House redefines small business


House redefines small business

By Nancy Marshall Genzer
April 24, 2008

A House bill, passed late last night, now allows venture capitalists to invest in up to 49.1 percent of a small business. Nancy Marshall Genzer looks into how the change affects competition for government contracts.

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Late last night, the House approved a bill that will change the definition of small business and allow venture capitalists to buy up to 49.1 percent of one. The legislation still needs to pass the Senate. Marketplace's Nancy Marshall Genzer reports.

Nancy Marshall Genzer: The definition of a small business is important because the federal government is required to award a portion of all contracts to mom-and-pop firms. American Small Business League President Lloyd Chapman says, under the new definition, small businesses without deep-pocketed friends would be at a big disadvantage.

Lloyd Chapman: In order to get federal small business contracts, they'd have to compete with firms that were controlled by some of the wealthiest venture capital firms in the country. You can imagine how that would turn out.

But some entrepreneurs have told the House Committee on Small Business they need venture capital to grow. Speaking at a recent hearing, the committee's chairwoman, Nydia Velazquez, said small businesses wouldn't be controlled by their investors.

Nydia Velazquez: Limitations are placed on the venture capital companies, including its size and its control by larger corporations.

Chapman says Velazquez favors the legislation because she took campaign contributions from venture capitalists. Velazquez's office says she wasn't motivated by the money.

In Washington, I'm Nancy Marshall Genzer for Marketplace.





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