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S. HRG. 112–487 

A SPOTLIGHT ON SMALL BUSINESS INVESTMENT 

COMPANIES AND THEIR ROLE IN THE ENTREPRENEURSHIP ECOSYSTEM 

ROUNDTABLE 

BEFORE THE

COMMITTEE ON SMALL BUSINESS AND 

ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 22, 2012 

Printed for the Committee on Small Business and Entrepreneurship 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED TWELFTH CONGRESS 

MARY L. LANDRIEU, Louisiana, Chair 

OLYMPIA J. SNOWE, Maine, Ranking Member 

CARL LEVIN, Michigan 

TOM HARKIN, Iowa 

JOHN F. KERRY, Massachusetts 

JOSEPH I. LIEBERMAN, Connecticut 

MARIA CANTWELL, Washington 

MARK L. PRYOR, Arkansas 

BENJAMIN L. CARDIN, Maryland 

JEANNE SHAHEEN, New Hampshire 

KAY R. HAGAN, North Carolina 

DAVID VITTER, Louisiana 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

KELLY AYOTTE, New Hampshire 

MICHAEL B. ENZI, Wyoming 

SCOTT P. BROWN, Massachusetts 

JERRY MORAN, Kansas 

DONALD R. CRAVINS, JR., Democratic Staff Director and Chief Counsel 

WALLACE K. HSUEH, Republican Staff Director 

DAVID GILLERS, Democratic Counsel 

JELENA MCWILLIAMS, Republican Assistant Chief Counsel 
(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana .................. 1 

Moran, Hon. Jerry, a U.S. Senator from Kansas .................................................. 103 

WITNESSES

McWilliams, Jelena, Republican Assistant Chief Counsel, Small Business 

Committee ............................................................................................................. 3 

Wides, Barry, Deputy Comptroller for Community Affairs, Office of the Comptroller of the Currency ......................................................................................... 4 

Girard, Rick, Co-founder and Chief Executive Officer, Girard Environmental 

Services ................................................................................................................. 4 

Ko ̈lln, Thies, Partner, AAVIN Private Equity ....................................................... 4 

Kopfinger, Carl, Senior Vice President, Community Capital Group, Venture 

Capital and Mezzanine Investment Division, TD Bank ................................... 5 

Penberthy, Dan, Chief Financial Officer and Executive Vice President, RAND 

Capital Corporation ............................................................................................. 5 

Haskins, Harry, Deputy Associate Administrator for Investment, U.S. Small 

Business Administration ..................................................................................... 5 

Bates, Roger, President, MEP R&H Supply, Inc. ................................................. 6 

Foster, Vincent, Chairman of the Board and Chief Executive Officer, Main 

Street Capital Corporation .................................................................................. 6 

Goodman, James, President, Gemini Investors .................................................... 6 

Henriquez, Manuel, Chairman and Chief Executive Officer, Hercules Technology Growth Capital ......................................................................................... 6 

Rafalovich, Tim, Vice President, Community Lending and Investment, Wells 

Fargo Bank ........................................................................................................... 6 

Rothstein, Charles, General Partner, Michigan Growth Capital Partners ......... 7 

Palmer, Brett, Small Business Investor Alliance .................................................. 14 

Gillers, David, Democratic Counsel, Small Business Committee ........................ 15 

Sackett, Don, Senior Vice President and Business Manager, Olympus InnovX ............................................................................................................................ 17 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Bates, Roger 

Testimony .......................................................................................................... 6 

Letter ................................................................................................................. 110 

Foster, Vince 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 112 

Gillers, David 

Tesimony ........................................................................................................... 15 

Girard, Rick 

Testimony .......................................................................................................... 4 

Goodman, James 

Testimony .......................................................................................................... 6 

Article: Small-Cap Private Equity .................................................................. 116 

Written comments ............................................................................................ 121 

Haskins, Harry 

Testimony .......................................................................................................... 5 

Henriquez, Manuel 

Testimony .......................................................................................................... 6 
Page

IV 

—Continued 

Prepared statement .......................................................................................... 123 

Ko ̈lln, Thies 

Testimony .......................................................................................................... 4 

Kopfinger, Carl 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 137 

Landrieu, Hon. Mary L. 

Testimony .......................................................................................................... 1 

McWilliams, Jelena 

Testimony .......................................................................................................... 3 

Moran, Hon. Jerry 

Testimony .......................................................................................................... 103 

Neale, Thomas Matthews 

Prepared statement .......................................................................................... 156 

Palmer, Brett 

Testimony .......................................................................................................... 14 

Penberthy, Dan 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 139 

Rafalovich, Tim 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 142 

Rothstein, Charles 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 145 

Rowe, C. E. ‘‘Tee’’ 

Prepared statement .......................................................................................... 151 

Sackett, Don 

Testimony .......................................................................................................... 17 

Prepared statement .......................................................................................... 149 

U.S. Small Business Administration 

News Release .................................................................................................... 159 

Wides, Barry 

Testimony .......................................................................................................... 4 

Small Business Investment Companies: An Investment Option for Banks 24 
(1) 

A SPOTLIGHT ON SMALL BUSINESS INVESTMENT COMPANIES AND THEIR ROLE IN 

THE ENTREPRENEURSHIP ECOSYSTEM 

THURSDAY, MARCH 22, 2012 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Washington, DC. 

The Committee met in a roundtable discussion, pursuant to notice, at 10:09 a.m., in Room SD–428A, Russell Senate Office Building, Hon. Mary L. Landrieu, Chair of the Committee, presiding. 

Present: Senators Landrieu and Moran. 

Staff Also Present: Jelena McWilliams, Kevin Wheeler, and 

David Gillers. 

OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, 

AND A U.S. SENATOR FROM LOUISIANA 

Chair LANDRIEU. Good morning, everyone, and welcome to our 

roundtable on SBICs. We have looked forward to this morning now 

for weeks as we set the agenda for this year, and I thank all of 

you. I understand there were some travel situations with fog or 

weather and I think we are missing one or two of our invitees. But 

I welcome you to this roundtable. 

The difference, of course, is that this is not as formal as a hearing. We really want there to be a good bit of exchange over the next 

hour-and-a-half, potentially two hours, of this hearing, and I thank 

you all for making yourselves available. 

I apologize for being a few minutes late. I had to add a meeting 

to my schedule this morning that we did not anticipate, and it 

went a little bit longer than anticipated. 

I am going to begin with a short opening statement to set the 

tone for this roundtable, and then we will go through some instructions about how a roundtable usually works. 

We have had over a dozen roundtables since I have been Chair. 

We find them to be extremely helpful in really understanding how 

programs work or how they do not work or what we can do to improve them, and it is all about this Committee’s effort to be as 

helpful and supportive as possible to entrepreneurs in our country 

in a full range of ways, particularly giving them access to capital, 

which is the purpose of the SBICs. 

Let me again thank you for joining us this morning. We will explore opportunities and policy options to build on the success of 

SBIC programs and increasing access to capital for small busi-
2 

nesses and entrepreneurs. We have assembled here today experts 

representing investors, small business investment companies, small 

business owners, officials from the Department of the Treasury, 

and the SBA. 

Today’s discussion is the second in a series of three roundtables 

we are holding to discuss start-ups and high growth entrepreneurship. Our next roundtable on entrepreneurial ecosystems will be 

April 18th. We are bringing together a wide variety of experts, academics, policy experts, and state and local leaders who are leading 

the way in creating stronger entrepreneurial ecosystems in their 

cities, in their regions, and in our country. 

Ultimately through these discussions, we will identify specific 

ideas and recommendations to be included in a comprehensive 

piece of legislation that we hope to move through Congress and 

that the President can sign. 

As you all are well-aware, the Investment Company Act of 1958, 

or maybe you are not aware of this, which was signed into law by 

President Eisenhower, established the Small Business Investment 

Company Program. Not only was the bill signed by President Eisenhower, it was co-sponsored by a very illustrious group of Senators, including Lyndon Baines Johnson and Senator William Fulbright. 

It was also the subject of a hearing in 1958 by the Senate Banking Committee’s Subcommittee on Small Business. During the 

hearing, the Subcommittee Chairman Joseph S. Clark said the legislation is, ‘‘ . . . necessary to increase the availability of long-term 

credit and equity capital for small businesses.’’ He also said the 

Committee that approved the bill has pretty nearly the entire spectrum of opinion throughout the country with respect to the need for 

Federal assistance. 

Under the SBIC program, the SBA licenses, regulates, and helps 

provide funds for privately owned and operated venture capital investment firms. SBICs are licensed and regulated by the SBA. 

They use their own private money plus money borrowed with an 

SBA guarantee. Typically they will borrow two dollars for every 

one dollar of private capital. 

Since 1958, SBICs have invested $76 billion to over 100,000 

small businesses. We have funded Apple, FedEx, Calloway Golf, 

Jenny Craig, and Outback Steakhouse, to name just a few. I want 

to mention two very successful SBICs that are joining us here 

today. One is Main Street Capital, from Houston, Texas. Will you 

all raise your hand? 

They received the honor of SBIC of the Year in 2010. One of 

their recent small business investments, Gulf Manufacturing in 

Humble, Texas, is an industrial manufacturing company distributing across the country. Main Street Capital has invested over 

$500 million in more than 90 small businesses. Their companies 

employ more than 12,000 employees. So we are very interested in 

hearing more from you all today. We appreciate you all coming. 

Gemini Investors, where are you sitting? Right next to them? 

Great. You were recognized as the SBIC of the Year in 2009. One 

of your recent investments was in a company named Center Rock 

in Berlin, Pennsylvania. Center Rock is the company that designed 

the drill bit that saved the Chilean miners, and the President rec-
3 

ognized that in his State of the Union last year. We are very grateful for you all being present today. 

Last month, Ranking Member Snowe and I introduced a bill to 

make, in our view, improvements and modifications to this program. Our bill raises the statutory cap, as the President has recommended, from $3 billion to $4 billion. The cap was last increased 

in 2003. It is time to raise it. 

It also increases the amount of leverage by SBIC licensees under common control from $225 million to $350 million, called the Family of Funds. These provisions were also included in the President’s 

original Start Up America. 

Unfortunately, they were dropped by the House when they 

passed the deregulation bill, which they sent over to us which we 

are debating on the floor today. It is a deregulation bill, not a capital bill, and one of the most significant provisions was dropped by 

the House and we are going to try to see what we can do to recover 

it. 

For the past week, the Senate has been debating this bill called 

the Jobs Bill, which is really a deregulation bill. It extends new opportunities, but also some concerns about companies going directly 

to the Internet and borrowing the capital they need or soliciting investors through the Internet called crowd funding, which is a very 

exciting but potentially dangerous enterprise without the right 

safeguards, and that debate is happening on the Senate floor, actually as I speak. 

I have made it clear there were several problems with the bill 

that came over from the House. I will not go into them all right 

now because that is not the subject of this Committee. But needless 

to say, I believe that SBICs have been an important component of 

the work of the SBA, of the work of our Federal Government. 

I would like to see if there are any reasons why it cannot be ex- panded beyond the $4 billion authorization. I am not sure there is 

any rhyme or reason why we have been at that level for all these 

years. I would be very interested in any of your feelings about that. 

I also want to say that as Chair of this Committee, I am really, 

really focused on the quality of our programming as opposed to the 

quantity of our programming. I am very interested to find out who 

is responsible for evaluating the SBICs and how we eliminate the 

low-performing, ineffective SBICs and how we strengthen the 

stronger ones, and et cetera, et cetera. I have a lot of other questions. So that is my opening. 

I want to recognize David Gillers and Kevin Wheeler who are my 

two senior staffers, and on the Snowe staff, if you would—— 

Ms. MCWILLIAMS. Jelena McWilliams. I spoke with some of you, 

and Matt Walker as well. Thank you for coming. 

Chair LANDRIEU. So we are going to start, Barry, with you and 

if you could just introduce yourself briefly and give a one-minute 

little glimpse as to why you are here and what your role is. I know 

that we familiarized ourselves generally with who you are. Then 

we will begin by opening up with questions. 

When you want to speak, you can put your name card up like 

this. That way I will know to recognize you, and we will go around 

and keep it open and flexible. If I am not asking the right questions, please feel free to ask them yourself, starting with Barry. 
4 

Mr. WIDES. Good morning, Madam Chair. 

Chair LANDRIEU. You have got to press your talk button. You 

just press the button which lights up and you have to speak right 

into your microphone. 

Mr. WIDES. Okay. Good morning, Madam Chair, and thanks for 

the invitation. My name is Barry Wides, and I am the Deputy 

Comptroller for Community Affairs at the Office of the Comptroller 

of the Currency. We are the Federal agency within the Department 

of Treasury that supervises national banks and Federal thrifts. 

Our role within Community Affairs is to encourage national bank 

and Federal thrift investments in small business finance. We have 

recently been involved in outreach to banks across the country to 

make them aware of the opportunities to invest in small business 

finance through the SBIC program. We have been holding seminars 

and national teleconferences on this subject and making them 

aware of the fact that they can earn Community Reinvestment Act 

credit for investing in SBICs. 

We will be putting out a paper soon that is sort of a how-to guide 

for investing in SBICs. We are working very closely with Harry 

Haskins at the SBA, as well as Carl Kopfinger who is with one of 

the national banks that we supervise to make sure that we make 

this understandable and help banks understand that there are 

ways to invest safely and earn a good return in SBICs. 

Chair LANDRIEU. Thank you. Rick. 

Mr. GIRARD. Thank you for inviting me. My name is Rick Girard. 

My brother and I own Girard Environmental Services out of Orlando, Florida. We are a commercial landscaping company. Last 

year our revenue was around $20 million and currently we are 

ranked number 57 in the country as far as landscaping companies 

go. 

We are one of the largest family-owned companies in central 

Florida. We are one of the largest, probably one of the top five largest landscaping companies in the State of Florida. So we are a big 

small company. 

Chair LANDRIEU. And you got your funding through one of the 

SBICs? 

Mr. GIRARD. Yes, ma’am. The SBIC played a very extremely—an 

extremely important role in my company because in 2008, 2009, 

and 2010, our company actually grew. I opened five offices in Florida in 2009 and 2010 as we were entering into the recession. I 

added 100 jobs throughout the state. A lot of people did not necessarily agree with my method, but that is what entrepreneurs do. 

Entrepreneurs take risks. And looking back, there is not really 

much I would change. 

But the SBIC played an extremely important role where the 

banks would not. So the SBIC played a very important role. 

Chair LANDRIEU. Wonderful. Thank you, Rick. Thies. 

Mr. KO ̈ LLN. Good morning. Thanks for having me here. I am 

Thies Ko ̈lln. I am with AAVIN Equity Partners. We are in Cedar 

Rapids, Iowa. My partners and I have been running private equity 

funds there based in Cedar Rapids for—actually one of the my 

partners started with the fund that started in 1959. So we have 

been with the SBIC program since the beginning. We have run 
5 

multiple SBICs as well as non-SBICs and have been with the program for a long time. 

Chair LANDRIEU. Thank you. Your insights will be very helpful. 

We appreciate you being here. Carl. 

Mr. KOPFINGER. Yes, good morning, Senator, and thank you for 

inviting me to participate today. I am Carl Kopfinger. I am a Senior Vice President with TD Bank. I am based in Philadelphia, 

Pennsylvania. I head up our investing in SBICs. We have more 

than 60 SBICs under management right now, and we continued to 

invest during the down-turn. So we like the program very much. 

Chair LANDRIEU. Thank you. Dan. 

Mr. PENBERTHY. Good morning. I am Dan Penberthy. I am the 

CFO and Executive Vice President of RAND Capital Corporation. 

I am here to tell you all what you can do with just $15 million. 

RAND is a BDC. We are publicly traded since 1971. We are a 

founding member of NASDAQ and we also own a wholly-owned 

subsidiary, RAND SBIC. I am also the current President of the Upstate Venture Association of New York. 

We operate in Buffalo, New York, an under-served and economically depressed part of New York State. During the past ten years, 

we have taken our $15 million, we have invested in 30 portfolio 

companies via 83 separate financing transactions. These 30 companies right now represent over 1,711 jobs. We have increased job 

growth by over 500 jobs over the past ten years. We have also increased total revenues in these same companies by over $200 million. We have had an impact through the SBIC program. Some of 

our companies include MidAmerica Brick, an abandoned plant in 

the economically-depressed town of Senator Kit Bonds which is 

now the leading producer of bricks in Missouri. 

Synacor, founded by an—an Internet start-up founded by students at the University of Buffalo has increased their employment 

by 15 times and the revenues by 60 times since our investment in 

2002. They completed an IPO just 30 days ago. 

Gemcor builds machinery in Buffalo that puts rivets into airplanes. Gemcor has doubled its employment, doubled its revenues, 

and it is shipping its aircraft machinery worldwide. Every Boeing 

airplane ever made and in flight has been touched by a Gemcor 

machine. 

Chair LANDRIEU. Okay. And save all the rest of the testimony—— 

Mr. PENBERTHY. Thank you. 

Chair LANDRIEU. This is just a brief introduction. Harry. 

Mr. HASKINS. Good morning and thank you, Chair Landrieu, for 

having me here. We appreciate your leadership on issues involving 

the SBIC program. We have worked closely with your staff and 

they have been tremendous. 

The program has enjoyed a lot of success and positive news over 

the past couple of years. We have reduced processing time significantly across the board and essentially doubling our productivity. 

We are building upon the success of the SBIC platform to expand 

access to capital in the more under-served markets via our impact 

fund initiative and early stage. 
6 

Chair LANDRIEU. Okay. And hold a minute because these are just 

introductions. We are going to get back to you for your opening. Go 

ahead, Roger. 

Mr. BATES. Good morning, thank you. My name is Roger Bates. 

I am a partner at Mangrove Equity Partners in Tampa, Florida, 

and for the last three years have been serving as the President of 

one of our portfolio companies, MEP R&H Supply, which is 

headquartered in Broussard, Louisiana. 

Chair LANDRIEU. Oh, wonderful. Thank you. Vincent. 

Mr. FOSTER. Thank you, Senator, for holding this event. I am 

honored to be here today. I am Vince Foster, CEO of Main Street 

Capital. We operate out of a single location in Houston, Texas. We 

are publicly traded on the New York Stock Exchange. We first entered the program ten years ago in 2002 with a single license. We 

received a second license in ’06, began to outgrow the program, and 

converted to a publicly-traded BDC in order to stay in the program 

and continue to grow. So I am interested in how we can keep better 

players in the program. 

Chair LANDRIEU. Great. James. 

Mr. GOODMAN. I am Jim Goodman from Gemini Investors in 

Wellesley, Mass. and thank you for allowing me to be here and 

speak. We are currently investing our fifth SBIC fund. We entered 

the program in 1995. We have invested in 93 companies since that 

point and we have put a little under $400 million to work. 

In the last eight years, our companies have created almost 

10,000 jobs and also created a number of small businesses themselves, in particular our franchising companies. So I would like to 

be able to talk about all those things today. 

Chair LANDRIEU. Manuel. 

Mr. HENRIQUEZ. Good morning, Madam Chair. Thank you for 

having me participate in this roundtable and for letting me provide 

some overview on the benefits of the SBIC program. Similar to 

Main Street Capital, when I started Hercules, I looked at the SBIC 

program as an integral part of launching Hercules and getting capital and getting access. 

I am one of the unique players on this panel who invests almost 

exclusively in the venture industry, and work with pre-8 revenue 

companies that are significant job creators and innovators of American jobs and technology in this country. 

I am proud to say under the SBIC program, we have two licens- ees. We have over $225 million under the SBA program and we 

have now been able to use that capital to invest in $750 million in 

95 technology and life sciences companies since the founding of 

Hercules. And I am very proud and a very strong supporter of the 

SBIC program that made a difference in our company when we 

started. So thank you for having us here. 

Chair LANDRIEU. Tim. 

Mr. RAFALOVICH. Yes, good morning. My name is Tim Rafalovich, 

and I manage the alternative assets for Wells Fargo, which includes our SBIC investments. Carl and I have the unique kind of 

privilege of being able to be speaking from the investment standpoint. We invest in SBICs. SBICs then have general managers, 

many of which are here today, who invest then in the companies, 

of which two are here. 
7 

So if the program wants to be expanded, it needs to take place 

top down, which is through the investors and their incentives to invest in SBICs. I have all sorts of statistics on companies that we 

have invested in and how they have grown that we can maybe talk 

about in the future, one that went from 63 employees to 1,167 just 

in a short period of time. 

But one of the things I want to make clear as well is, a lot of 

people might think because Wells Fargo is the largest lender on the 

small business end of things, having deployed about $14 billion in 

capital last year, that there might be a little bit of a conflict of interest here. We do not believe that there is a conflict at all. This 

is a win-win because many of the SBIC investments made are investments that would have never been made by a major bank. 

And so, what happens is that the banks then will not fund these 

smaller companies because there is a little bit too much risk. 

SBICs do, but then Wells Fargo can come in a little later and be 

able to refinance these. It is a good win-win and that is why we 

believe in this program. 

Chair LANDRIEU. Nicely put. Charles. 

Mr. ROTHSTEIN. Good morning and thank you for including me 

as well. I am Charlie Rothstein, a founder of Beringea, which is 

Michigan’s largest venture capital firm. We are also managers of 

the Michigan Growth Capital Partners funds, one of which is an 

SBIC. It is our second SBIC, so we, too, have had a long relationship with the Small Business Administration. The current SBIC 

was licensed last year as part of the Impact Investment Initiative 

and it totals $130 million. 

Chair LANDRIEU. Thank you so much. Let us start with Harry, 

if we could, and go ahead, Harry. You manage this program 

through the Small Business Administration, and for those that are 

viewing and watching and will be reading the outcome, why do you 

not go ahead and give us your opening comments, and then we will 

open it up for general questions. 

Mr. HASKINS. Thank you. And rather than repeating some of 

what I said, I will just continue to go on. We want to build upon 

the success of the SBIC platform—— 

Chair LANDRIEU. And can you speak more closely into your mic? 

It is a little awkward, but you have to lean forward. 

Mr. HASKINS. We want to build upon the success of the SBIC 

platform, and we have expanded it to include a couple of new initiatives, the Impact Fund Initiative and the Early Stage Initiative. 

However, we believe increasing the authorization level in the Family of Funds limit will have a positive impact on the availability of 

capital for small businesses and can be managed at minimal risk 

and no cost to the taxpayer. 

We look forward to continuing our work with the Committee to 

build upon the success of the program and to contribute to a positive economic climate for small businesses. 

Chair LANDRIEU. And explain how it is minimum risk from your 

vantage point and no cost to the taxpayer. 

Mr. HASKINS. Well, the program currently operates under a zero 

subsidy where the fees associated with the program cover the cost 

associated with it. 

Chair LANDRIEU. And has it been that way since its inception? 
8 

Mr. HASKINS. No. Up until around 2000, I believe, we actually 

worked under appropriated funds where we had to receive an appropriation and the amount of money we could guarantee was limited by that appropriation. But the success of the program and, 

more importantly, the success of the SBICs has enabled us to move 

to a zero subsidy basis. 

Chair LANDRIEU. Well, let me ask you this. Why do you think 

then the President only recommended extending it from $3 billion 

to $4 billion? I mean, if it is low risk and no cost to the taxpayer, 

why can we not go up higher than that? 

Mr. HASKINS. Well, our current authorization level has been sufficient to support the growth of the program. Historically, up to 

around 2009, we averaged about $700 million in authorized commitments. We doubled that in 2010 and then increased it again in 

2011 to about $1.8 billion. 

So we think the existing authorization was sufficient. The increase to four should give us sufficient capacity over the next few 

years to support the growth of the program. Obviously it is worth 

revisiting if growth continues at its current pace to see if it needs 

to be raised beyond that. 

Chair LANDRIEU. Okay. I would like to talk about that later on. 

Let me begin with some questions. Why do we need SBICs in the 

spectrum of venture capital? I know this is a simple question, but 

I would appreciate if one of you would just take it and explain why 

this is important, because I think there is a lot of confusion out 

there about venture capital and when they come in and when they 

do not come in and where there is a need for them. So, Vincent, 

we will start with you and then I will go to Manuel. 

Mr. FOSTER. Thank you. I think the reason we really need SBICs 

is pretty simple, and that is, to continue on an earlier point that 

was made, the best way to think about SBICs is they begin where 

the banks end and they end when private equity or regular institutional venture capital funds begin. There is a huge void in between 

someone that is commercially bankable as a small business and 

someone that is private equity or venture capital eligible, and that 

is really the gap that we fill. 

Another way to think about it is we provide cash flow-based financing and cash flow-based capital, equity capital, debt capital to 

small businesses which is literally not available. Commercial banks 

will routinely, for larger companies, loan a multiple of their cash 

flow and financing and that is how they operate. 

Small businesses have to borrow against their assets, their inventory, and guarantee it. 

Chair LANDRIEU. It is very difficult, including their house? 

Mr. FOSTER. Right. 

Chair LANDRIEU. Their life insurance? 

Mr. FOSTER. Everything. 

Chair LANDRIEU. And their pension funds and their children’s 

college education. And this Chairman has had about enough of 

that. 

Mr. FOSTER. And the nice thing about the SBIC program, even 

more than the 504 or 7(a) is personal guarantees are not required 

and they are virtually unknown, as far as my experience. 
9 

Chair LANDRIEU. And I just want to stress this point, because the 

smarter I get on it, and I have got a long way to go, but this country can never unleash the potential of people who have little financial strength, but great character and extraordinary intelligence 

and a tremendous amount of nerve, if we do not find a way around 

the fact that you cannot get capital from anybody unless you already have wealth. Do we understand the problem here? 

That is why I am going to stay on this. That is why this is very 

interesting to me. Contrary to what the Chamber of Commerce 

says, there are many, many, many businesses out there, like this 

business right here, Rick, who can grow, who can show how they 

can grow, but they do not want to pledge their house, and maybe 

you have, or your home or your children’s future to go to a bank. 

Banks are only lending under certain circumstances. 

If we do not open up other opportunities like this, I do not know 

how we grow ourselves out of this recession that we are in or really 

tap the strength of America. So I really appreciate, Vincent, you 

saying that. Manuel, do you have anything else you want to add? 

Mr. HENRIQUEZ. Madam Chair, I can speak to you as a first-hand 

experience as an entrepreneur, and not to bring up my heritage as 

a minority, when I started the company, Hercules, I could not get 

bank financing. I could not get any bank to give me capital. 

I basically risked everything I had and approached the SBIC as 

a lender of choice to be, frankly, the foundation of the capital that 

we had to go out and fund and invest in entrepreneur innovative 

companies that have gone on to create hundreds and hundreds of 

jobs, thousands of jobs in California, in Massachusetts, and in various regions of the Southeast. 

So unlike most gentlemen on this panel here, we invest in companies that do not have revenues. We invest in companies that cannot get any bank financing. And if it were not for the SBA program, the SBIC program that we rely upon as a source of financing, a lot of this American innovation they refer to and a lot of 

these dreams—— 

Chair LANDRIEU. Go nowhere. 

Mr. HENRIQUEZ [continuing]. Of companies would never ever 

come to fruition. And I am proud to say that through our organization, we have well-known names that have received capital through 

us such as Annie’s Foods, the simple bunny rabbit company that 

you can buy at Whole Foods. 

Chair LANDRIEU. Love that, love that. 

Mr. HENRIQUEZ. I am proud to say we have another company in 

the drug discovery area that focuses on improving the quality of 

life of cancer victims and they are making new biologics for cancer 

drugs, which we all know from the FDA process, are very scarce 

and hard to get ahold of. 

We have companies in our portfolio that are dedicated to clean 

energy, as the Bright Source technology, for example, that does 

solar panels, and create new ways of generating energy in the market. And then we have social media companies, high profile names 

such as Box.Net, which is cloud computing, which is growing exponentially a number of employees that they are hiring and creating 

jobs. 
10 

So the SBIC program is an integral part of our capital structure 

and a program that I would like to see, to your point, expanded beyond the $4 billion that is out there, and frankly, I would love to 

be able to see even to go beyond the $350 million, because I can 

tell you, Madam Chair, that we could put that money to work and 

we could put that money to create jobs in this country for many, 

many more great ideas that entrepreneurs have like Rick and others out there. 

Chair LANDRIEU. Thank you. Charlie. 

Mr. ROTHSTEIN. Well, sure, I was just going to add onto the last 

couple of comments that—— 

Chair LANDRIEU. You have to press your button. I am sorry. 

Mr. ROTHSTEIN. That is okay. I was just going to the last—— 

Chair LANDRIEU. Very complicated for very smart folks. 

Mr. ROTHSTEIN. And now it is not. It really is not that complicated. I was just going to add onto the last couple of comments. 

We are clearly talking about debt financing and debt works for 

companies that have predictable cash flow, but there really is also 

a shortage of pure equity capital. 

The venture capital industry has shrunken by some 40 percent 

over the last handful of years, and entrepreneurs are starved for 

that kind of capital as well. Equity, unlike debt, equity, you know, 

it allows companies to take greater risks than does debt because 

there really is not any ticking time bomb to it. It does not need to 

be repaid immediately. It allows a company to be a bit more longterm in the way that it thinks toward R&D and even the introduction of new products. 

So that is something that we should work to address. The institutional market that used to support venture capital firms that 

were out raising funds is decreasing. Those institutions are looking 

elsewhere. They are backing buy-out funds and other types of alternative investment vehicles. So either maybe within SBA or maybe 

outside of SBA we can come up with new solutions. 

Chair LANDRIEU. Charlie, do you know why that is shrinking? Is 

it just the nature of the recession? Does anybody have an idea 

about why the venture capital is shrinking? Because I know that 

is why this bill flew over from the House, because there is a real 

need. But I am not sure we are correcting it the right way. 

This crowd funding idea and the response, I think, if I am reading this correctly, to use the Internet in a way that was not legal 

to raise venture capital funds for businesses, which sounds great 

and is very—it could be game-changing. 

The problem is, if you do not have the right safeguards and regulations, it could also, in my view, open up a whole pathway of fraud 

that we have not even begun to even think about. But is that what 

you are saying? 

Mr. ROTHSTEIN. First of all, I do agree that the kind of crowd 

funding issue is something that brings on significant risks that, 

you know, we need to make sure that it is properly structured so 

that people are not tricked into investing into things that sound 

good over the Internet. 

But I think, and many other members of the roundtable have 

opinions on this, but one of the problems has been the lack of access that the venture capital community has been able to generate. 
11 

There has not been an ability to get a company public. The IPO bill 

is addressing that and lifting the regulations that some of the 

smaller companies will face in going public. I think that is a positive. 

There has been—in the institutional market, many times, it is a 

bit of flocking toward areas that seem hot. So whether it would be 

the small buy-outs or hedge funds or whatever it might be, that is 

where people were running and they have run away from venture 

capital and it really has caused a dilemma within the market. You 

could speak to, I am sure, all of us who realize how hard it is to 

raise just a pure—— 

Chair LANDRIEU. Roger and then Thies. 

Mr. BATES. To add to what these gentlemen have said, I think 

one of the things that is important to understand about the SBIC’s 

place in the capital structure between the commercial banking and 

equity is that they represent what I like to call patient money. 

They think more like equity, even though it is debt, and all companies will be challenged from time to time. And where your commercial banks do not have a lot of tolerance for those challenging 

times, these SBICs can really make a difference in helping the 

companies get through those and then back on the path to growth. 

Chair LANDRIEU. And in defense of banks, which I do not always 

defend, but in this case, they tell me constantly that it is the regulators breathing down their necks, looking at the loans on their 

portfolio, and while they might personally like to be more patient, 

the regulators are not allowing them to be. So I want you to know, 

we hear that a great deal. Thies. 

Mr. KO ̈ LLN. I think to address the question of kind of the capital 

and sort of venture capital and that, I think one of the things we 

have seen, and what is important about the SBIC program is, it 

is focused on small businesses, so the businesses we have to invest 

in are small businesses and small funds. 

What we have seen in general in the capital markets is kind of 

increasing concentration of capital. And what that brings about is 

the investors are big fund-to-funds, big pension funds. They cannot 

invest in small funds very easily because they have minimum 

amounts that they want to put into a fund. 

Chair LANDRIEU. Like, for instance, what are the usual minimums? They have to invest like $200 million or $100 million, $50 

million? 

Mr. KO ̈ LLN. Well, yeah, $50 million. 

Chair LANDRIEU. $50 million. 

Mr. KO ̈ LLN. If they have to invest $50 million, they need to be 

investing that in a $500 million fund and a $500 million fund, you 

know, has a number of principals. They are going to invest in 20 

companies. They are going to have to invest $25 million in each 

company. 

Chair LANDRIEU. And that is more than Rick needs. 

Mr. KO ̈ LLN. Exactly. And it is the small businesses that need 1, 

2, 3, 5, $10 million maybe of capital that then have—that then suffer because they are at the end of that waterfall because the big 

institutions need to invest in big funds which need to invest in big 

companies. 
12 

And that is where the SBIC program does a great service, because the smaller funds can invest in the smaller companies and 

provide capital to those companies that need 2 or $5 million of capital. 

Chair LANDRIEU. And, Jim, I am going to get you and then 

Manuel, but are we limited, Harry, in the SBIC program for what 

a company can borrow? 

Mr. HASKINS. A single fund can borrow up to $150 million in leverage. 

Chair LANDRIEU. But borrower, a borrower to that fund, can they 

invest in—— 

Mr. HASKINS. An SBIC has an over-line limit, so essentially 10 

percent of its capital base can be invested in a single company. 

Chair LANDRIEU. So that would be $15 million as your top line 

from 150? Is that correct? 

Mr. HASKINS. Well, if the fund size is $150 million of leverage, 

saying $75 million private capital, that would be a $225 million 

fund size, so they could invest $22.5 million in a single company. 

Chair LANDRIEU. Go ahead, Jim. 

Mr. GOODMAN. I just wanted to address the question that you 

started out with which is why is there a lack of funding now. You 

addressed specifically venture capital, but I would make it even 

more broadly private equity. 

I first got into the private equity business in the late 1980s in 

Boston, and the three or four leading firms back then were doing 

deals where they were investing $5 million into $10 or $20 million 

sized companies. And those leading firms have all been very successful and their funds now are 3, 5, $10 billion. And the smallest 

check they will write is a few hundred million dollars. 

Private equity, as a whole, has mushroomed dramatically. Our 

fund is less than $200 million in total commitments, including 

SBA’s money. That now represents the bottom 5 percent of the entire private equity world. So a $200 million fund, which was a 

good-sized fund 20 years ago, that space has largely been vacated, 

and the industry has exploded. But your $10 million revenue company, like some of the ones 

that we have invested in that I have identified, if they are providing cooking oil equipment or they are a restaurant franchise, 

that is not venture capital and it is no longer where the bulk of 

private equity is. 

So what this program does is it supplements and it fills a void 

that was left by the migration of private equity firms into much, 

much larger deals. 

Chair LANDRIEU. That is the best explanation I have heard. 

Thank you very much. I now think I understand better our challenge. Manuel. 

Mr. HENRIQUEZ. Living and breathing in the venture capital ecosystem on a daily basis, which is what we do, and I myself started 

in the venture industry back in 1987, the industry has changed 

dramatically. It was first brought on with dramatic change as now 

the infamous dot-com bubble blowup that we all well know and understand in 2000, which was precipitated by a second blowup that 

has not been written a lot about is the June of 2000, which is the 

telecom blowup that occurred. 
13 

And then the market proceeded to go through an inordinate 

amount of changes, including, of course, the now infamous Enron 

and WorldCom changes on stocks and what have you. Despite some 

of the comments said earlier, the venture industry is nowhere near 

what it was in its historical levels by any stretch of the imagination, peaking out around $98 billion in 2000. 

Last year alone, the venture industry, according to Dow Jones Venture Source, our leading source of information, they did $33 billion of activities in investment last year to over 3,200 companies 

itself. I am proud to say that we help fill a lot of that void by providing $630 million of capital to venture stage companies that 

would otherwise not be able to gain access to capital from a bank 

that exists today. 

So we help these companies dramatically gain access to capital 

because the venture industry is, in fact, or has shrunk itself, but 

these companies still have a capital need to continue to accelerate 

their growth. They are unable to bridge that gap in capital they 

need with commercial banks. 

We come in as an SBIC, take on that risk of financing those prerevenue companies in order to get the additional capital they need 

to get their products and services out to the market and eventually 

lead to quite dramatic job creation out there. We help fill that 

crossing that chasm. 

Chair LANDRIEU. Jim, do you want to say anything else? Put 

your card down if you all—okay. Does anybody want to add anything to this line of questioning? And then we are going to go to 

our next question, which will be going completely off to another 

point. 

For those of you who do specifically look at companies, how do 

you choose the companies to invest in? Where do you troll or patrol 

or look out to find the companies? Do they come to you? What 

mechanisms do those of you that are looking for smart investments 

utilize—just go through that process a little bit with us. Go ahead. 

Mr. FOSTER. The main source, we call it deal flow, for lack of a 

better word. The main source of deal flow that we see is the local 

and regional investment banks. A lot of times, if you think about 

it, the customers might have small businesses and the investment 

banking organization might be managing the income off the business. 

Because of estate planning needs and everything else, the owner 

of the small business, at some point, probably needs to sell or get 

liquidity for his estate taxes. They might go to the investment bank 

and say, Do you have a solution? Is there someone we can talk to 

that might invest in our business that might—you know, I know 

a buyer, but he or she cannot get the financing. 

So a lot of times, it is the regional investment banks, local investment banks. The independent business brokers are a huge 

source of deals. The accounting firms who do the estate planning, 

the local accounting firms. The commercial banks will often call us 

because someone comes in for a loan, if you do not fit in that exact 

box, if you are one inch outside the box, they cannot do anything, 

sometimes they will refer transactions to us. And a lot of times it 

is word of mouth. 

Chair LANDRIEU. Dan. 
14 

Mr. PENBERTHY. We look at transactions which are very young, companies which would have typically $200,000 to a million dollars 

in revenue. These are companies that will not be talking with investment bankers, will not be—may not even have a CPA firm involved. I often go in and talk to the universities and talk about the 

value of a network. Networking is the way that these transactions 

get done. 

NASBIC itself does a great job. Now the Small Business Investor 

Alliance (SBIA) does a great job, but it is sponsoring networking 

events amongst ourselves. In the upstate New York region, as I 

mentioned, I am the President of the Upstate Venture Capital Association. We hold networking events across the State from Buffalo 

down to Newburgh, New York, just outside New York City, encouraging entrepreneurs to come forward with their ideas. 

At these events, we bring in funding providers to help make introductions. Just yesterday, I held an event in Buffalo where two 

companies stood up and made ten-minute presentations to prospective fund-raisers. This is done every other month in Buffalo, New 

York. 

And it is all about the network, having entrepreneurs get out 

there and meet people, and often, it takes multiple visits in order 

to get financing done for these people. We will see a deal two, 

three, and four times, and ultimately, we will help them finance 

their business. 

Chair LANDRIEU. Thies. 

Mr. KO ̈ LLN. Yes. I guess I will pretty much echo what Vince said. 

There are a number of sources from which we get deals. A lot of 

it is networking based. A lot of it is advisors to the businesses, 

whether they are bankers or investment bankers or attorneys or 

accountants who are advising the businesses. And some of it is— 

and a lot of it is networking. So a lot of the deals tend to be done 

kind of regionally. 

Chair LANDRIEU. Now, if it is in the SBA’s interest, which is one 

of the missions of this small—and we are hoping to make it an 

even more active agency, would it be beneficial to have some funding at the agency level to encourage, host, and partner with these 

networking opportunities, or do you all have enough either time or 

resources to do that on your own? 

I understand there is a Small Business Investor Alliance. Who 

represents that here? Do you all—and you can speak up. Do you 

all do networking? Is that what you all do? 

Mr. PALMER. [Off microphone] We do network marketing with 

the funds themselves and with some banks and others, but not the 

entrepreneurs directly. Actually we are working on some software 

that might be able to do more of that network filtering. 

Chair LANDRIEU. And would you identify yourself, Brett? 

Mr. PALMER. Brett Palmer from the Small Business Investor Alliance. 

Chair LANDRIEU. Okay. Manuel, anything you want to add to 

this? 

Mr. HENRIQUEZ. The answer is that the SBIC program is not 

well-known by many entrepreneurs. They are still—it is fearful. It 

is a Government agency. They do not know how to on-ramp it, how 

to approach it. A lot of our deal flow comes from crazy ideas of en-
15 

trepreneurs who want to create new technologies or new solutions 

out there. A lot of them could be just professors, could be engineers. They do not know how to go around starting a company or 

formulate a company. 

I think it would be incredibly useful if the SBA were to provide 

forums by which to help entrepreneurs learn how to create a company, learn how to get proper guidance on formulating a company, 

and how to get a company off the ground. 

There is an incredible amount of American ingenuity out there 

that just needs a little bit of help getting itself structured a little 

bit and learning how to on-ramp onto speaking with financial sponsors out there. That in itself would help create more jobs and create more confidence in the marketplace. 

So the SBA staff would really be incredibly beneficial by helping 

these individuals learn how to gain access to this capital. And on 

the West Coast, there is a lack of SBIC capital out there to help, 

and also in many parts of the Northwest as well. We are seeing a 

huge demand of capital that just cannot find a place to look—to get 

capital in the marketplace today. So that would be a huge helpful 

thing to have out there. 

Chair LANDRIEU. Do we actually have a map of where the SBICs 

are headquartered? Can we put that up somewhere? And, Harry, 

will you speak to the issue of what the SBA is doing to get out the 

idea to entrepreneurs and to others? Let us just look at this map 

for a minute. This is the distribution by state. I guess the darker 

have the more SBICs, so New York would be leading with—what 

is that—46? 

You know, the sad thing is that there are lots of light-colored 

states, including my own, which have fewer SBICs. And again, it 

is not so much the quantity, but the quality of the SBICs. What 

I am going to ask the staff to do is do another map with the top— 

how many do we have in the country? 

Mr. GILLERS. 292. 

Chair LANDRIEU. 292? I am going to ask you all to do the top 50 

or the top one-third, I guess, of that and see where they are operating to give us an idea where the more successful ones are operating and where the gaps are. 

Harry, what are you all doing about this to try to get this accessible, physically, in many other places? Now, we also have the 

Internet, which is a powerful tool of communication, so you do not 

always have to be physically located with the communications that 

we have today. But could you comment on that? 

Mr. HASKINS. Yes. First I would just like to say something real 

quickly regarding the comment made about education of entrepreneurs. SBA does have a whole office dedicated to that, Entrepreneur Development, and through its SCORE and SBDC programs and other assorted programs. 

Chair LANDRIEU. But SCORE has not been expanded in how 

long? Has it been authorized, at what level, for how long? Who 

knows that? 

Ms. WHEELER. For at least the last two years. 

Chair LANDRIEU. But what is it? It is a $7 million investment 

that the Federal Government has made, $7 million, $7 million, that 

is it for the whole country. And that is the best known mentorship 
16 

program. We have attempted to get it raised, and I have been 

blocked. Unfortunately, there is not enough minority support right 

now for the expansion of SCORE or something like it. But $7 million, they have been at that level for, I do not know, 

30 years. Go ahead. 

Mr. HASKINS. But we do recognize the need for that kind of education. With respect to the map, we have been focusing a lot of our 

efforts on a couple points. One is obviously trying to attract qualified management teams to the program, with a particular focus on 

some of the under-served populations, minorities and women, and 

we have had a fair amount of success with that recently, more than 

doubling the number of applications from those particular populations over the recent past. 

Also, we have been making the large outreach efforts to limited 

partners, which are the source of capital for the program independent of SBA, trying to attract banks and others such as TD and 

Wells to the program so that there is a source of capital for a qualified manager so that we can expand in various areas throughout 

the country. 

We do what we can, in a sense, to try and make the program 

known as widely as we can by attending numerous conferences and 

events that are attended by people who have an interest in this 

space, and hopefully we can expand in a number of other areas 

that are under-served. 

Chair LANDRIEU. I am going to get Dan, to you, in just a minute, 

but does anybody at this roundtable, knowing what you know 

about the success of this program, have any ideas for Harry about 

where he could look for experienced minority entrepreneurs, particularly African-American, Hispanic, or Asian? 

Would business schools at Harvard, Stanford, or other wellknown schools, young people coming out but with the prerequisite 

degrees, be interested in starting some kind of fund like this? Or 

do you need to have real world experience for a couple of years, 

maybe before you start them? Do any of you all have any ideas for 

the Small Business Administration about where we could get some 

more diversity into this program? Go ahead, Thies. 

Mr. KO ̈ LLN. Well, I do not know that I have an answer to it, but 

this is very much a kind of mentorship industry where you learn 

by doing. I think it would be high risk to take even bright, wellqualified students right out of business school who have never 

managed a fund and focus on that. 

So I think the question is, is growing the base with experienced 

managers and—— 

Chair LANDRIEU. And mentoring some of the younger—— 

Mr. KO ̈ LLN [continuing]. And mentoring. It is really a mentoring 

kind of model and it always has been because, you know, we are 

very small organizations. I mean, we have five full-time investment 

professionals and I think that is probably bigger than a number of 

SBICs out there. And I think, you know, if there were ten or a 

dozen, that would be a very large fund. 

Chair LANDRIEU. Tim. 

Mr. RAFALOVICH. We invest in a fund called Central Valley Fund. 

That fund is in Central Valley in California. Most of those fund 

managers do speak Spanish and they have—a majority of their 
17 

companies that they invest in are all minority-owned. So some of 

it has to do with location and expertise around the fund managers. 

Chair LANDRIEU. Manuel. 

Mr. HENRIQUEZ. Clearly, with my last name and my name, I am 

a minority. I am a Hispanic, of Latin background. I have to echo. 

It is an apprenticeship program and I may say something here that 

people may find a little bit offensive. You have to lose money to 

learn how to make money. And you need to be with an institution 

that is going to go through that apprenticeship process for you to 

get developed as an asset manager, as a portfolio manager, and 

that takes time; that you just do not learn that out of the box. 

I learned that, thank God, with my career at Bank of Boston 

where I cut my teeth, which happens to be originally the number 

two licensed SBIC in the country, I had the privilege to work for. 

But it is an apprenticeship model. 

It is very difficult to reach out to minorities. You have to give the 

minorities the opportunity to lose money and that is a very hard 

thing to do, especially in an economy that has been contracting 

over the years. There are programs. There are outreach programs 

for minorities that you can actually tap, but that is something that 

should happen, but it is very, very hard to do. 

Chair LANDRIEU. Carl. 

Mr. KOPFINGER. Sure. Just to address what Harry had to say, 

the program has attracted a number of women-owned, as well as 

minority-owned, applicants applying to the SBIC program. For example, Bob Johnson from BET Networks is sponsoring a group and 

bringing in a team from the Carlyle Group. 

In addition to that, there is another fund, Pharos, out of Texas. 

Kneeland Youngblood, who is on the board of Starwood Hotels and 

Burger King and some other large organizations, including a large 

hospital chain, is also bringing together a team of minority individuals to run his fund. 

And as it relates to women-owned fund managers, there has been 

a lot of disruption in the marketplace where you had American 

Capital, which imploded, and a couple of other funds, and some of 

the women that were part of that group have also spun out and 

spawned their own funds. 

So I think the answer is that a lot of the folks who have the experience are now starting to mentor the junior folks to come in and 

start some of these funds. And I think we need to see more of that. 

Chair LANDRIEU. And, Don, thank you for joining us. I know you 

had a weather delay, but why do you not briefly introduce yourself, 

take a minute or so, and then you can take a minute to explain 

why the SBIC program is important to your business. 

Mr. SACKETT. Okay. Thank you very much. I started my company in 2001, myself and one other gentleman. We are a Bostonarea company. And we took SBIC funding in early 2004, actually 

from the gentleman sitting to my left, and it was—we thought it 

was just a very good program. Like one of the gentlemen said earlier, for a small business that had a few million dollars in revenue, 

private equity really was not an option. 

Venture capital, the traditional form, was not a great option because it was just too expensive. We would have to give up so much 

ownership. So we went with the SBIC route and it was a very good 
18 

success. We had about 20 employees at the time of the investment 

in 2004. We sold the company in 2010. We had about 180 employees at that time. We had grown our revenue from a couple of million dollars to about $55 or $60 million. 

Chair LANDRIEU. And what is your company, Don? 

Mr. SACKETT. It was called Innov-X Systems and we made scientific instrumentation, portable instrumentation, and we manufactured it in Massachusetts. And I think one of the things we are 

most proud of was 70 percent of our products were sold overseas. 

So we were manufacturing in Massachusetts and we were selling 

to China. 

Chair LANDRIEU. That is great. That is terrific. I hope you are 

getting ready to start another company. 

Mr. SACKETT. Well, that is why I am having lunch with this guy. 

Chair LANDRIEU. Good. So you and Dan will be having a special 

lunch today. 

Mr. PENBERTHY. I have got dibs on Don. 

Chair LANDRIEU. All right. Anybody else? Vincent. 

Mr. FOSTER. If you think about outside the SBIC world, how 

mentorship really happens, most individuals get trained, like the 

Bank of Boston example, through a larger organization. To the 

point that Thies made, you know, if the average SBIC fund only 

has five people, what are the chances that you train someone and 

they are—whether they are minority or not—whether or not they 

go out and start their own firm? 

So this is kind of a segue into something I feel strongly about. 

We had this cap on the size of the program at $225 million of Government financing, which is great, but because it is made available 

on a two-to-one basis, that means once you have more than $112.5 

million in private capital, which is the cushion for the program 

which is why the program does not lose money, it makes money, 

you are not optimizing your capital. You are starting to be less and 

less benefitted by the Government leverage. So there is an effective cap on the program of $112.5 million of 

capital after which the management teams stagnate, go someplace 

else. We have lost a lot of them through the years and they have 

gone on to have great careers, household name private equity firms 

who started out in the program. 

So if we could increase the size of the program for the better 

managers, you are going to have larger organizations, more training, more people spinning off starting their own firms. I have got 

30 people now. I am big enough where, you know, some of my guys 

will spin off and start their own firms, but it was not until I got 

to 25 or 30 where that was, you know, we really had more formal 

training and we could really do that. 

So I think, you know, we know who the better performing SBICs 

are. It is not going to cost any money. Let us create larger organizations rather than keep the thing capped. It does not really make 

a lot of sense. 

Chair LANDRIEU. Maybe we could have a stage one, stage two, 

or stage three where you earn your way up through those stages, 

or something like that. Manuel, you wanted to speak about that? 

And then I will get to Rick. But, Harry, I am going to ask you for 

a response from SBA about making some of these changes that 
19 

might really significantly help and reward those that are the most 

successful and help keep this moving forward. Manuel, go ahead. 

Mr. HENRIQUEZ. I absolutely echo the need to increase the funding levels, whether it is the 350 with keeping the leverage going 

up to 300, which would be beneficial, but if you really want my 

opinion on helping the program expand and create the next bench 

of future managers, it would be nice to be able to cede to your point 

on staging of capital, that maybe some of our own individuals that 

we have been—an apprentice within organizations start spinning 

out. 

They are not viewed by the SBA, for example, as an affiliate and 

get wrapped up into the total licensing available capital. It would 

be nice to be able to see that a young manager spinning off from 

an SBIC—— 

Chair LANDRIEU. Could be their own fund. 

Mr. HENRIQUEZ [continuing]. Could be their own fund. And yes, 

you are right. Maybe they start off with only $75 million of leverage, but that way you have at least training wheels, if you will—— 

Chair LANDRIEU. Exactly. 

Mr. HENRIQUEZ [continuing] On a manager and getting out. But 

sometimes under the program, that related manager, if some of 

that equity capital is helping them get started, could be viewed as 

an affiliate of ours, which means it detracts from our availability 

of capital. And I think that does a disservice to spawning new talent. 

Chair LANDRIEU. Does not make any sense whatsoever. Harry. 

Mr. HASKINS. First, we do support an increase in the Family of 

Funds limit to allow people like—— 

Chair LANDRIEU. But what about the affiliate rule? 

Mr. HASKINS. We have an awful lot of funds that are formed by 

partners that have left or younger partners that have left an existing fund and started their own. They are only an affiliate if, in fact, 

Manny was also to be part of the new fund. So if it is actually a 

new fund with new managers, even though they spun out from an 

existing fund, they generally are not going to be constrained by the 

affiliation issue. 

Chair LANDRIEU. Okay. So they have got to be able to stand on 

their own to be a real fund. They cannot be set up and then have 

to ask you, Manny, for advice every day. It has got to be fish or 

fowl, in other words, if we could figure that out. 

But I understand the benefit, because getting back to the 

mentorship, that is exactly what you are hoping to do, is some of 

the more successful SBIC funds are training some of the best people in the world to be able to help Rick and Don take their businesses to where they have taken their businesses. And you want 

to encourage them to start their own kind of funds and help the 

program grow more organically than just Federal constraints. 

I mean, if there is some way we could design this program for 

the modern age, not the 1950s when it was created, but for the 

2012 which we are in, with the whole world that has changed since 

then and really give our entrepreneurs in America access to the 

capital they need to grow is, I think, what we are trying to focus 

on. 
20 

Tim, let me get you and then, Rick, you have had your card up. 

Let me get Rick. You have had your card up the longest. 

Mr. GIRARD. I just want to say that there is a lack of knowledge. 

A lot of people do not know the SBIC even exists. I was looking 

for solutions to my problems for two years before it was even 

brought up to me. When people need money, when entrepreneurs 

need money—and most of them are smaller companies, and I think 

it was a good question that you raised. 

I have heard a lot about the caps and, you know, the upper limits, but I do not know if I really heard a good answer on what are 

the lower limits, because there are a lot of small companies out 

there that need money and they do not know about the SBIC program. And where do small companies go for money? They go to the 

bank and the bank says, Sorry, I cannot help you. 

But nobody ever guides them and then leads them to the SBIC. 

So I am just—just a suggestion. Is there any kind of partnerships 

that should exist between the SBIC funds and the banks? Because 

you guys are limited with resources, it sounds like. You know, you 

have a few employees. A dozen employees is a lot. But the banks 

are everywhere. So maybe there is a partnership there that you 

could exploit. 

Chair LANDRIEU. And, Rick, when you first approached a bank 

at some point in the early part of your company—and we have 

been joined by Senator Moran. Rick runs one of the most successful 

landscaping companies in Florida and one of the largest in the 

country. Correct, family raised? 

Mr. GIRARD. Yes, ma’am. 

Chair LANDRIEU. He could not get the money he needed from a 

bank. SBICs have helped their company. What was the amount of 

money, if you do not mind sharing, that you were trying to get 

from a bank that you could not get? At some point you had to go 

to the SBIC. 

Mr. GIRARD. Well, in this transaction, this was a $3 million 

transaction, which, you know, is not a small transaction. I am not 

sure if that answers your question. 

Chair LANDRIEU. But you could not get it from a bank—— 

Mr. GIRARD. No. 

Chair LANDRIEU [continuing]. And you had to find it from the 

SBIC? 

Mr. GIRARD. No, ma’am. And as a matter of fact, the bank—you 

know, I had a bank. I was a performing loan. You know, my company was growing. We missed our loan covenants. The bank turned 

it over to a work-out officer and, once you are on that list, you do 

not ever leave that list. So I was left with—the only choice I had 

was to go out and find refinancing. 

Chair LANDRIEU. It has come to my attention, shockingly, I guess 

I should have known this, but my background is not as a banker, 

but I was told recently that you could be a 40-year-old entrepreneur and have failed to pay one or two months on time of a student loan that you took out when you were 19 and be disqualified 

from a loan today. Is that your experience or does anybody want 

to comment? Do you know if that is true? Wells Fargo, what would 

your bank say? Go ahead. Do you know if that is kind of what the 

regulators are telling you? 
21 

Mr. RAFALOVICH. Did I all of a sudden start sweating? Is my 

legal counsel here? Generally, I would say that might be an extreme, but there certainly are restrictions that, you know, credit is 

very important. We are a credit-driven culture. Something like that 

where you have 20 years, you know, typically that falls—after 

seven years it falls off your credit report anyway. 

But it is true and somewhat to the point that bankers do not do 

a great job at knowing a whole lot about this program. I can say 

that in my discussions, we invest in a lot of SBICs and even our 

bank does not know that this option exists for a lot of people. So 

I think that that would make a big impact if more banks had the 

ability to say, Here is a group of SBICs. It does not fit us. It would 

be a good opportunity to give them a call. 

Chair LANDRIEU. Jim and then Tim. 

Mr. GOODMAN. Well, I think actually the way the SBIC program 

works, or at least a lot of us here, is with regard to the banks, it 

is really a case of one plus one equals three. The bank does not 

want to come in and just deal with the entrepreneur that maybe 

does not have his financial statements in order, is not willing, necessarily, or able to give a personal guarantee. But when my firm 

or Vince’s firm or others like it come in and put a couple million 

dollars underneath the bank, then we actually get a multiplication 

of what is available to the small company. 

So we view banks as our senior partner, if you will, in helping 

to capitalize and make companies like Rick’s successful. It is not 

either a bank or an SBIC, but it is working together. The SBIC 

provides the junior, more risky capital, but the act of doing that 

gets the bank comfortable and creates that much more availability 

for the company. 

Chair LANDRIEU. And creates, in the long run, if things work out, 

a great customer for the bank that they can make a lot of money 

off of that particular business. That is exactly the business that I 

think banks are supposed to be in, correct? 

Mr. GOODMAN. Amen. 

Chair LANDRIEU. Don, did you want something? 

Mr. SACKETT. My comment was that was exactly our experience, 

what Mr. Goodman says. When we took our SBIC funding, we got 

a bank line of credit on top of that that we could not have gotten 

had it not been for the SBIC line, for the exact reasons. The SBIC 

required a certain amount of financial due diligence and financial 

reporting and statements that were not there before that. 

Chair LANDRIEU. And repeat for Senator Moran, if you do not 

mind, how successful your business was. You were making medical 

devices? Go ahead and tell him. 

Mr. SACKETT. It was scientific instrumentation that we developed 

and manufactured in Massachusetts. 

Chair LANDRIEU. And selling to? 

Mr. SACKETT. All over the world, mostly Asia. Seventy percent of 

our sales were offshore. Half of those sales were to Southeast Asia, 

mostly China. 

Chair LANDRIEU. Very exciting. Rick. 

Mr. GIRARD. I just wanted to add, I echo exactly what he said. 

I would not have been able to obtain senior lending or to be bankable without the SBIC funds coming into play. But, you know, the 
22 

bank is not the one who suggested it. The bank is not the one who 

found it. I had to pay a lot of money to an investment banker, sophisticated money investment banker, who understood what the 

SBIC—even understood what it was before they could even actually 

make an impact to get my company bankable. And for a $20 million company, you know, one of the largest in 

Florida, what we do in our industry, you know, there is no reason 

that a company like us should not be bankable. 

Chair LANDRIEU. I do not know if anybody here is representing 

community banks in the audience? If not, Harry, what are you 

doing or what is the SBA doing to inform? We have about 7,000 

banks, I think roughly, in the country and we are really pressing— 

I am pressing and I think I am joined by other members of this 

Committee—for the SBA to be better partners or the banks to be 

better partners with the SBA in all of our programs. We have 504 

lending programs, et cetera, et cetera. 

What is the SBA doing today, now that you are a Cabinet level 

position, which we are very happy that the President has asked 

Karen Mills to be part of the Cabinet. What are you doing with the 

community banks that are part of the SBA family to get them to 

better understand SBICs? 

Mr. HASKINS. Well, with respect to the SBIC program, we work 

with the bank regulators such as Barry and we have worked with 

FDIC and others to make our presence known at various events. 

Chair LANDRIEU. In what specific ways? Do you know? Is that 

what you or your office does? 

Mr. HASKINS. For example, I was in Denver a couple months ago 

to appear at an FDIC conference, which was attended by mostly 

community banks interested in investing in—potentially investing 

in the SBIC program. And we have done other events like that as 

well. 

Chair LANDRIEU. Do we know how many new banks—let us just 

say roughly last year, and if you do not know, you could submit 

it—decided to take specific action to know about SBICs and ask for 

some sort of special briefing or something like that? How many 

new banks came into the program? I do not know how to ask the 

specific question. Do you know what I am trying to get? Not that 

you just share information with, but that respond to you in some 

formal or official way they would like to be part of it. About how 

many community banks do that? 

Mr. HASKINS. I do not think we have a good answer for that. I 

would say the primary contact with the banking industry has been 

through the fund managers as opposed to SBA directly, and we sort 

of backstop them saying, Listen, we are here and willing to assist 

you in any efforts you have to educate your potential investors. 

And as I said, we are willing to deal with them one on one or as 

a group. 

We have a number of SBICs that work with community banks 

very closely. For example, in Texas, there is an SBIC that is 

formed entirely around community banks. We have a number of 

SBICs in other States that have significant community bank participation in their fund. And we work with them and tell them, We 

are more than willing to meet with them individually, talk to them 

over the phone, appear at events to educate them as to the pro-
23 

gram. But I cannot give you a good answer as to how effective we 

are in that. 

Chair LANDRIEU. And, Treasury, what are you all—— 

Mr. WIDES. Yes. The Comptroller of the Currency actually has 

been out participating in some of these outreach events that Harry 

just mentioned. We held about 40 or 50 sessions last year with the 

Federal Reserve and the FDIC where we bring community bankers 

in to locations, like Harry mentioned and Denver was one, and educate them about the SBIC, the 7(a), the 504 program. 

The OCC has held tele-seminars for our banks with SBA for 

about the last four or five years on some of these topics, 7(a), 504, 

and then last month on the SBIC program that Carl actually participated on. I will be happy to provide a copy of this for the 

record—— 

Chair LANDRIEU. Thank you. Without objection. 

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Mr. WIDES [continuing]. Of this presentation that we delivered. 

We had about 700 bankers on the line at the Comptroller of the 

Currency. Walsh and I were at the Independent Community Banker’s conference last week in Nashville. There were 2,200 community bankers there. 

I did a presentation on the SBIC program, had good interest 

from the community bankers, all of whom were saying the same 

things that you are hearing around the Committee table today, 

that they view the SBIC program as a way to bring in new customers and to help grow their banking business. And I think it is 

just a matter of getting the word out. 

We at the OCC will be putting out a how-to guide for banks to 

invest in SBICs later this spring, and, you know, we continue to 

hold these seminars for banks, letting them know that they can get 

Community Reinvestment Act credit for investing in SBICs, so that 

hopefully is an incentive out there that banks see as being in their 

interest as well as, of course, the fact that they really can make 

money on investing in these funds and grow their businesses 

through developing relationships with the small businesses that 

are financed. 

Chair LANDRIEU. Thank you. Carl, you wanted to say something? 

Mr. KOPFINGER. Right. So I think Barry covered a lot of what I 

was going to say. I was going to mention that we did participate 

in a webinar for many of the banks, national banks or super regional banks, community banks that wanted to learn more about 

the SBIC program. I was going to mention that Barry is working 

on a white paper, and I am working with him on the white paper, 

that will be distributed to the banking community. 

Chair LANDRIEU. Well, one of the big picture—and I will get to 

you, Vincent, in a minute. We are going to try to wrap up in about 

ten minutes. You know, I understand that it is in the private sector’s interest to make money as fast as they can, as much as they 

can, and that is what a lot of people are motivated by. I have no 

problem with it. 

But I have learned, as the Chair of this Committee, that there 

is great value and actually great strength in small businesses that 

are just businesses that feed one family. But that is a major contribution to make. 

Although there are lots of people running around the Capitol 

that want to promote the Gazelles and the big businesses that they 

can spin off and everybody makes a lot of money and maybe they 

sell the company internationally, and I am all for that, in America, 

we have to honor the tradition of small businesses that only want 

two restaurants, but they feed 15 families for 30 years. There is 

nothing wrong with that. 

I think that our country has, because of the concentration of capital, the rush to make as much money as you can and, you know, 

‘‘die with all the toys,’’ kind of attitude that we have gotten away 

from just the basics of trying to get money out to people who want 

to be their own boss, who have something to contribute, who do not 

want to travel all over the world, they just want to live in their 

neighborhood, raise their kids, go to church, have a happy life. Is 

there anything wrong with this? 
103 

This is why I so believe in community banks and getting money 

to Main Street, so that this can be America. There seems to be a 

cutting off of that kind of opportunity, and the only way you get 

it is to, like I said, Senator Moran, you either have to put your 

house at risk, your children’s college fund at risk, all the money 

that you own at risk to get money to start a business, and all you 

want to do is feed your family and a couple of your neighbors. 

This is a big problem right now. I am determined to find a way 

through this maze of all the fancy financing to figure out a way to 

get back to that, because our main streets are thirsty and dying because they cannot get the money they need. 

So I think SBICs are one way. If we can help you all to be even 

better at what you do, it may not be the only way to do that. But 

with all due respect to these big funds and these big billion-dollar, 

$5 billion, $10 billion IPOs and Facebook and Google and everything, there are just a lot of people I represent who just want to 

run a restaurant. 

I met a young lady the other day. She runs five ice cream stores. 

And you know what? She is real happy. She said, ‘‘Senator, that 

is all I ever wanted to do, run my own business. I have got five 

stores. I will be happy if I can do that for the rest of my life.’’ There 

is nothing wrong with that. 

Does anybody else want to say anything? Go ahead, Vincent. 

Mr. FOSTER. I have kind of a simple suggestion, and I think 

Harry does a fantastic job. 

Chair LANDRIEU. You have got to turn your microphone on, 

please. 

Mr. FOSTER. I think Harry does a fantastic job with the resources 

he has, but if you go to SBA.gov, try to find the SBIC program. It 

is really hard. 

Chair LANDRIEU. I will go. If I cannot find it, Harry, you are 

going to hear from me. 

Mr. FOSTER. Well, it is really hard to find. 

Mr. HASKINS. If you do find it, would you tell me? 

[Laughter.] 

Chair LANDRIEU. Where it is. 

Mr. FOSTER. When you think about the lenders out there, the 

younger people, they use the Internet a lot more than we do. That 

is the first thing they do. They can find SBA.gov, but from there— 

so we really need to spend a little bit of money having a modern 

website. That is the first thing a lot of our companies do, is update 

their website to attract more customers. I think we can do the 

same thing. 

Chair LANDRIEU. All right. That is going to be one of our first 

recommendations to the SBA and then to Treasury. 

Senator, did you want to add anything? We are very happy that 

you joined us and why do you not say—— 

Senator MORAN. No, Chairman, I just would thank you. I think 

these roundtable discussions are often of greater value than the 

hearings we host much more frequently. 

Chair LANDRIEU. Yes, they are. 

Senator MORAN. I apologize for the schedule being such that I 

only have been here for the last 15 or 20 minutes, but I wanted 

to get a flavor for what was being said. We certainly want to make 
104 

certain that we do the things that allow capital to be available so 

people can pursue the American dream. Everybody has a different 

American dream and we want each to be able to pursue their own. 

I am so delighted to hear at least what I was able to hear this 

morning and look forward to working with you on this and other 

issues. 

Chair LANDRIEU. Thank you. And I think, Vincent, while the 

Senator is here, just again, one of the great points about the program is no cost to the taxpayer and limited risk. If you would just 

go over that again? 

Mr. FOSTER. Sure. 

Chair LANDRIEU. And you are the SBIC of this year, right? 

Mr. FOSTER. Last year. 

Chair LANDRIEU. Last year. 

Mr. FOSTER. I do not think they have announced this year yet. 

It is during Small Business Week. 

Chair LANDRIEU. He was the best one last year in the country. 

Mr. FOSTER. So the way the program works is you take the top 

end of the program. If you have more than one license, which several of us do, you can get $225 million of long-term Governmentguaranteed financing at essentially the Government’s cost to capital, but it is on a two-to-one basis to your private capital. 

So for me to get $225 million guaranteed from Harry, I have to 

go raise $112.5 million. That is the way due diligence is performed 

to protect you because people are not going to give me $112.5 million if they do not think I know what I am doing. And their $112.5 

million is on the hook first if we have defaults with respect to how 

we deploy that $337.5 million. 

And the—what else did you want me to cover? 

Chair LANDRIEU. That was it. 

Mr. FOSTER. And so, in effect, what we do with the money—— 

Chair LANDRIEU. The risk and the cost. 

Mr. FOSTER [continuing]. Is we start where the banks stop and 

we stop where private equity and traditional venture capital begin. 

So we are in that much needed void in between. 

Senator MORAN. Thank you. 

Chair LANDRIEU. Jim, and then we are going to wrap up with 

you. Go ahead. 

Mr. GOODMAN. Well, just specifically to the point of what, if any, 

is the risk to the taxpayer, we have raised and managed five SBIC 

funds. The first three, which are now fully mature and have been 

sold off, generated more than $40 million of profit to SBA under 

the Participating Securities Program. 

But every one of our funds has paid back more than we have borrowed. So we are a net generator of cash and profit to the program. 

Obviously, we hope that continues, but I think it is important to 

understand that if the program is well-managed, as it has been, 

and it uses its discretion in licensing new applicants, it can continue to exist at no cost to the taxpayer. 

I think that is a really important point here, is that a well-run 

program, as Harry and his team have been able to do, can generate 

some valuable capital, create jobs, and do so at no cost to the taxpayer. We have been just one example of that. 
105 

Chair LANDRIEU. Dan and then Manuel and then we will end 

with Treasury. 

Mr. PENBERTHY. I will tell you real simply why it is at zero cost to the taxpayer. RAND Capital borrowed $10 million, just $10 million from the SBA through the SBIC program. We paid interest on 

that at 6 percent, now above-market interest. We have paid you 

back $9.1 million. So for roughly $900,000 net risk to you at this 

time, we have created 500 jobs, created $200 million in growth and 

revenue. 

In 2011 alone, the employees of our portfolio companies paid $7 

million in Federal withholding taxes. We have created jobs, created 

wealth at zero cost to the taxpayer. That is the success of the 

SBIC. That is why it is important. 

Chair LANDRIEU. Manuel and then we will end with Treasury. 

Mr. HENRIQUEZ. Madam Chair, I want to go back to a point you 

raised earlier, how do we get Middle America, Main Street America 

the capital that it needs to have that young professional run her 

five ice cream stores. Free thinking as this forum you want it to 

be, suggestions I would tender to you would be the following. 

I think that historically, SBA had a program that had about $25 

million that was allocated to distressed economic regions. If you 

want to really induce companies that invest in America, you need 

to empower the equity to be that first lost capital that Vince referred to earlier. What I would suggest, Madam, to consider is that 

you want to encourage that equity capital to come in and start the 

small SBICs, call it $25 million SBIC, but they receive three or 

four times leverage on that capital in order to allow that small entrepreneur to get a $100,000 loan or a $500,000 loan. 

By having that equity capital be able to be leveraged a little 

higher, but keep the fund at a smaller size from the SBA, you actually may see smaller amounts of capital. 

Instead of the billion dollars you are referring to, you can go into 

that Main Street America through an economic development program that way, which I think if historically the SBA had a similar 

program on economic distressed areas, and I do not think it has 

been well-capitalized or well-used because there is no equity capital 

that wants to go into that small, you know, distressed economic region. 

So you need to create an inducement to have that capital flow 

in there, and I think that you will see Main Street America start 

getting that small amount of capital that it is looking for. 

Chair LANDRIEU. And, particularly, if you could partner with 

some of our more entrepreneurial mayors in this country that are 

trying to build their main streets, even in rural America, as well 

as in some of the more urban settings that have had effective economic development programs, that could be an interesting partnership as well. Okay. Dan, last word. 

Mr. PENBERTHY. RAND is willing to go out to those rural and 

distressed areas. We went to Mexico, Missouri, and are building 

bricks; started up a defunct brick plant there. We are down in 

Waycross, Georgia, making boats. We are going to these severely 

distressed areas making very small investments in companies, and 

that is the importance of small funds to the program. 

Chair LANDRIEU. Okay. Barry. 
106 

Mr. WIDES. A couple of points. Yeah, we have been out talking 

to community bankers about the SBIC program. A couple points of 

feedback which I have shared recently with the SBA, but I will 

share with you as well. 

I think that there is an interest in using the Internet, maybe the 

SBIC’s website, to find funds that are currently soliciting investors, 

and I would just encourage both—encourage the SBA to see if there 

is a way that they could make more prominent on their website 

funds that are soliciting capital now. And then we can send banks 

that are looking to participate to their website. 

The other point that I have made to the SBA is that they might 

consider posting fund performance so that banks can see which 

Family of Funds have been the most successful. And I think, you 

know, having the data and the information available to the banks 

on fund performance, in terms of where they want to place their 

capital, might be helpful. And we have gotten that feedback from 

banks. 

And just last point. In terms of your question about the smaller 

business, the mom-and-pop business that you were referring to a 

moment ago, the State Small Business Credit Initiative is just getting up and going. The OCC has been out meeting with the State 

agencies that are running those programs, encouraging banks to 

participate. Many of them run loss shares so that banks can take 

greater risk in those programs and make the kinds of loans that 

we have been hearing about that banks have been shying away 

from. 

And then also, many of the very small loans, the micro enterprise 

loans, are made by Community Development Financial Institutions. CDFIs are certified by the Treasury Department, receive 

money through the CDFI fund, and a lot of banks are partnering 

with those CDFIs to provide them subordinated capital debt so that 

they can go out and leverage the grants that they get from SBA 

and the Ag Department and the Treasury, which is then used to 

make the really small business loans to those entrepreneurs in the 

low-income communities. 

So we are out there trying to get banks more involved, but I 

agree, it is a huge challenge. 

Chair LANDRIEU. Okay. I am going to try to wrap up, but I do 

not want to cut anyone off. Harry, do you want to say anything? 

Mr. HASKINS. Just a couple comments. One is, as to the information that Barry is referring to, we are looking into the possibility 

of making that information more available in a way that respects 

the confidentiality of the providers of the information. 

The second point is, we do not want to get entirely away from 

our roots, in a sense. We do have a requirement. Congress has seen 

fit to impose a requirement that 25 percent of all investments by 

SBICs be in smaller enterprises as opposed to just small business. 

So we try to make sure that the lower end of the economic scale 

is being addressed as well. 

Chair LANDRIEU. And what do we define as smaller enterprise? 

Mr. HASKINS. It is essentially one-third the size of a small busi- ness. So instead of $6 million in after-tax net income and $18 million net worth, it is $2 million in average after-tax income for the 

prior two years and $6 million in net worth. 
107 

Chair LANDRIEU. Carl, anything else? 

Mr. KOPFINGER. I just want to expand on something that Barry 

said. To the extent that some of the funds are out there looking to 

solicit community banks for fund-raising, that would be a great tool 

for me because we are a very active investor and I get a lot of 

phone calls. 

We are only investing within our footprint, which is from Maine 

to Florida, so at least I would love to be able to have a website to 

which I can refer them; if they are interested in investing in the 

SBICs, then they can go to that website. 

One other point that I would like to make that I had not heard 

mentioned at all, too, is not only about the job creation, but also 

with job creation comes tax revenues. 

Chair LANDRIEU. Yes. 

Mr. KOPFINGER. Revenue taxes, payroll taxes, and with the direct 

cutback in Federal allocations, this is a great way for states to get 

additional revenue. 

Chair LANDRIEU. Well, thank you all so much. This has been 

very, very, very interesting, very helpful. I think we got a tremendous amount of good information on the record. The record of this 

hearing will stay open for two weeks, so anything else you want 

to submit in writing, if there are other individuals that want to 

submit a statement through you, we would like for you to sign for 

it when it comes to the record. But if there is a colleague of yours 

or another person that has strong interest, maybe a professor from 

a think tank or university that has written about this you would 

like to submit, but under your name, please do. 

I really thank you all for coming. We are going to hopefully put 

a major bill together and try to get it down to the Congress sometime in the next month or two. Thank you so much. Meeting adjourned. 

[Whereupon, at 11:36 a.m., the roundtable was adjourned.] 

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