Just Say No to Taxpayer Money for Venture Capital

In a previous article, I pointed out Guy Kawasaki’s humorously blunt advice about venture capital. I stressed this point: very few companies are good candidates for venture capital funding.

This is precisely why I do not support the continuation of the U.S. Small Business Administration’s SBIC program. The SBIC (Small Business Investment Companies) program uses federal money as venture capital.

News reports make it sound like eliminating the program would hurt needy entrepreneurs. But few entrepreneurs qualify for venture money.

Besides, it is not as if the government is giving money away directly to entrepreneurs. The money goes to special venture capital funds to help minimize their investors’ risk and give them more money to play with. And their use of that money hasn’t exactly had a stellar track record. The program is more than US$1.2 Billion in the hole.

That’s $1.2 Billion of taxpayer money lost.

And it’s likely the losses will approach US$2 Billion before all is said and done.

The Office of the Inspector General of the SBA issued a report critical of the SBIC program in May 2004. The report concludes that too much risk is being taken on by taxpayers.

There are wiser uses for taxpayer money. More small businesses can qualify for loans than for venture capital — by far. More good can be done for more small businesses through the SBA’s lending programs. Congress and President Bush should continue to fund the SBA loan programs.

However, they should let the SBIC program die a natural death. Government should not be subsidizing the venture capital industry, which is what the SBIC program amounts to. Providing high risk venture capital is for private investors, not taxpayers.

Unfortunately, it looks as if the Omnibus Appropriations bill that was passed this week in the U.S. Congress has given a reprieve to the SBIC program, at least insofar as Congress is concerned. U.S. Senator Olympia Snowe, Chair of the Senate Committee on Small Business and Entrepreneurship, generally has been an excellent advocate for U.S. small business. However, she is off base on this one.

Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.