• Twitter Updates

    Error: Twitter did not respond. Please wait a few minutes and refresh this page.

Getting ready for Washington DC, one funders outlook

As we prepare for our November Fall Conference in Washington DC we asked a few of  our members to provide context on our conference theme: Public and Private Partnership Opportunities.

Michael Gurau is Managing General Partner of Clear Venture Partner and an Investors’ Circle member.  He wrote this piece for our Fall Print Newsletter.

Stimulating the Small Businesses Market

As has been well covered by the business press, the current economic environment has dampened not only the business outlook for large and small companies but also their access to capital, both debt and equity.    This pullback comes at the very time when the need for capital is at its greatest.  Small companies have planned for revenue growth that may not arrive in the near term, exacerbating their capital requirement.  Small “capital gap” funding has never been easy to access—today’s economy has made the gap even wider.  With private markets out of the funding market in the near term, small companies must look to federal and state government programs for what equity, credit and grant funding might be available.

Your Tax Dollars at Work for Small Businesses.

In good economic times, the US government has played an important role in lending and equity markets, whether stimulating lending by lowering interest rates, providing SBA- and USDA-backed loans, offering Treasury sponsored tax credits, and—with the exception of the last eight years of the (recent) Bush Administration– matching private equity capital through SBA’s (www.sba.gov) Small Business Investment Company  (SBIC) program.    Since 1994, the US Treasury’s Community Development Financial Institution’s (CDFI’s) Fund has provided equity and grant capital to mission-centric community development organizations; the equity funding enables certified CDFI’s to leverage their private equity capital with that of the CDFI Fund (www.cdfifund.gov) for the benefit of small businesses in which they invest.

On the grant side, the feds have long provided early stage grant money in several forms: SBA’s Small Business Innovation Research (SBIR)  and Small Business Technology Transfer programs provide sizable R&D grants to small businesses (under 500 employees) so that these companies can get their share (alongside universities and larger corporations) from government-funded research dollars.  The US Department of Agriculture (www.rurdev.usda.gov) too, supports small businesses with its Rural Business Enterprise Grant programs, that support value-added agricultural businesses, including natural products businesses such as those my fund and IC has supported.

Stimulus for small businesses

The American Recovery and Reinvestment Act (ARRA) of 2009 is providing considerable stimulus dollars to and through those existing agencies that support small business–SBA, DOE, CDFI, USDA and Department of Commerce.   ARRA’s lending support comes in several forms—in some cases increasing capital to (and improving terms and rates) for existing borrowers; in other providing new and varied grant pools to address the impact of the downturn.    As part of its renewable energy push, the Obama administration also allocated grant funds to support small businesses’ efforts to improve their companies’ energy efficiency; USDA has loan and grant funds that support small businesses’ energy systems and efficiency.   Department of Energy (DOE) and Treasury offer tax credits and loan guarantees for commercial energy projects that leverage renewable. This would seem good news for clean energy investors such as my new fund-in-formation and IC investors. Recovery.gov is a supersite for recovery related info, while each agency has—on their relevant home pages—information related to its allocation of ARRA.

The State of the States

While most state economies have suffered budget contraction due to the downturn, many states have something to offer small businesses.  In my home state of Maine, the Maine Technology Institute (MTI—www.mainetechnology.org) provides both grants and (limited) early stage equity to companies that fall within its target technology clusters.  Maine and many other states offer early stage investment tax credits that provides incentives to individual and state-based entity investors to provide equity to early stage (often pre-revenue) companies.   Many states also fund –typically through a bond-issue–early stage venture capital programs—e.g. Small Enterprise Growth Fund (SEGF in ME), Massachusetts Technology Development Corporation (MTDC in MA).  While these program are facing many of the same issues as their private sector VC brethren, some (including  SEGF) are pursuing new state funding.

Outlook for 2009 and 2010

From an investors’ perspective, it is the best and worst of times–worst for investors who have existing fund commitments and no path to liquidity in their portfolio; best for investors—whether VC or individuals—with liquid capital in a market in which demand has never been greater.   The venture capital fund that I’ve been managing since 2001 is an SBIC-like program, called the New Markets Venture Capital (NMVC) program; the NMVC scheme mandates that fund managers drive eighty percent of their capital into federally designated underserved communities—in CEI Community Ventures’ case, in northern New England.  On March 12th, the bi-partisan Congressional duo that advocated for that program in 2000 announced a bill (HR 1491) to refund the NMVC program so that regions less well served by capital may see resource for growth.   The new fund I am setting out to raise will pursue this capital for New England, should the bill pass.

For small companies, it’s going to be a rough couple years, marked by contraction, survival and fewer capital sources than any other in modern memory.  Early stage equity is going to be very hard to come by, but for the most promising opportunities.  Accordingly, small businesses need to look to federal and state sources coupled with some creative bootstrapping.

Michael Gurau is Managing General Partner of Clear Venture Partners (www.clearvcs.com), an early stage venture capital fund-in-formation targeting a $50-75M pool targeting select sectors (clean energy, health and wellness and IT) in underserved and distressed secondary New England cities and towns.  Clear is a new fund, wholly unaffiliated with CEI Community Ventures and CEI.   You can reach Michael at mg@clearvcs.com.


The Fall Conference Nov. 15-17 will showcase 22 early stage deals on Monday Nov. 16 and explore issues of public and private partnerships on Tuesday Nov. 17.  Learn more here

Speakers include:

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: