Should VC-backed startups qualify for federal small business benefits?


Should VC-backed startups qualify for federal small business benefits?

By Alain Sherter
August 14, 2008

A small business advocacy group is calling out U.S. House of Representatives Speaker Nancy Pelosi, D.-Calif., for pushing through legislation that would help companies backed by venture capital to qualify for federal loan guarantees, fee waiver grants and other benefits available under the U.S. Small Business Administration's "innovation research," or SBIR, program. Among other effects, the bills modify the definition of a small enterprise under the Small Business Act, which extends only to companies that are independently owned. In effect, that would allow companies financed by well-heeled VCs to elbow aside genuinely needy small businesses for access to the federal program, the group says, accusing Pelosi of acting on behalf of the many venture investors that operate near her home district in San Francisco.

"After receiving significant campaign contributions from the National Venture Capital Association and special interests representing the biotechnology industry, [Pelosi] has ramrodded legislation through the House of Representatives that will allow billionaire venture capitalists to hijack federal small business contracting programs," says the American Small Business League in a statement today. "Thousands of legitimate small businesses across America could be forced to close their doors if the legislation becomes law."

Pelosi press secretary Drew Hamill characterizes the ASBL's contentions as a "non-story," noting that the two House bills that would amend the Small Business Act to the benefit of venture-funded companies--H.R. 3567 and H.R. 5819--passed the chamber with broad support. "Both these bills went through full committee process and had amendments on the floor, and they both passed the House with significant bipartisan support," he says by e-mail. "Under H.R. 5819, the SBIR program would be opened to venture-backed small businesses, but the grants are awarded competitively."

Indeed, the bills had broad support, passing by margins of 325-72 and 368-43, respectively, with 112 Republican House members voting for H.R. 3567 and 149 Republicans supporting H.R. 5819.

But the issue here is not ideology, but money, namely, the kind that ends up in lawmakers' pockets, says Chris Gunn, director of communications at the ASBL. The National Venture Capital Association, which supports expanding the definition of small businesses to include VC-supported companies, in the 2008 election cycle has made financial contributions to 13 of the members on the House Committee on Small Business, according to the Center for Responsive Politics. One of the largest recipients of the NVCA's largesse: Rep. Nydia Velázquez, D., N.Y., who chairs the panel and who is chief sponsor of H.R. 5819. The venture group also gives money to Rep. Jason Altmire, D.-Pa., who sponsored H.R. 3567 (co-sponsored by Velazquez), and to Sen. John Kerry, D.-Mass., chair of the U.S. Senate Committee on Small Business and Entrepreneurship, which last month passed S. 3362, the companion measure to H.R. 5819.

The American way? No doubt. Under our political system, groups such as the NVCA are perfectly entitled to grease whomever they please, just as our elected officials are entitled to sop up contributions. Technology startups also will argue that they are, in fact, small businesses, regardless of their financial backers. In other words, why should a solar power company with five employees be disqualified for federal contracts available to other small businesses just because it's partly owned by Kleiner Perkins Caufield & Byers?

Because, the ASBL argues, that disadvantages real "mom and pop" businesses that depend on federal support and that have no chance in hell of getting a sit-down with John Doerr. A related question is whether extending federal small business status to VC-backed companies effectively subsidizes venture firms by using government monies to support private R&D.

Of course, such issues appear moot so far as the legislation in question is concerned. The House is on board, and the Senate small business panel passed S. 3362 only one day after it was introduced. Expect the full Senate to approve the bill when lawmakers return from the summer recess. Time will tell if the result is that U.S. small business owners suffer in the name of championing innovation. --

See Aug. 14 press release from the  American Small Business League
See list of NVCA contributions to federal candidates from


Pelosi Backed Bills Let Billionaire Investors Hijack Small Business Contracts

Press Release

Pelosi Backed Bills Let Billionaire Investors Hijack Small Business Contracts

Pelosi Backed Bills Will Destroy Thousands of Small Businesses Nationwide

August 14, 2008

Petaluma, Calif. – After receiving significant campaign contributions from the National Venture Capital Association (NVCA), and special interests representing the biotechnology industry, Speaker of the House, Nancy Pelosi (D – CA) has ramrodded legislation through the House of Representatives that will allow billionaire venture capitalists to hijack federal small business contracting programs. Thousands of legitimate small businesses across America could be forced to close their doors if the legislation becomes law.
Both bills, H.R. 3567 and H.R. 5819 will require the average American small business to compete head-to-head with firms owned and controlled by the nation’s wealthiest investors for even the smallest federal small business contracts.
In its original form, H.R. 3567 would have allowed firms that are completely controlled by wealthy investors to be considered small businesses. Despite opposition from the nation’s largest small business organizations and the Small Business Administration (SBA), Speaker Pelosi exerted enough pressure on her colleagues to get the bill passed in record time. The bill was pushed through the House so quickly, that many members of the House complained that they did not have adequate time to even read the bill before they were strong-armed by Pelosi into voting for it.
In H.R. 5819, Pelosi went so far as to allow some of the nation’s largest and wealthiest venture capital firms to own up to 98 percent of a company and still be considered a small business. The full senate will be considering its version of the bill, S.3362, when they return from summer recess.
“I truly think that it is unfair for firms owned by venture capital companies to be considered small businesses. The inclusion of venture capital firms in government small business programs will leave legitimate small businesses out in the cold when it comes to getting federal work,” said ASBL member Daryl Corley, President and CEO of the Clinton, Maryland based MSDS Consultant Services.
In a January 5, 2007 press release, Speaker Pelosi stated, “Honest leadership is not just a partisan goal. It is the key to putting the interests of all Americans ahead of the special interests. It is what the American people sent us here to do, and House Democrats are proud to have taken serious and substantive steps to ensure Congress governs with the highest ethical steps.” Pelosi’s words are a stark contrast to her actions regarding H.R. 3567 and H.R. 5819, which support the interests of Biotechnology Industry Organization (BIO) and the NVCA, as opposed to the interests of America’s nearly 27 million legitimate small businesses.
Speaker Pelosi has received significant contributions from several groups, which stand to substantially benefit from venture capital participation in federal small business programs. According to, from January 2005 to May 2008, Speaker Pelosi received a combined $108,400 from venture capital giant, Kleiner Perkins Caufield & Byers; pharmaceutical giant, Amgen Inc; and lobbyist, Akin Gump Strauss Hauer & Feld LLP.
According to, in addition to its contributions to House Speaker Pelosi, the NVCA made major contributions to 17 members of the House Committee on Small Business to ensure that its two bills passed that committee. The largest recipient of their generous contributions was Committee Chair, Nydia M. Velázquez.
“I think Speaker Pelosi has forgotten that America is a Democracy. You will not find anyone outside the National Venture Capital Association who thinks billionaires and venture capital firms should be allowed to participate in federal programs to assist small businesses,” ASBL President Lloyd Chapman said. “Our government is supposed to represent the will of all the people not just the wealthy people. Speaker Pelosi has clearly gone back on her campaign promises to end corruption in Washington. She is turning our government into a plutocracy and is selling legislation to wealthy investors that will cheat small business in the middle class economy out of hundreds of billions of dollars in federal contracts.”
Chapman added, “It is starting to look like small business in America might have been better off with a Republican controlled Congress.”

Group says McCain doesn't care 'a bit about small business'


Group says McCain doesn't care 'a bit about small business'

By Elizabeth Rauber
San Francisco Business Times
August 6, 2008

The American Small Business League (ASBL) criticized Republican presidential candidate John McCain's Small Business Plan, claiming the plan is more likely to help Fortune 500 companies.

"Senator McCain's plan is exceptional," said Lloyd Chapman, president of the ASBL, "as long as your small business is a Fortune 500 corporation."

"I don't think John McCain cares a bit about small business," Chapman told the San Francisco Business Times.

A McCain spokesman, however, called the ASBL a partisan organization.

According to the ASBL, there are 27 million small businesses in America, employing 126 million people.

The Small Business Administration, which represents these firms, has come under attack during the Bush administration, according to Chapman. "Bush virtually closed the agency ... SBA executives say the budget has been cut so much that they cannot carry out their mission," said Chapman.

Chapman emphasized that small businesses are suffering because large corporations are receiving small business contracts, a policy implemented by former SBA Administrator Steven Preston, now Secretary of Housing and Urban Development.

According to the plan, posted on McCain's web site, McCain will cut the corporate tax rate from 35 percent to 25 percent. He will also reduce the estate tax rate to 15 percent, with an exemption for families worth less than $10 million.

McCain also suggests building 45 new nuclear power plants and the increased use of coal, as well as a summer gas tax holiday. In the plan, McCain says he will provide $5,000 in heath insurance for every family.

Chapman did not believe that McCain's energy plans would help small business and said that if McCain wanted to help reduce energy costs, he should support extensive profit taxes for the oil and gas industry.

The Western Region Communications Director for McCain's campaign, Rick Gorka, said that it's outrageous for the ASBL to call itself non-partisan since the president and communications director both blog on the Huffington Post.

"Senator McCain understand that small businesses are the economic engine of this country, and they continue to create jobs and grow our economy," Gorka said, "We need to keep tax rates low ... both big businesses and small businesses alike all benefit from this."

McCain's environmental policy will help, he added, "The gas tax holiday helps ... anyone who has to drive."

Gorka also criticized the campaign of McCain rival Barack Obama. He told the San Francisco Business Times that "Senator Obama has continually said he's not in favor of cutting the top tax rate, which is the second highest in the world, which doesn't help small businesses grow and flourish."

He added, "They should be ashamed of themselves."