and high-growth firms.

The Private Equity Practice Group at McGuireWoods LLP 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 Mark A. Kromkowski (312-849-8170), Bryan P. Bylica (312-750-3617), your primary attorney at McGuireWoods LLP, or any of the authors.