- SBIC Working Group Act of 2021 seeks to improve the equity of the U.S. Small Business Administration’s venture capital arm
- Venture capital is currently concentrated on a handful of metro areas, with limited investments in rural, women-owned, or minority-owned businesses
- Legislation proposes a working group to make recommendations on diversifying investments as well as incentives to encourage such investments
Summary by Dirk Langeveld
Two members of the Senate Committee on Small Business & Entrepreneurship have introduced a bill seeking to improve the geographic, racial, and gender equity of the U.S. Small Business Administration’s venture capital fund.
The SBIC Working Group Act of 2021, proposed by Senators Ben Cardin and Jim Risch, would establish a working group to create a report on how to improve the diversity of the SBA’s Small Business Investment Company Program. Established in 1958 to provide financing for small businesses with high growth potential but long-term capital needs.
The fund, which is privately owned but licensed and regulated by the SBA, uses its own funds as well as money borrowed with an SBA guarantee to make equity and debt investments in small businesses. Since its establishment, it has invested more than $100 billion in tens of thousands of companies, including some like Apple and FedEx that became major companies. However, the program also has significant diversity gaps.
- The senators say the bulk of investment capital has been concentrated on New York City, Boston, and Silicon Valley; the bill looks to ramp up investment in rural areas, which account for less than 1 percent of venture capital, as well as low-income or underserved communities, opportunity zones, and underfinanced states
- About 2 percent of venture capital is invested in women-owned businesses and 1 percent in Black- and Hispanic-owned businesses
- The working group will include representatives from the SBA, industry experts, academics, and existing SBIC funds that already have diverse management team or a record of investments in underrepresented companies
- The bill also looks to provide incentives for SBICs to diversify their investments as well as benchmarks and metrics of success