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On May 1, 2012, the U.S. Small Business Administration (SBA)
released a Federal Register Call Notice inviting fund managers to
submit preliminary materials, in the form of the Management
Assessment Questionnaire (MAQ), for consideration by the SBA to be
licensed as part of the new Early Stage Small Business Investment
Company (SBIC) program. The next deadline for beginning the process
to become an early stage SBIC is June 19, 2012. Funds and
management teams interested in being licensed as Early Stage SBICs
should begin working now to submit the required materials by June
19.
Early Stage SBIC Program Background
The Early Stage SBIC program offers, for the first time, the
opportunity for funds focused on investments in "early
stage" companies to receive SBA leverage. An "early
stage" business is one that has never achieved positive cash
flow from operations in any fiscal year. This new program is
designed to promote early stage investing to expand
entrepreneurs' access to capital and encourage innovation in
the U.S. economy. The Early Stage SBIC program is part of President
Obama's Start-Up America Initiative, which committed up to $1
billion in SBA guaranteed leverage over a five year period,
beginning in 2012. Of the $1 billion commitment, up to $150 million
can be reserved for leverage commitments in 2012, up to $200
million in 2013 through 2015 and up to $250 million in 2016.
An Early Stage SBIC is generally subject to the same regulatory
requirements as standard SBIC's, except that an Early Stage
SBIC must invest in "early stage" businesses, must use
the SBA's new Early Stage Model LPA (available on the
SBA's website) and is subject to a modified licensing
process.
Licensing Process
The Early Stage SBIC program consists of two tracks. The initial
deadline for Track 1, for applicants with existing capital
commitments of at least $15 million, was May 25, 2012. Edwards
Wildman Palmer LLP submitted MAQs as part of Track 1 on behalf of
three funds whose investment strategies target early stage
investments. The initial deadline for Track 2 is June 19, 2012.
The initial step is to submit a MAQ to the SBA, which requires
detailed information on the management team, the proposed strategy
for the SBIC, the principal's investment track record and the
proposed fund structure and economics. If, after a review of the
MAQ, the SBA Investment Committee concludes that the fund may be
qualified to be licensed as an Early Stage SBIC, it will invite the
fund participate in the next step in the Early Stage SBIC licensing
process, an interview with the SBA Investment Committee.
For funds that pass the interview process, the SBA will conduct
further due diligence, and thereafter will issue "Green
Light" letters to all funds meeting the Early Stage SBIC
program's criteria, formally inviting the fund to submit a
license application to the SBA. In order to be considered for
licensure as an Early Stage SBIC, the fund must have a minimum of
$20 million of Regulatory Capital (paid-in capital plus unfunded
commitments from Institutional Investors, as defined under the SBA
Regulations) when it files its license application.
Track 2 Applicants Must Submit MAQs by June 19, 2012
The MAQ submission deadline for the Early Stage SBIC
program's Track 2 is 5 p.m. ET on June 19, 2012. Unlike Track 1
applicants, Track 2 applicants are not required to have a certain
amount of existing capital commitments upon filing of the MAQ.
Interviews for Track 2 applicants whose MAQs pass the SBA's
pre-screening process will take place between June 23, 2012 and
August 3, 2012, with Green Light letters being issued by September
28, 2012.
License applications for Track 2 applicants are due by 5 p.m. ET
on May 15, 2013, at which time the applicant must have signed
commitments of at least $20 million in Regulatory Capital.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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