SmallBusinessNewz

Little firms with big backers gain advantage

Wealthy venture capital firms received a tremendous milksop from both parts of Congress with the passage of bills that allows them majority ownership of small businesses, while retaining eligibility for small business federal contracts.

One does not simply enter the venture capital business. Money, and lots of it, must fuel the dreams and caffeine needs of the startup companies they choose to bless with their golden touch. If a startup takes off, both they and their angel investors profit, certainly not without risk.

That risk received something of a cushion from the Senate and House, as lawmakers like Senator Kit Bond (R-MO, Senate Committee on Small Business and Entrepreneurship) and Nydia Velasquez (D-NY, Chair of the House Committee on Small Business) helped along legislation that gives small businesses backed by well-funded VCs an astonishing edge on the road to profitability, as American Small Business League's Lloyd Chapman wrote of Velasquez's fast-tracked bill:

As originally introduced, the bill would have allowed a single venture capital firm to control up to 51 percent of a small business and maintain its small business status for the purpose of federal contracting. As passed, H.R. 5819 allows billion dollar venture capital firms to participate in federal small business programs by modifying the existing definition of a small business in the Small Business Act, which requires a business to be "independently owned". Virtually every small business group in the country has opposed the legislation.

For politicians who ostensibly serve on Committees aimed at ensuring the health and competitiveness of small businesses, it's difficult to look at Bond and Velasquez objectively. Changes to the Small Business Act listed with Sec. 201 under Title II - Venture Capital Investment Standards for H.R. 5819 seem tailor-made for a big VC to slip under the small business umbrella.

The title of Sec. 201: "Ensuring that innovative small businesses with substantial investment from venture capital operating companies are able to participate in the SBIR program." We're waiting (figuratively) for the VC lawyers to tell us why this bodes well for small businesses in general.