The appointment of a venture capitalist to head the SBA and apparently missing statements from his campaign website are leading some to doubt Obama's pledge to small business owners.

According to the American Small Business League, President Obama is likely to support a change to the federal definition of small business as "independently owned."

This move would open the door for others - specifically venture capital firms and larger corporations - to garner government contracts intended for small businesses.

"Since 2003, over a dozen federal investigations that have uncovered billions of dollars in federal contracts intended for small businesses actually wound up in the hands of Fortune 500 firms," says the organization.

The ASBL worries that Obama's former pledge to end the awarding of these contracts to "corporate giants" will be forgotten and small businesses could lose up to $100 billion a year in projects. The organization claims some statements about Obama's small business agenda were removed from his website.

Already feeling battered, the National Federation of Independent Business Small Business Optimism Index fell to the second lowest reading in the survey's 35-year history in December.

Venture capitalists may be gaining influence at the expense of small businesses as a result of President Barack Obama's pick to lead the Small Business Administration, a small business advocacy group warns.

The American Small Business League is worried that Obama's appointment of venture capitalist Karen Gordon Mills to head the SBA is a sign that venture capital agendas may advance this year, in some cases to the detriment of small businesses and small-business federal contractors, said Chris Gunn, a spokesman for the group based in Petaluma, Calif.

A case in point is the upcoming reauthorization of the Small Business Innovation Research program. There is language in both House versions of the legislation that would allow more venture capital firm investment in companies participating in the program, Gunn said.

“It sets a dangerous precedent for that and for other small-business programs,” Gunn said. “We do not want to see an expansion of the definition of small business. We are trying to tighten the definition.”

Mills is president of private equity firm MMP Group, co-founder of venture capital firm Solera Capital, and an adviser to Maine Gov. John Baldacci.

Beware of politicians bearing changes in federal policies.

More often than not, there is more to their goals than simply streamlining government.

That's our take on proposals in Congress that would allow venture capitalists to receive federal contracts currently targeted for small businesses.

House Speaker Nancy Pelosi has proposed legislation that would remove from the Small Business Act wording that defines a small business as "independently owned."

That would make large venture capital firms eligible for more government contracts, according to the American Small Business League.

"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," the ASBL said in a press release issued this month.

"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."

If there is one thing we have learned from the banking and mortgage crisis it is that larger does not always equate to better.

The ASBL also points out that many of the largest venture capital firms are located in Pelosi's California district and that the congresswoman has received more than $100,000 from these companies or their lobbyists.

That's not a large amount in Washington politics.

But it is just as important to note that her proposal is also opposed by the Small Business Administration, the U.S. Chamber of Commerce, the National Association of Government Contractors and the National Small Business Association.

Can so many influential business groups be wrong?

We think not, and other members of Congress will hopefully recognize the impact the change would have on small businesses around the United States.

It's an important question for small businesses. As Independent Street reminds us, and as we noted when we reported that the federal government had failed to fulfill its legal contracting obligations, 23% of all federal contracts are supposed to go to small businesses. Now, not all of these small businesses are small: depending on the industry, such a company can pull in as much as $15 million a year, for example. But it's an important issue. In fact, there's one group--the American Small Business League--that exists more or less solely to try to force the goverment to follow its own rules.

Given that fixed 23% figure, as goes the total number of contracts, so should go the number that are thrown to small businesses. So the question is: is that number poised to rise or to fall with the dawning of a new year, the deepening of a recession, and, of course, the introduction of a Democratic presidential administration? You'd be surprised how two-way the argument is.

On the one hand, Democrats generally like to spend more, and Obama has proposed a $825 billion stimulus plan--just at the outset--that includes hundreds of billions of dollars to be doled out to and spent on the promotion of "green jobs," the construction of new infrastructure, and other vast projects (including, importantly, money to the states). The economic philosophy of John Maynard Keynes is never more in vogue during recessions, so look for continued stimulus spending ultimately targeted towards increasing consumer demand over the next year and beyond.

On the other hand, as this great post on washingtonpost.com (our sister site) makes clear, in recent years federal contracts have ballooned, likely beyond where they should have--this is due to inefficiencies and waste--and Obama has come in promising to trim the federal government's fat. In the previous fiscal year, federal contracts amounted to $532 billion; compare that to the then-record $465 billion in only the previous fiscal year, much less to the $13 billion thirty years ago.

Moreover, the department of the federal government that quite possibly accounts for the plurality of this waste is the Pentagon--among the only departments that are actually potential candidates for less funding and contracting during a typical Democratic administration.

So you can see that a plausible case can be made either way: federal contracts truly could go up or down, and small businesses' share with them. Ideally, you would probably see an overall increase, coaxed by wisely targeted stimulus dollars and tempered by cuts where taxpayer money is being spent imprudently and wastefully.

Of course, another way to increase small business contracts is to ensure, no matter the total in federal contracts, that small businesses are getting their fair--and legally mandated--share. Surely Republicans and Democrats alike can get behind obeying the law.

Source:  http://bizbox.slate.com/blog/2009/01/will_federal_contracting_dolla.php