Wednesday, November 24, 2010

Industry Thoughts | The SBIC Move

Thanks to a small tip from PEHub, I learned that more and more buyout shops (including a prominent one, The Riverside Company) are applying to get capital through the Small Business Investment Company (SBIC) program. In my opinion, this is one of the greatest trends that private equity firms have been doing recently.

The mission of the SBIC, paraphrased from their website, is simple: provide strength to small business through private equity capital and funds from long term loans. The program's been around for some time (since 1953), and it provides a safe source of money for private equity firms to invest in significantly smaller rising stars among the small business world.

Curious about how much money in financing the program has raised? Here are links for FY2009, with this link for the summary of all financing.

I am close with one private equity firm that recently got capital to invest in some small businesses. Started by a bunch of ex-Liberty Partners executives, the firm targets $15-$75MM businesses with 20% EBITDA margins, with various industries. What is the most important characteristic to recognize, however, is learning how passionate executives at the firm are with working with smaller corporations (through SBIC). One of my contacts explained how useful it is to have another investment strategy but have a positive effect for the economy.

The SBIC program needs to be embraced more. It may not provide as powerful returns as other investments, but smaller private equity firms are in greater danger and less solvent, so by having access to a safe source of capital and helping small businesses grow, the industry can have a positive effect on the US economy.

Have a safe and wonderful Thanksgiving. Here's a link from one of my favorite nerdy websites; I don't know how many of you recognize the website, but major kudos to you if you do!

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