The early stage capital wisdom has attracted the love for the $100MM dollar valuation. With each economic boom, start-up valuations have kept on creeping upwards. Every start-up, which I have advised, has felt the pressure of “valuation management”. Creative forecasting and overly ambitious assumptions have been utilized to bump up valuations to $100MM.
In recent history, the start-up community has been captivated by venture capitalists. Unfortunately, to get the attention of most venture funds, you need to have a base of $100MM valuation. But that leaves out of the equation the role of the Small Business Administration (“SBA”), whose sole purpose is to serve small businesses with net worth less than $18MM.
The SBA, through its venture arm “SBIC,” has provided over $50 billion in seed funding for small companies. The program has been in existence since 1958, however, it has not been as well advertised as the SBA loan program. In 2009 alone, SBIC funded over 200 companies in existence for less than a year. And, average investment size varies from $250,000 to $5,000,000.
The beautiful aspect of the program is that it does not limit funding to equity. You may qualify for a combination of debt + equity, equity alone, or debt alone. This flexibility of funding shifts the power to the entrepreneur, without having to worry about handing over control and equity.The program works through a network of investment firms who receive low-cost funding from the SBA to provide equity financing to small businesses. You can find a list of participating firms on the SBA website.
This program is in addition to the various grant programs that SBA provides. If your business is located in rural or low-income areas you may qualify for additional funding from the SBA.
If you are a start-up and:
• your valuation is less than $18 million?
• your investing need is between $250,000-$5 million?
• you prefer flexibility in financing types (equity alone, debt+equity, debt alone)
then, think about the SBIC as the alternative financing source for your business needs.
For more general information or financing statistic visit the SBA website.
