Petaluma, Calif. - House Speaker Nancy Pelosi (D - CA) is leading congressional support for a new loophole in federal contracting law that will allow some of the wealthiest venture capitalists in America to receive federal contracts set-aside for small businesses.

The new loophole could divert billions of dollars in federal small business contracts away from middle class firms and into the hands of wealthy investors. If Congress does adopt legislation that allows venture capitalists to participate in federal small business contracting programs, thousands of middle class jobs could be lost as legitimate small businesses struggle to compete head-to-head with firms owned and controlled by billionaire investors.

In 2008, Speaker Pelosi backed H.R. 3567 and H.R. 5819, both of which would have allowed individual venture capitalists and even some of the nation's largest venture capital firms to take contracts meant for small businesses.

After leading the opposition against H.R. 3567, the American Small Business League (ASBL) was joined by the Small Business Administration (SBA), the U.S. Chamber of Commerce, the National Association of Government Contractors, the National Small Businesses Association, and the Bush White House.

The key element of the Pelosi backed legislation is a change in the longstanding definition of a small business, which is defined in the Small Business Act as a firm that is "independently owned."  Pelosi would like to see the definition changed to include firms that are not "independently owned" but actually owned and controlled by well-heeled venture capitalists.

Many of the top venture capital firms in America are located in or near Speaker Pelosi's 8th congressional district and according to MAPLight.org, 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.

The ASBL predicts that Speaker Pelosi may try to include a loophole for venture capitalists in any up-and-coming economic stimulus plan coming out of the House of Representatives, under the guise of "increasing access to capital" for small businesses.

In the past, the National Venture Capital Association (NVCA) has used the term "increasing access to capital" for small business to disguise legislation and policies designed to allow its members to take federal contracts earmarked for legitimate small businesses.

President-elect Barack Obama has also received significant contributions from the venture capital industry. His appointment of Karen Mills, a venture capitalist, as Administrator of the SBA is seen as a clear signal he will support legislation that will likely divert billions of dollars in federal infrastructure funds away from middle class firms, and into the hands of some of the nation's wealthiest investors.

Petaluma, Calif. - Congress will begin work this week on President-elect Barack Obama's new economic stimulus plan. The American Small Business League (ASBL) is predicting President-elect Obama's stimulus plan may contain provisions that will allow wealthy venture capitalists to receive billions of dollars in federal contracts earmarked for small businesses.

Under the guise of "increasing access to capital for small businesses," the Obama stimulus plan may change the long-standing federal definition of a small business as being "independently owned," to include firms that are controlled by some of the nation's wealthiest investors.

Most economists agree the best way to create jobs and stimulate the nation's failing economy is to direct federal infrastructure funds to the 26 million small businesses that create over 85 percent of new jobs and employ over 55 percent of all Americans. 

The new Obama loophole in federal contracting law would do just the opposite by forcing legitimate small businesses to compete head-to-head with firms controlled by wealthy investors and even some of the largest venture capital firms in the United States.

Thousands of legitimate small businesses would be negatively impacted. Billions of dollars in federal small business contracts would be diverted from middle class firms and into the hands of a very small number of firms controlled by wealthy venture capitalists.

The Obama plan may even include a provision that would exempt the venture capital owned firms from capital gains tax.

Similar proposals in the past were pushed by the National Venture Capital Association (NVCA) and opposed by the Small Business Administration, the ASBL, the U.S Chamber of Commerce, the Bush White House and virtually every major small business group in the country.

The NVCA and its members donated heavily to the Obama campaign and have donated millions more to dozens of key democratic members in Congress such as House Speaker Nancy Pelosi, Senator John Kerry, Senator Joseph Lieberman and Congresswoman Nydia Velázquez. The majority of the members of the House Small Business Committee and nearly all of the members of the Senate Committee on Small Business and Entrepreneurship received significant contributions from the NVCA and its members.

In the past, the NVCA has used the term "increasing access to capital for small businesses," to disguise legislation and policy changes that would allow wealthy investors to receive billions of dollars in federal contracts earmarked for legitimate small businesses.

-###-