Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Notices 25775 

The number assigned to this disaster 

for physical damage is 13067 B and for 

economic injury is 13068 0. 

The State which received an EIDL 

Declaration # is Kansas. 

(Catalog of Federal Domestic Assistance 

Numbers 59002 and 59008) 

Dated: April 23, 2012. 

Karen G. Mills, 

Administrator. 

[FR Doc. 2012–10417 Filed 4–30–12; 8:45 am] 

BILLING CODE 8025–01–P 

SMALL BUSINESS ADMINISTRATION 

Small Business Investment 

Companies—Early Stage SBICs 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Call for Early Stage Fund 

Managers. 

SUMMARY: This Call invites experienced 

early stage fund managers to submit the 

preliminary materials discussed in 

Section II, in the form of the Small 

Business Investment Company (‘‘SBIC’’) 

Management Assessment Questionnaire 

(‘‘MAQ’’), for consideration by the 

Small Business Administration (‘‘SBA’’) 

to be licensed as Early Stage Small 

Business Investment Companies. 

Licensed Early Stage SBICs may receive 

SBA-guaranteed debenture leverage of 

up to 100 percent of their Regulatory 

Capital, up to a maximum of $50 

million. Early Stage SBICs must invest 

at least 50% of their investment dollars 

in early stage small businesses. For the 

purposes of this initiative, an ‘‘early 

stage’’ business is one that has never 

achieved positive cash flow from 

operations in any fiscal year. By 

licensing and providing SBA guaranteed 

leverage to Early Stage SBICs, SBA seeks 

to expand entrepreneurs’ access to 

capital and encourage innovation as part 

of President Obama’s Start-Up America 

Initiative launched on January 31, 2011. 

More information on the Early Stage 

SBIC Initiative and the regulations 

governing these SBICs may be found at 

www.sba.gov/inv/earlystage. 

DATES: In order to expedite licensing of 

qualified applicants that have already 

raised the required capital, SBA has 

established two ‘‘tracks’’ for the Early 

Stage SBIC Licensing Process as follows: 

fl Track 1—Applicants with Capital: 

This includes all applicants that have 

signed commitments for at least $15 

million in Regulatory Capital and the 

remaining capital needed to achieve the 

minimum $20 million in Regulatory 

Capital for Early Stage SBICs ‘‘softcircled’’. (This may include drop-down 

funds.) Track 1 applicants that receive 

a Greenlight will need signed 

commitments of at least $20 million in 

Regulatory Capital when they file their 

Licensing Application on or before July 

30, 2012. SBA will accept a 

commitment that is conditioned upon 

issuance of an Early Stage SBIC license 

and/or approval of the applicant’s 

organizational documents, but will not 

accept a commitment that is subject to 

any other conditions. 

fl Track 2—All Other Applicants. 

The following table provides the key 

milestones for each track. 

Milestone Track 1—Applicants with capital Track 2—all other 

applicants 

FAQ Process Closed ............................................................................... 5 p.m. Eastern Time (‘‘ET’’) on May 18, 2012. 

Initial Review Period: 

• Management Assessment Questionnaires (‘‘MAQs’’) Due ................. 5 p.m. ET .......................................

May 25, 2012 .................................

5 p.m. ET. 

June 19, 2012. 

• Interview Period ................................................................................... June 6, 2012–June 13, 2012 ........ July 23, 2012–August 3, 2012. 

• Anticipated Greenlight Decision .......................................................... June 29, 2012 ................................ September 28, 2012. 

Licensing Period: 

• Licensing Applications Due with at least $20 million in Regulatory 

Capital.

5 p.m. ET July 30, 2012 ................ 5 p.m. ET May 15, 2013. 

• Anticipated Licensing Date .................................................................. September 28, 2012 ...................... September 30, 2013. 

NOTES: 

• SBA will notify applicants with Greenlight Letters of any further Licensing Periods. 

• SBA reserves the right to extend its interview, due diligence, committee, and approval timelines as appropriate. SBA will update its Web site 

at www.sba.gov/inv/earlystage should these dates change. Applicants will be notified by email should these dates change. 

• SBA expects to issue additional calls for Early Stage Fund Managers on an annual basis. SBA will announce these calls via a call notice in 

the Federal Register. 

ADDRESSES: Email MAQrequest@sba.gov 

to obtain a copy of the Management 

Assessment Questionnaire (‘‘MAQ’’) for 

your proposal as discussed in Section II. 

You must submit via express or next 

day delivery service two (2) paper 

copies of the MAQ to the following: 

Chief Administrative Officer, Office of 

Investment, U.S. Small Business 

Administration, 409 3rd St. SW., 

Suite #6300, Washington, DC 20416. 

You must provide with the MAQ a 

CD-ROM containing an electronic 

version of your completed MAQ in 

Word and Excel format. SBA will not 

accept MAQs via regular mail due to 

irradiation requirements nor will SBA 

accept MAQs via hand delivery or 

courier service. 

SUPPLEMENTARY INFORMATION: 

I. Background Information 

SBA invites early stage fund managers 

to submit the preliminary materials, as 

discussed in Section II, in the form of 

a Management Assessment 

Questionnaire (‘‘MAQ’’) for the 

formation and management of an Early 

Stage SBIC. Early Stage SBICs represent 

a new sub-category of SBICs that will 

focus on making investments in early 

stage small businesses. Go to 

www.sba.gov/inv/earlystage for 

information on the Early Stage Initiative 

and links to the Early Stage SBIC Final 

Rule (‘‘Final Rule’’). This initiative is 

part of President Obama’s ‘‘Start-Up 

America Initiative’’ to promote 

American innovation and job creation 

by encouraging private sector 

investment in job-creating startups and 

small firms, accelerating research, and 

addressing barriers to success for 

entrepreneurs and small businesses. 

II. Management Assessment 

Questionnaire/License Application 

Materials 

The first required submission in the 

Early Stage Licensing process is SBA’s 

MAQ. The MAQ consists of two forms 

that cover qualitative and quantitative 

information on the management team, 

the proposed strategy for the SBIC, the 

principals’ investment track record, and 

the proposed fund structure and 

economics. The MAQ consists of SBA 

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25776 Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Notices 

Form 2181 and the exhibits in SBA 

Form 2183. 

If, after submitting the MAQ, you are 

invited to be interviewed (see paragraph 

III.B.2), you will be required to bring to 

the interview a completed Exhibit N 

from SBA Form 2182, consisting of your 

financial forecast and a written narrative 

which identifies how you will manage 

SBA leverage as part of your business 

plan. Whether you choose discounted 

leverage or standard leverage with a 5 

year interest reserve, each as described 

in the Final Rule, your plan must 

address how you will meet interest 

payments after 5 years from the date of 

debenture issue. 

Should SBA issue you a ‘‘Green Light 

letter’’ (described in paragraph III.B.6), 

you must submit the SBIC License 

Application, consisting of SBA Form 

2181 (updated as needed) and SBA 

Form 2182, for the final licensing phase 

(paragraph III.D). Exhibit Q in SBA 

Form 2182 includes the fund’s limited 

partnership agreement (‘‘LPA’’). 

Applicants should review Section IV of 

this notice for special instructions 

associated with the LPA for Early Stage 

SBICs. 

To obtain a copy of the most recent 

versions of these forms, please send an 

email to MAQrequest@sba.gov. Read 

only examples of these forms may be 

found at www.sba.gov/content/ 

application-forms. 

III. Early Stage Licensing Process 

There are four stages in SBA’s Early 

Stage Licensing Process: (A) Call Period; 

(B) Initial Review; (C) Applicant 

Fundraising and Document Preparation; 

and (D) Licensing. Each of these stages 

is discussed below. 

A. Call Period. This notice signals the 

start of the Fiscal Year 2012 Early Stage 

SBIC call period. SBA intends to hold 

no more than one Early Stage SBIC call 

period for accepting MAQs per fiscal 

year and SBA will issue a new notice in 

the Federal Register for the next call 

period. Interested parties should request 

a MAQ from SBA, per paragraph II 

above. Please take time to read the 

instructions included with each form 

identified in Section II. You should also 

review the information at www.sba.gov/ 

inv/earlystage which includes a list of 

frequently asked questions (‘‘FAQs’’) 

regarding the Early Stage Initiative. If 

you still have questions regarding the 

Early Stage process, please email your 

questions to startupamerica@sba.gov. 

SBA will endeavor to respond to your 

question within three business days, 

depending on volume. SBA may not be 

able to respond to fund specific 

questions or questions that require a 

legal opinion. SBA will not take any 

further questions after the end of the 

Question and Answer Period identified 

under the Dates section. 

B. Initial Review. At the end of the 

Initial Review phase, SBA will issue 

Green Light letters to those applicants 

that meet the evaluation criteria for an 

Early Stage SBIC, including the vintage 

year and geographic diversification 

criteria. Section V of this notice 

describes the criteria by which SBA will 

evaluate applicants. The process for 

SBA’s Initial Review is as follows: 

1. Submit MAQ. SBA must receive 

your completed MAQ no later than the 

date and time specified under the Dates 

section of this notice. SBA will send a 

confirmation that it has received your 

MAQ within 3 business days of your 

submission. If you have not fully 

completed all sections of the MAQ or 

provided sufficient information to allow 

SBA to evaluate your management team, 

you may be ineligible for this call 

period. If so, SBA will notify you by 

email. 

2. Pre-Screen. SBA will review all 

MAQs against the evaluation criteria 

identified in Section V. SBA may engage 

a contractor to assist in evaluating 

MAQs received in response to this Call. 

The Investment Committee (composed 

of senior managers from the Office of 

Investment) will consider each MAQ, 

and if the Investment Committee 

concludes that the management team 

may be qualified for an Early Stage SBIC 

license, the entire team will be invited 

to SBA Headquarters in Washington, DC 

for an interview. Those applicants not 

invited for interviews will also be 

notified. SBA will provide feedback to 

applicants not selected for an interview 

after the first Early Stage SBIC Licensing 

cycle is complete. 

3. Interview Period. SBA’s invitation 

for an interview will identify a 1 hour 

time block during the Interview Period 

identified in the Dates Section, along 

with the topics that the applicants 

should be prepared to address. SBA will 

conduct interviews at SBA 

Headquarters, at 409 Third Street SW., 

Washington, DC. At the interview, you 

must bring your financial forecast as 

described under Section II of this 

document. 

Track 1 applicants are encouraged to 

bring the following completed exhibits 

from SBA Form 2182 to the Interview: 

a. Exhibit B—Fingerprint cards and 

b. Exhibit C—Statements of Personal 

History. 

If the applicant receives a Green Light 

letter, SBA will forward the fingerprint 

cards and Statements of Personal 

History to SBA’s Office of Inspector 

General for processing by the FBI. (Note: 

Track 1 applicants may wait until the 

licensing stage to submit these 

documents. However, you will not be 

able to draw SBA leverage until your 

FBI checks are complete.) 

If after the Interview, the Investment 

Committee decides that an applicant 

does not meet the criteria for an Early 

Stage SBIC license, the SBA will notify 

the applicant that it will not be 

considered further for this call period. 

SBA will provide feedback to those 

applicants after the first Early Stage 

SBIC Licensing cycle is complete. 

4. Due Diligence. SBA will conduct 

due diligence on all applicants that 

successfully pass the Interview process. 

SBA may be assisted in this process by 

a contractor engaged by SBA. 

5. Green Light Letter. Following the 

interview and the completion of SBA’s 

due diligence, the SBA will issue a 

‘‘Green Light’’ letter to all applicants 

that meet the criteria identified in 

Section V, as determined by the 

Investment Committee. The ‘‘Green 

Light’’ letter formally invites an 

applicant to submit the SBIC License 

application for the Licensing stage. 

Applicants approved by the Investment 

Committee can expect to receive the 

Green Light letter via email within a few 

days of the Investment Committee’s 

decision. The Green Light letter is only 

an invitation to proceed to the next 

stage in the process, not a guarantee that 

you will be issued an Early Stage SBIC 

license. Those applicants that do not 

receive a Green Light letter will also be 

notified by email within a few days of 

the Investment Committee’s decision. 

SBA will provide feedback to those 

applicants that do not receive a Green 

Light letter after the first Early Stage 

SBIC Licensing cycle is complete. 

C. Fundraising and Document 

Preparation. If you receive a Green Light 

letter, you will need to raise the 

minimum Regulatory Capital needed to 

execute your strategy (which can be no 

less than $20 million) and submit your 

completed license application by the 

start of the licensing period identified in 

the Dates Section of this notice for your 

Track. 

1. Raise Regulatory Capital. Early 

Stage SBIC applicants must have signed 

commitments for at least $20 million in 

Regulatory Capital prior to filing their 

license application. 

2. SBIC Education. All principals of 

an Early Stage SBIC applicant that has 

received a Green Light letter must 

attend a one-day SBIC Regulations 

training class. This training is normally 

held several times per year in 

Washington, DC. The purpose of this 

class is to familiarize SBIC principals 

with the SBIC rules, regulations and 

compliance procedures. Classes are 

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normally limited in size. Although an 

applicant may receive a license before 

all principals have completed the 

training, a majority must do so before 

licensing and all must do so before a 

licensed Early Stage SBIC will be 

permitted to draw leverage. (Track 1 

applicants should note that training 

sessions are currently scheduled for 

June 14 and October 11, 2012.) 

Information concerning registration for 

classes can be obtained at www.sbia.org. 

Certain non-principals such as members 

of a board of directors may also be 

required to take the class. In addition, 

any employees or consultants whom 

you have assigned to handle regulatory 

matters or to interact with the Office of 

Investment should attend the class. 

3. Finalize Documents & Perform 

Checklist. The following items must be 

completed and submitted in order to 

proceed to the Licensing phase: 

Item ÿ 

Updated SBA Form 2181 (See Section II for more information.).

SBA Form 2182 (See Section II for 

more information.).

At least $20 million in Regulatory 

Capital evidenced by signed Capital Certificate in Form 2182 (Exhibit M).

$25,000 Non-refundable licensing 

fee.

D. Licensing. During this last stage, 

SBA will review your completed 

application, perform further due 

diligence and analysis if more than 3 

months have passed since the Green 

Light Letter was issued, and make the 

final licensing decision. SBA will hold 

at most two Early Stage SBIC Licensing 

periods per year for those applicants 

that received a Green Light letter as a 

result of SBA’s Initial Review. For 

calendar year 2012, SBA will only hold 

one licensing period. Early Stage SBIC 

applicants that receive a Green Light 

letter will be eligible to submit their 

license applications for the next two 

licensing periods after receipt of the 

Green Light letter. Track 1 applicants 

that receive Green Light letters in 2012 

and wish to be licensed in 2012 will 

need to submit their completed license 

application no later than July 30, 2012. 

Any Track 1 applicants that are unable 

to raise the minimum $20 million in 

Regulatory Capital and submit their 

license application by that date may 

submit their applications for the Track 

2 licensing period. Similarly, Track 2 

applicants that are unable to raise 

sufficient capital and submit their 

license applications by the start of the 

Track 2 licensing period may submit 

their applications during the next Early 

Stage licensing period. SBA will notify 

Track 2 Green Light recipients when 

future licensing periods will take place. 

The process for Licensing is detailed 

below. 

1. Submit License application. To 

proceed to the Licensing stage, 

applicants that have received a Green 

Light letter will need to submit all items 

listed in the Checklist above to the 

address indicated in your Green Light 

Letter. Upon receipt of the application, 

SBA will acknowledge receipt by email. 

Within three business days, SBA will 

determine whether the application is 

complete, meets the minimum capital 

requirements and satisfies management 

ownership diversity requirements. If so, 

SBA will formally accept the 

application. If the applicant did not 

submit a completed licensing 

application, SBA may defer the 

applicant to the next licensing cycle. 

2. Background and Documentation 

Review. Once the application has been 

formally accepted, SBA will forward the 

fingerprint cards and Statements of 

Personal History to SBA’s Office of 

Inspector General for processing by the 

FBI, if the applicant did not previously 

submit such information during or after 

the Interview. Following a review of the 

application and legal documents, SBA 

will provide the applicant with a 

‘‘comment letter’’. Applicants must 

respond in writing to the comment 

letter, via mail, fax or email within one 

week after the date SBA sends the 

comment letter. Applicants that do not 

address, to SBA’s satisfaction, all of the 

comments contained in SBA’s comment 

letter will be moved to the next 

licensing cycle in order to provide SBA 

with sufficient time to resolve 

outstanding issues. Through this 

process, SBA hopes to resolve all issues 

specified in SBA’s comment letter as 

expeditiously as possible. Promptness 

and responsiveness in responding to 

SBA’s comment letter are important. 

Due to the short timeframe for 

Licensing, Early Stage SBIC Applicants 

may not make pre-licensing 

investments. 

3. Divisional Licensing Committee. 

Once the applicant has satisfactorily 

addressed all issues and SBA has 

completed its review and any due 

diligence if necessary and the Office of 

General Counsel has signed off on legal 

sufficiency of the application (including 

the final form of the organizational and 

other legal documents), the license 

application is presented to the 

Divisional Licensing Committee. This 

committee is composed of the senior 

managers of the Office of Investment. If 

approved by the Divisional Licensing 

Committee, the application is forwarded 

to the Agency Licensing Committee 

which is comprised of certain senior 

managers of the SBA. Prior to 

consideration by the Agency Licensing 

Committee, an applicant must provide a 

signed, up-to-date capital certificate 

showing that it has at least $2.5 million 

in Leverageable Capital, consisting of 

cash on deposit and/or approved 

organizational and operational expenses 

paid out of partners’ contributed capital, 

and at least $20 million in Regulatory 

Capital. The applicant’s selected bank 

must certify that the requisite funds are 

in the applicant’s account and 

unencumbered. An applicant must also 

submit a commitment request for the 

amount of leverage it is seeking. 

4. Agency Licensing Committee and 

Administrator Approval. If the Agency 

Licensing Committee approves your 

license application, it will be forwarded 

to the SBA Administrator or her 

designee for final action as soon as you 

submit fully executed copies of all legal 

documents. (Please note that the 

executed documents must be identical 

to the ‘‘final form’’ of the documents 

approved by SBA.) If the Administrator 

or her designee approves your 

application, your Early Stage SBIC 

license is issued. 

5. Leverage Commitments. SBA has 

allocated only $150 million in Fiscal 

Year (‘‘FY’’) 2012 and $200 million in 

FY 2013. SBA expects to allocate 

another $200 million each in FYs 2014 

and 2015 and $250 million in FY 2016. 

If total leverage commitments requested 

for the FY 2012 licensing cycle exceed 

the amount available in FY 2012, SBA 

will allocate available leverage across all 

FY2012 Early Stage SBICs on a pro rata 

basis. Early Stage SBICs licensed in 

FY2012 will be eligible to request the 

remainder of their uncommitted 

leverage request in subsequent fiscal 

years based on availability. SBA expects 

to be able to commit the full amount of 

leverage that an Early Stage SBIC 

requests at the time of licensing. 

However, those commitments may be 

approved in multiple years, depending 

on availability in each year. Early Stage 

SBICs that raise additional private 

capital after licensing may request 

leverage commitments against that 

capital. However, such requests are 

subject to leverage availability and will 

not be considered until all other 

licensee requests are satisfied. 

IV. Early Stage SBIC LPA and 

Organizational Instructions 

A. Early Stage SBIC Model LPA. In 

order to expedite the review of Early 

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Stage SBIC license applications, SBA 

has adopted a Model Early Stage SBIC 

Limited Partnership Agreement (‘‘Model 

LPA’’) that incorporates in Bold Arial 

type those provisions required by SBA. 

You must download the Model LPA at 

www.sba.gov/content/earlystage-modelpartnership-agreement. Applicants must 

use the Model LPA as a template and 

follow the organizational structure of 

the Model LPA. Further, Applicants 

must include in their limited 

partnership agreements all of those 

provisions of the Model LPA that appear 

in Bold Arial type in the Model LPA. 

Additions, deletions and other changes 

or modifications to any of those 

provisions of the Model LPA that appear 

in Bold Arial type will not be accepted. 

Applicants are required to submit a 

copy of their limited partnership 

agreement black-lined against the Model 

LPA, with all of the provisions of the 

Model LPA in Bold Arial type retained 

in Bold Arial type, as explained in the 

instructions provided at the beginning 

of the Model LPA. SBA provides the 

following further guidance on limited 

partnership agreements: 

1. SBA encourages applicants to 

adhere to the Model LPA to the 

maximum extent possible. All 

deviations from those provisions of the 

Model LPA that do not appear in Bold 

Arial type must be accompanied by a 

narrative explanation for those 

deviations. Please note that any 

deviations must have a substantive basis 

and may not be deemed acceptable by 

SBA. 

2. There must be no conditions or 

restrictions on the ability of the GP to 

call private capital commitments except 

under the ‘‘no fault termination of the 

investment period’’ or ‘‘key person’’ 

provisions included in the Model LPA. 

3. Withdrawal rights are limited to 

those permitted by the Model LPA. 

4. Applicants must adhere to SBA’s 

management fee policies available at 

www.sba.gov/content/sbic-technotesnumber-7a-revised-april-2008. This 

policy sets a maximum allowable 

management fee only. The actual 

management fee will be set by 

negotiation between the management 

team and the limited partners and may 

be less than the maximum. Early Stage 

SBIC applicants should be aware that 

the calculation of an SBIC’s capital 

impairment percentage is affected by all 

fund expenses, including management 

fees. SBA will consider the management 

fee in its licensing evaluation criteria as 

part of fund economics. SBA believes 

that the primary incentive for fund 

managers should be carried interest 

rather than fees. 

5. The designation of fund expenses 

and expenses to be paid out of the 

management fee must be consistent with 

SBIC program regulations (see 13 CFR 

107.520). 

a. Organizational costs, expenses 

incurred in applying for a license and 

forming the SBIC and its entity general 

partner (but not its parent fund or any 

other affiliate), are considered a 

partnership expense. Organizational 

expenses typically include items such 

as the licensing fee, cost of legal and 

other professional and consulting 

services, travel and other fundraising 

expenses, costs of preparing, printing 

and distributing the private placement 

memorandum or other offering 

materials, and other related expenses 

such as telephone and supply costs. 

SBA strongly encourages applicants to 

include in the LP agreement a 

reasonable cap on the total 

organizational costs to be paid by the 

applicant. Costs deemed excessive can 

be paid by the GP or management 

company or deducted from the 

applicant’s Regulatory Capital prior to 

licensing. 

b. Unreimbursed expenses on deals 

that do not close may be designated as 

a partnership expense but must be 

capped at a reasonable level. 

6. Right of limited partners to remove 

general partner—Provisions allowing 

removal of the general partner without 

cause (‘‘no-fault divorce’’ provisions) 

are permitted only after the Early Stage 

SBIC has repaid all outstanding leverage 

and any other amounts payable to SBA 

and has surrendered its SBIC license. 

7. SBA will not consider amendments 

to an Early Stage SBIC’s LPA for a 

minimum of six months after licensing. 

B. Organization. Early Stage SBIC 

applicants must adhere to the following 

rules regarding organizational structure: 

1. Applicant cannot be a BDC or other 

public entity or a subsidiary of any such 

entity. 

2. All provisions governing the 

operation of the SBIC must be included 

in the limited partnership agreement (no 

side letters). 

3. Applicant must adopt SBA Model 

Valuation Guidelines. 

4. Drop-down SBICs. 

a. The drop-down structure should be 

used only when it has a clear business 

purpose: 

i. Example 1—Parent fund has already 

raised capital and begun operating and 

wants to commit a portion of its capital 

to an Early Stage SBIC. 

ii. Example 2—Substantial capital 

will be retained for investment at the 

parent level (SBA suggests that 

managers consider the alternative of 

structuring a non-SBIC fund side by side 

with the SBIC). 

b. Drop-down funds must have one 

parent fund only and the parent fund 

must be a U.S. entity. 

c. Parent must qualify as a traditional 

investment company based on 

established SBA precedent. 

d. Parent must disclose the identity of 

all of its investors. 

e. All of the investors in the parent 

fund (the SBIC’s ‘‘Class A’’ limited 

partner) must agree to be ‘‘Class B’’ 

limited partners of the SBIC with an 

obligation to fund the Early Stage SBIC 

capital calls if the Class A limited 

partner does not. The obligation of the 

Class B limited partners to the Early 

Stage SBIC is reduced dollar for dollar 

as the Parent Fund contributes capital to 

the SBIC. The Model LPA contains 

required provisions for drop-down 

funds. 

f. The Class B limited partners’ 

commitments to the SBIC applicant 

must be expressed as a specific dollar 

amount (not just as the ‘‘proportionate 

share’’ of parent fund’s commitment). 

g. The total dollar amount of Class B 

commitments must be equal to the Class 

A limited partner’s unfunded 

commitment to the SBIC. SBA will not 

require Class B commitments if the 

SBIC’s Regulatory Capital will not 

include any unfunded commitments 

from the Class A limited partner. 

C. Capitalization. Applicants must 

raise the minimum $20 million in 

Regulatory Capital by the time the 

license application is submitted (see 

section III.D). 

1. Capital commitments from limited 

partners must be made directly to the 

SBIC (and its parent fund, in the case of 

a drop-down) with no intermediaries 

involved. 

2. The Early Stage SBIC applicant 

must have the unconditional ability to 

legally enforce collection of each capital 

commitment. 

3. Capital Certificate. Capital 

commitments must be documented in 

the capital certificate (Section M of SBA 

Form 2182) and comply with the 

following: 

a. A signed Capital Certificate must be 

submitted with the license application. 

b. The only permitted conditions on 

private capital commitments are: 

iii. Receipt of Early Stage SBIC license 

iv. Approval of limited partnership 

agreement. 

c. Individual investors must list 

primary residence address, not a 

business address. 

d. Street addresses are required (no 

P.O. Box addresses). 

4. A dual commitment may be 

obtained to back up the commitment of 

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any direct investor in the SBIC who is 

not an Institutional Investor. SBA will 

not permit an Early Stage SBIC 

applicant that is a drop-down to utilize 

dual commitments. 

5. Capital commitments by the 

principals, general partner, or their 

affiliates must be payable in cash when 

called (cannot be satisfied with notes or 

management fee waivers). 

D. General Partner 

1. All principals must: 

a. Hold direct ownership interests in 

and be the direct individual managers of 

the general partner, with no intervening 

entities. 

b. Receive carried interest directly 

from the general partner; for drop-down 

SBICs, carried interest may be received 

from the parent fund’s general partner. 

2. A maximum of 25% of the carried 

interest may be allocated to nonprincipals. 

3. Any provision to remove or 

terminate a principal must be spelled 

out within the general partner’s 

organizational document and must not 

be tied to events occurring under other 

agreements (e.g., a principal’s 

employment agreement with the 

management company). 

E. Investment Advisor (‘‘Management 

Company’’). Ownership of the 

Management Company that is highly 

disproportionate to the ownership of the 

general partner (e.g., one principal is the 

100% owner) is not viewed favorably by 

SBA, but may be acceptable if there are 

adequate checks and balances on the 

powers of the dominant owner. Areas 

that cannot be subject to unilateral 

decision-making include the following: 

1. Power to remove or terminate other 

principals. 

2. Power to change the composition of 

the Early Stage SBIC’s investment 

committee. 

V. Early Stage SBIC Licensing 

Evaluation Criteria 

A. General Criteria. SBA will evaluate 

an Early Stage SBIC license applicant 

based on the submitted application 

materials, Investment Committee 

interviews with the applicant’s 

management team, and the results of 

background investigations, public 

record searches, and other due diligence 

conducted by SBA and other Federal 

agencies. SBA will evaluate an Early 

Stage SBIC license applicant based on 

the same factors applicable to other 

license applicants, as set forth in 13 CFR 

107.305, with particular emphasis on 

managers’ skills and experience in 

evaluating and investing in early stage 

companies. As discussed in the Final 

Rule, evaluation criteria fall into 4 areas: 

(A) Management Team; (B) Track 

Record; (C) Proposed Investment 

Strategy; and D) Organizational 

Structure and Fund Economics. You 

should review these regulations prior to 

completing your MAQ. 

B. Managing SBA Leverage. SBA will 

pay particular attention to how a team’s 

investment strategy works with 

proposed SBA leverage. Early Stage 

Debenture leverage either requires a 5 

year interest and annual charge reserve 

from the date of issue or is structured 

with an original issue discount that 

covers the interest and annual charges 

for the first 5 years. In either case, Early 

Stage SBICs must identify how quarterly 

interest payments beginning in the 6th 

year from Debenture issue will be met. 

Sources of liquidity to make interest 

payments may include (a) private 

capital; (b) realizations; or (c) current 

income. As part of your plan of 

operations, you should carefully 

consider how your investment strategy 

will work with SBA leverage and make 

appropriate suggestions to manage risk. 

Risk mitigation strategies might include 

making some investments in current pay 

instruments; taking down less than a 

full tier of leverage, (i.e., leverage less 

than 100% of Regulatory Capital); taking 

leverage down later in the fund’s life; 

lowering management expenses; and 

reserving more private capital. The 

strategies you choose to employ should 

be appropriate for your management 

team’s track record and investment 

strategy. 

C. SBA Diversification Rights. Per 

§ 107.320, SBA reserves the right to 

maintain diversification among Early 

Stage SBICs with respect to (i) the year 

in which they commence operations 

(‘‘vintage year’’) and (ii) geographic 

location. 

1. Vintage Year Diversification. 

Vintage year has a major impact on the 

return expectations of a fund and 

excessive concentration in a single year 

could substantially increase program 

risk. Therefore, SBA reserves the right, 

when licensing Early Stage SBICs, to 

maintain diversification across vintage 

years. SBA believes that it will be able 

to manage vintage year diversification 

through its call process. For example, if 

SBA approves a significant number of 

Green Lights in FY 2012, it may not 

hold a call in FY 2013. This will also 

help facilitate the allocation of early 

stage debenture leverage. As such, 

potential applicants should not assume 

that SBA will hold calls for new MAQs 

each year. SBA will announce all new 

calls through the Federal Register. 

2. Geographic Diversification. All 

Early Stage SBICs must first meet SBA’s 

basic licensing criteria. After those 

criteria are met, SBA reserves the right 

to maintain diversification among Early 

Stage SBICs with respect to where the 

Early Stage SBIC expects to invest. 

Sean Greene, 

Associate Administrator for Investment and 

Special Advisor for Innovation. 

[FR Doc. 2012–10412 Filed 4–30–12; 8:45 am] 

BILLING CODE 8025–01–P 

SMALL BUSINESS ADMINISTRATION 

SBA Council on Underserved 

Communities 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of open Federal advisory 

committee meeting. 

SUMMARY: The SBA is issuing this notice 

to announce the location, date, time, 

and agenda for the first meeting of the 

SBA Council on Underserved 

Communities Advisory Council. The 

meeting will be open to the public. 

DATES: The meeting will be held on 

Monday, May 7 from 1 to 5 p.m. Central 

Time Zone. 

ADDRESSES: The meeting will be held at 

the SBA Kansas City District Office 

located at 1000 Walnut Street, Suite 

500, Kansas City, MO 64106. 

SUPPLEMENTARY INFORMATION: Pursuant 

to section 10(a)(2) of the Federal 

Advisory Committee Act (5 U.S.C., 

Appendix 2), SBA announces the 

meeting of the SBA Council on 

Underserved Communities. The SBA 

Council on Underserved Communities 

is tasked with providing advice, ideas 

and opinions on SBA programs and 

services and issues of interest to small 

businesses in underserved communities. 

The purpose of the meeting is to 

discuss with the council the current 

status of small business across the 

United States and to discuss the 

agency’s programs and initiatives 

especially in regards to underserved 

communities. The agenda includes an 

update of SBA’s most recent programs 

and initiatives from Deputy 

Administrator Marie Johns as well as a 

meeting open to the public to hear from 

the members of the council. 

FOR FURTHER INFORMATION CONTACT: The 

meeting is open to the public however 

advance notice of attendance is 

requested. Anyone wishing to attend 

and/or make a presentation to the SBA 

Council on Underserved Communities 

should please contact Nicole Nelson by 

May 3rd 2010, by fax or email in order 

to be placed on the agenda. 

mstockstill on DSK4VPTVN1PROD with NOTICES