The Small Business Investment Expansion Act of 2007 has been called many things, but some of the most descriptive terms for this piece of legislation have been 'eviscerating' or 'detrimental' to Small Businesses.
Designed – at least at first glance – to expand the scope of the Small Business Administration’s investment company and the New Markets Venture Capital programs; the bill originally addressed increasing access to venture capital dollars for minority owned and women owned small businesses as well as encouraging investment of small businesses by increasing access to Venture Capital funding as well as supporting ‘Angel’ Investors. In the background however, the bill also tries to redefine what ‘Independently Owned and Operated’ means in the Small Business Act of 1953, to include companies owned in part - up to 49.9 percent - by Venture Capital Investors. (Amended Title V of HR 3567.)
After the bills introduction by Representative Jason Altmire (D – PA) it was fast-tracked through the House of Representatives, and passed in only 10 days.
The Problems with HR 3567.
H.R. 3567 creates a loophole by amending the definition of a small business in the Small Business Act of 1953 as ‘Independently Owned and Operated’ to include firms that are owned - up to 49.9 percent - by Venture Capital companies. This loophole would allow venture capital firms with billions of dollars in capital managed to obtain a controlling interest in dozens of small firms and maintain the small business status of those firms; essentially granting them access to an unlimited number of federal small business contracts.
With this in mind, other small businesses that are not backed by venture capital firms would have to compete “Head-to-Head,” with companies owned in part by large financial institutions, wealthy individual investors and venture capital firms with billions of dollars in capital managed.
In addition to these detrimental principals, the Bill also authorizes a $36 million fund from those same Small Business Taxpayer’s for FY 2008 and then a further $102 Million between FY 2008 and FY 2009 to fund Title III of the H.R. 3567, which will establish a matching government contribution for the angel investors.
Opposition to HR 3567.
Upon introduction, the American Small Business League was alerted to H.R. 3567 and after investigation, began a campaign to expose loopholes in H.R. 3567 that will open federal small business contracting to venture capital firms with billions of dollars in capital managed.
Following the ASBL lead, the White House, the Small Business Administration, the U.S. Chamber of Commerce, the National Association of Government Contractors, the National Association of Small Businesses and the Republican Study Committee have all issued statements in opposition of H.R. 3567 with such comments as:
“The Administration strongly opposes the proposed ‘Angel Investor’ program. The Administration does not support providing capital to high net worth individuals to support their investments… The Administration also strongly opposes the proposed change to the definition of small business for the purposes of venture capital investment.” – The Whitehouse’s Statement of Administration Policy, September 26, 2007.
The statement later goes on to say; “Not only would this be inequitable for small businesses, but it would be a step backwards from our recent progress in addressing the misidentification of large firms as small businesses for Federal procurement purposes.”
Additionally, The U.S. Chamber of Commerce issued the following statement in its letter to the House of Representatives dated September 27, 2007, “Title V of H.R. 3567, if passed into Law would allow changes to the longstanding definition of a small business that would permit larger business concerns to effectively control and dominate small business enterprises while at the same time allowing them to participate in small business programs.”
Although H.R. 3567 appears to have the interests of the Small Business populace at heart, it is – in reality – a giant step backwards from the removal of large firms from the Small Business Contracting Program. This legislation further tilts the balance of power back to large companies and away from the ‘Backbone’ of America’s workforce; the Small Business. As stated earlier by the US Chamber of Commerce and the Administration, this bill would be ‘inequitable’ for Small Businesses nationwide and would divert taxpayer dollars towards ‘high net worth individuals’.
By rejecting H.R. 3567, Small Businesses will have greater opportunity to compete with other legitimate Small Businesses on a level playing field for Federal small business contract awards.
For further items regarding HR 3567, please click the following link to take you to the ‘Supporting Documentation’ page.