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House bill clears way for VCs

By Laura Theis
Long Island Business News
November 9, 2007

A new bill that would allow more small businesses with venture capital backing to tap into federal grants is facing stiff opposition from groups that argue VCs could take advantage of loans designed to help the mom and pops.

The Small Business Investment Expansion Act of 2007, approved by the House of Representatives, would open up small companies that are majority-owned by venture capitalists to use Small Business Administration research grants.

Currently, the law doesn’t allow small businesses that are more than 49 percent owned by VCs to apply for the grants unless the company and venture capitalist employee fewer than 500 employees combined.

The Small Business Administration opposes the proposed changes because funding is supposed to help entrepreneurs, not big VC funds.

Edsel Brown, assistant director of the office of technology at the SBA in Washington, said the proposals also don’t take into account if the entire company is controlled by various venture capitalists. What happens, Brown asked, if three VC funds own a combined 90 percent of a company?

“We are concerned about firms getting financing,” Brown said, “but we feel this bill will have an adverse effect on small businesses.”

Lloyd Chapman, president of the American Small Business League, added that the bill hides behind the ruse of helping startups get capital.

But the bill’s advocates said the bill helps small businesses tap into more government resources. Ellen Sandles, president of the Tri-State Investor Network in New York City, said she supports broader availability of capital for small businesses. Sandles, however, warned that the new rules could lead to abuse because the grants would be used by groups that could just as well turn to the private sector.

Roslyn Goldmacher, president of the Long Island Development Corp., said she is for any plan that would bring additional funding to Long Island’s 98,000 smaller companies.

As a small-business-funded economy, Long Island needs as much access to small business cash as possible, she said.

“Our growth on Long Island is not major companies locating here, it’s entrepreneurs starting from here ground up,” she said.