New Early Stage Fund Solicitation Creates Exciting Opportunities For Fund Managers, Investors

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AppId is over the quota

All across the country today there are promising startups looking to scale their businesses and to bring innovative, game changing ideas to market. The ability of these businesses to access long-term, patient capital is critical to their success and to the growth of the American economy.

However, today only six percent of venture capital is going to early stage rounds of between $1 and $4 million, creating a Valley of Death for many new businesses.

Compounding this lack of early stage capital is the fact that 70 percent of venture capital goes to just three states: California, New York and Massachusetts. And 40 percent of all venture capital goes to just one region: Silicon Valley. That is up from 30 percent in the late 1990s, according to a study by PricewaterhouseCoopers and the National Venture Capital Association.

There are enormous opportunities for investors and venture capital funds to finance innovative early stage firms outside of these traditional start-ups hubs.  The market is less crowded and the field is ripe with outstanding entrepreneurs with experience across a broad array of growth industries. I get to meet these entrepreneurs every week when I travel around the country and visit their businesses.

At the U.S. Small Business Administration (SBA), we recently launched an Early Stage Fund to help fill market gaps, spur private sector investment and to help firms avoid the Valley of Death—and we are opening a new solicitation for the Fund beginning in the Fall. As part of this new round, we have increased the amount available for investment from $150 million to $200 million.

Here’s how it works: We provide a 1-to-1 match with private capital, capped at $50 million. Funds participating in the program must deploy 50 percent of total capital in early stage companies (companies that have never achieved positive cash flow from operations in any fiscal year). There is a minimum private capital raise of $20 million. All investment decisions are made by the private fund managers.

We have allocated up to $1 billion in SBA-guaranteed leverage commitments over five years to the Early Stage Fund. The Fund operates through our Small Business Investment Company (SBIC) Program. Our SBIC program is authorized to commit up to $3 billion annually in funds, making the SBA one of the largest participants in its space.

In Fiscal Year 2012, our SBIC program had its third consecutive record-breaking year. Investment funds licensed as SBICs provided more than $3 billion in growth capital to over 1,000 small businesses, a 17 percent increase from FY 2011 and an 83 percent increase from FY 2010. In FY 2012, the SBA also licensed 30 new funds, including a record 27 Debenture SBICs.

A key factor driving the success of the program has been ongoing efforts to streamline its operations. In 2009, it took 14.6 months to get an SBIC fund licensed. Today, it takes only 5.4 months, a 60 percent improvement in licensing times.

If you want to learn more about our Early Stage Funds and the new solicitation, or to read more about the SBIC program, go to www.sba.gov/inv.

Karen Gordon Mills is the Administrator of the U.S. Small Business Administration. The SBA helps both Main Street and high-growth small businesses get access to capital, counseling, federal contracts, disaster assistance and more.Tags: Official SBA News and Views, Open For Business, SBA News and Views

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RFP-EZ Delivers Savings for Taxpayers, New Opportunities for Small Business

AppId is over the quota
AppId is over the quota

America’s small information technology firms are some of the most innovative in the world. They are nimble, creative and can get the job done. And thanks to a new online government platform, it is getting easier for them to address some of the Federal Government’s most pressing IT needs. It’s a win-win: Small technology companies get easier access to the Federal Government’s nearly $77 billion information technology supply chain, providing a potentially critical revenue stream as they build their operations. And government agencies get to work with innovative small firms with solutions that can help make government agencies more efficient and streamlined.

The catalyst for these connections is an exciting new pilot project called RFP-EZ. And the results we are seeing from this program highlight what is possible when you unleash the power of American entrepreneurs.

RFP-EZ is a new and easy way for companies to learn about and compete for government contracts – in particular, small companies that lack the experience or administrative support generally needed to take full advantage of the Government’s Request for Proposals (RFP) process, the means by which many government contract offerings are presented to the business community. The RFP-EZ platform was developed jointly by Federal innovators working in the SBA and private-sector entrepreneurs serving temporary stints in the Federal Government through the Presidential Innovation Fellows program, launched by the U.S Chief Technology Officer and Chief Information Officer team last year.  Sharing their private- and public-sector insights, the team developed RFP-EZ as a simplified platform aimed at opening up the Government marketplace to a wider range of companies and saving taxpayer money. 

Applying agile development principles, the Fellows team designed RFP-EZ over a six-month period, publishing the platform’s code openly on GitHub.  The team then launched the pilot by posting five relatively simple website development and database contract offerings, four of which were also announced via the standard government portal, FedBizOps. On a per-project basis, bids received through RFP-EZ were consistently lower than those received through FedBizOps—19% to 41% lower, and over 30% lower on average. Bids made through RFP-EZ also showed less overall variation.  In addition, during the pilot period, RFP-EZ attracted more than 270 businesses that until now had never approached the world of Federal contracting.

Average of All Bids Received for RFP-EZ vs FedBizOps (FBO)

According to Office of Management and Budget’s IT Dashboard, the Federal Government will spend more than $1.4 billion on Web Infrastructure and Web Content Management Systems in FY 2014. Based on 2011 and 2012 results, we can expect about half of these projects to be under the $150,000 “Simplified Acquisition Threshold” that would make them eligible for contracting through RFP-EZ. As we refine and expand the use of RFP-EZ, we are confident that its success will grow, delivering better value for taxpayers and opening new opportunities for small businesses.

Leveraging feedback we received from entrepreneurs and Federal contracting officers, the next class of Presidential Innovation Fellows will begin work on version 2.0 of RFP-EZ, which will focus on improving the platform, scaling its initial results across the Federal Government, and adding innovative new capabilities. If your business would like to participate, we encourage you to get started by setting up a profile on RFP-EZ today. To all the businesses that submitted proposals through RFP-EZ and everyone who has given us feedback on the project, thank you for helping to bring this new capability to life – and we very much look forward to the path ahead. 

Karen Gordon Mills is the Administrator of the U.S. Small Business Administration. The SBA helps both Main Street and high-growth small businesses get access to capital, counseling, federal contracts, disaster assistance and more.Tags: Official SBA News and Views, Open For Business, Government Contracting, SBA News and Views

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