Should a Venture Capitalist be Head of the SBA?
I was starting to get really impressed with President Elect Obama’s cabinet choices. But then I saw that he appointed a venture capitalist to head up the U.S. Small Business Administration.
Some people immediately praised the choice … because of her background as a venture capitalist.
What I don’t understand, is why so many people think that a background as a VC somehow qualifies her to head the SBA.
I think that being a venture capitalist simply is not a relevant qualification to oversee lending programs for the kinds of small businesses that VCs would never give a second look to. If anything, it’s a complete mismatch.
Your typical small business in the United States is a beauty salon, or a Mom-and-Pop restaurant, or a solo consulting business, or a Web design business, or a plumbing business, or a tool and die shop. Never in a hundred years will those kinds of businesses qualify for venture capital.
They are not the high growth businesses — the gazelles — that VC investors look for. They’re small businesses that venture capitalists would not give a second look to.
In 2007, venture capitalists invested in fewer than 4,000 businesses (PDF) in the United States, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association. Not even 4,000 businesses!
Venture capital is not oriented toward being inclusive. They don’t want the typical business — they want the atypical business. The goal is not to serve large numbers of businesses. No, venture capital is about being incredibly choosy, picking only the creme de la creme, and saying NO to everyone else.
By contrast, there were 78,000 SBA-backed loans in 2008 so far — 20 times the number of VC deals. And people still complain — rightly so — that the SBA doesn’t provide credit access to enough small businesses.
So my question is: how will we fix that problem by bringing in a venture capitalist used to saying no to most businesses requesting funding?
I wrote a lot more over at the OPEN Forum on this topic. Dawn Rivers Baker also wrote about it.
What do you think should the ideal qualifications for SBA head?
Dubbed the Bill Cosby of Entrepreneurship
Daily Small Business News Feed
Could it come up a new alternative to the Small Business Administration as such?
I think there is a good reason for bringing a VC to head SBA.
Lending and investing (as a VC) has something in common: Get a return. Although the expected return for VC funds is much higher than lending.
A VC’s skill in identifying companies with sound fundamentals and growth potential will be critical for assessing the right companies to lend to – after all, the lending decision is also based on merit more than the needs of the companies.
Just a thought.
Hi Martin, yes, I think the idea is to bring change to the SBA. This wasn’t exactly the change I would have picked, that’s all.
– Anita
Hi Jordan, I think you’re probably right that that’s the thinking. I guess the question becomes, should that be the thinking?
– Anita
Do you know any private small business organizations that have commented on the appointment? Could you find an European counterpart to SBA? (I recently watched the clip from LeWeb at SellingToSmallBusinesses…;)
Good read. I’m a new reader of your blog and like it already! You may also like ScottDig. It’s a blog written by a venture capitalist who discusses travel, tech, books, wine and life. It’s a mix between the four hour work week and venture capital, pretty much.. http://scottdig.com
Scott Scheper: Nice blog and design layout. Your post, Twitter is for ‘followers,’ and Facebook is for ‘friends.’ on ProBlogger was an eye-opener for me. I want to visit the West Coast and Orange County someday. My favorite organization that is spreading better ideas, is located in Orange County.
Opinions vary, but it will be interesting to see what comes of this in the long run. I suppose that’s when we’ll truly know if it was a wise decision or not.
Excellent point!
I think they should have hired a beauty parlour owner
You all are missing the whole point about what the SBA could do for small businesses. Forget about SBA backed loans. You need your bank to back the loan, forget about the SBA for loans, they don’t give loans out.
The real opportunity is to get the SBA to hold the Fed to the fire on keeping the small business contracts delivered to small businesses. See the http://www.asbl.com podcasts. This is a freaking gravy train folks. Get certified and sell to the government.
http://speechrep.com/?p=66
They have money, Obama will spend it like no tomorrow. Complaining about a VC to lead the SBA is a waste of time, this person is an adult. Look GWB had Steven Preston a former SVP at First data and CFO at Service Master 2 very big companies as his SBA administrator for a very long time. Give Karen a chance, VC’s know more about business creation than CFO’s of Big companies.
The SBA SHOULD be about lending to small businesses (through banks), Jim Peake.
Past SBA choices were not exactly inspired, I will agree. But why compound mistakes with another equally blundering mistake?
If you’re going to get back to SBA’s mission it should be about helping as many of the existing small businesses as possible. The SBA is not there to create new businesses, especially not the high-flying kind that venture capitalists want to create.
I will agree with you on one thing, Jim Peake. Small business contracting is a HUGE scam … a black hole.
Walt (no Last name)You don’t really believe that the SBA the Republicans and Democrats want small businesses to succeed? Start to FOLLOW THE MONEY do some homework. Here are a couple of links:
http://video.google.com/videoplay?docid=-515319560256183936&ei=xflUSdenMYnWqQL-vbCfBA&q=money+masters
http://www.youtube.com/watch?v=_P6F87m84CQ&feature=related
http://www.asbl.com/files/20080821_loudobbs.mp3
Sorry to see a VC will head the SBA. They are usually very short sighted, quick returns oriented and fund wealthy well connected individuals. They also focus on service, S/W and web plays which have relatively low development costs. That won’t help create jobs or encourage entrepreneurialism in our floundering economy.
What we need is someone who can anticipate a trend and fund actual products that will be globally viable. That will help us produce something tangible that can be sold overseas to not only help our domestic economy but help the trade imbalance as well.
It’s possible that she will be innovative, open minded, compassionate and working towards the long run of strengthening our economy. I haven’t met a VC yet who is like that but again, it’s possible.
I think this could be a good thing.
Those who criticize the appointment of Karen Mills simply because she has a background in venture capital will be reassured when they see what I anticipate to be a very successful tenure at SBA. VCs arouse negative feelings in many people, generally because the VC’s job is to maximize return to investors. But VCs also understand what it takes for a business to be successful, and it is the successful businesses that create and retain jobs. Karen Mills has a far broader perspective than maximizing investor ROI. She has spent the past couple of years looking creatively at how to boost business growth and job creation, is recognized for her expertise in cluster development and commercialization of research and development, and brings a strong focus on effective program development to SBA. Give her a chance: I am confident that she will restore SBA’s tarnished reputation and break new ground that will be supportive for all types of businesses.