Maria Cirino was on the second round of fundraising for her
Waltham, Massachusetts-based information security service company,
Guardent Inc., when her capital search led her to Boston-based
Axxon
Capital. A Small Business Investment Company, or SBIC, Axxon
uses its own capital, plus funds borrowed from the federal
government, to provide equity capital to entrepreneurs outside
traditional investment circles.
Though Cirino had already experienced success with mainstream
investors--she raised $25 million in her first fundraising
round--she was so impressed with Axxon's extensive contact
network that she included the SBIC in her subsequent, $5 million
round of financing. It was also important to Cirino that Axxon
focused on investing in women- and minority-owned companies.
"There is too little focus on helping women and minorities
start companies," says Cirino, whose business was eventually
purchased by VeriSign Inc., an infrastructure and security services
provider in Mountain View, California.
That was a few years ago. Today, the SBIC Participating
Securities Program, which provides up to $2 for every $1 of private
capital raised by venture funds licensed by the SBA, is fighting
for its long-term survival. The program has been suspended by
Congress, meaning it cannot license any new funds until the next
fiscal year, which begins Oct. 1, 2005. To make matters worse,
President Bush's 2006 budget proposal doesn't request
funding for the program, which would effectively kill an initiative
that provided over $1.5 billion in venture capital to small
businesses last year.
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The program suspension is in response to projected investment
losses of as much as $2 billion in recent years. SBIC supporters,
however, argue that the program's 11-year history is
insufficient for making accurate predictions about its long-term
performance, particularly when the U.S. economy was stalled in a
recession for much of that period.
While small-business advocates worry that suspending the program
will hinder the ability of women and minorities to access venture
capital, early stage companies in general will face greater
obstacles to funding, says Sheryl Marshall, founding partner of
Axxon Capital. "A lot of great companies only need smaller
amounts of capital," she stresses. Axxon's investment
range is $500,000 to $3.5 million--below the average of many
traditional VC funds.
Even with SBICs, certain entrepreneurial segments are still
underfunded, and eliminating the program would only add to the
capital shortage, says Cirino, now senior vice president of
VeriSign. Says Cirino, "I certainly think it would be a big
loss."