▶ 0:17:28Let me welcome everybody. And before we get started, I want to recognize Congressman Sterber from the great state of Minnesota who to lead us in the pledge and the prayer. Dear Lord, thanks for this wonderful day. Thanks for bringing us together. Thank for the leadership of our ranking member and our chairman today as we do the people's business. Lord, we thank uh for thank you for the safe travels of our witnesses to come here and testify, give us their experience.
▶ 0:17:55And we pray for all of our staff who work so hard behind the scenes uh to help us all become successful. We are one United States of America and we shall never forget that. In your name we pray. Amen. Amen. Would you please join me in the pledge of allegiance? I pledge allegiance to the flag of the United States of America and to the republic for which it stands. One nation under God, indivisible, with liberty and justice for all.
▶ 0:18:36Okay, good morning to everyone and uh I now call the committee on small business to order. Without objection, the chair is authorized to declare a recess of the committee at any time. I now recognize myself for my opening statement. Welcome to today's hearing, Fueling America's Future: How Investment Empowers Small Business Growth. I want to thank our witnesses for being here today. Many of you have traveled a long way to share your experience and perspectives, and we deeply value your time and your voice. When small business uh uh succeed, America succeeds.
▶ 0:19:03Small businesses excel when they have access to the capital needed for growth on terms that they that support them. Today's hearing will focus on the essential role of private capital and public private partnerships in small business investment. Given the the tightening of bank lending standards and the persistence of high interest rates and the Biden's disastrous economic policies creating investment opportunities for small businesses is more valuable today than ever before. Thankfully, under the leadership of President Donald Trump, Main Street America is more hopeful than ever.
▶ 0:19:31President Trump is bringing back American manufacturing, cutting regulatory red tape, revitalizing small business, and supporting American investment. By prioritizing economic growth over the political agendas, we are unleashing capital back into the hands of job creators and innovators and filling a new era of prosperity that strengthens Main Street and empowers small business owners. Renewed optimism in America's next golden age is inspiring greater investment in small business, which drives entrepreneurship and American innovation.
▶ 0:19:59These private investment uh help will fuel business growth creating opportunities for strategic guidance, mentorship and industry connections. In addition to private investment, small business can also seek out public private partnerships. The SBA's small business investment companies program known as the SBIC program demonstrates how the government partnering with private investors and following the private sector to make investment decisions.
▶ 0:20:25stimulus innovation strengthens domestic supply chains and enhances national security. SBIC's are privatelyowned companies that are licensed and regulated by the SBA. SBIC's raise private capital to invest in small businesses through debt and equity. The SBA doesn't invest directly in SBIC's but supplements private capital with governmentbacked funds to strengthen support for small business.
▶ 0:20:49My friend and colleague, Congressman Dan Muer from the great state of Pennsylvania introduced a bipartisan bill, the Investing in All of America Act of 2025 to expand access to capital through SBIC's for small business in manufacturing critical technology industries in rural areas. I look forward to working across the aisle with the Senate to move this bill forward.
▶ 0:21:09When investors support business growth and businesses generate returns for investors and the business itself creates a cycle of success that strengthens America's economy and and propels Main Street toward economic success. With that, I will yield to our distinguished and my friend, ranking member from New York, Miss Velasquez, for her opening remarks. Thank you, Mr. Chairman. This is a very important and timely hearing, and I want to thank all the witnesses for being here this morning.
▶ 0:21:37Today is Liberation Day, the day President Trump said he plans to roll out a set of tariffs that he promises will free the United States from foreign goods. In anticipation of today, our public markets slipped again yesterday in another volatile day of trading. The uncertainty surrounding the president's tariff policies has put our public markets on a roller coaster ride.
▶ 0:22:06On Monday, the S&P 500 touched a sixmonth low. For the first quarter, the index lost 4.6% while the NASDAQ composite dropped 10%. That marked the worst quarterly performance for both benchmarks since 2022. The Dow has dropped 1.3% during the first three months of the year.
▶ 0:22:33With confidence in our public markets never shake, it is vital that our private markets step up and facilitate financing to our nation small businesses. Traditionally, small businesses has been more reliant on bank financing to their credit needs than large businesses.
▶ 0:22:54But as we will explore today, in recent years, small employers have increasingly relied on private forms of investment and credit to meet their financing needs. The SBA SBIC program is a responsible and effective method for small businesses and startups to partner with private equity investors.
▶ 0:23:17Currently, the SBA partners with more than 300 privatelyowned and managed SBIC's to provide financing to small businesses with private capital. The SBIC has raised through the an SBA guarantee the venture.
▶ 0:23:34As of 20 2024, the SBIC program has made more than 194,000 investments and employed and deployed more than 130 billion dollars of capital to small businesses. Under the Biden Harris administration, the SBA created two new types of SBIC, the cruel and reinvestor SBIC and made important upset to the program.
▶ 0:24:02I look forward to discussing how these changes have streamlined and modernized the program. More broadly, private funds like private equity, private credit, and venture funds have become a critical source of financing for small firms, particularly those that need retooling or jaws on the cops of growth. For example, the private equity industry invested in 18,000 businesses in 2022.
▶ 0:24:3140% of which had fewer than 50 employees. Likewise, private credit funds facilitated loans 3,600 companies in 2022 and tend to serve small to middle market businesses with 150 employees or fewer.
▶ 0:24:51So while there's no doubt that the role private funds play in the American economy is significant, these funds can also present serious risks for small businesses, their employees and their community. It is important to note these fund have drawn significant criticism over the years for the strategies they at times choose to employ.
▶ 0:25:15Unlike conventional bank loans, the research unfortunately demonstrates that women and minorityowned and small businesses outside a certain geographic area have less less access to private funds that their counterpart. For example, black and Hispanic female entrepreneurs receive less than 1% of all venture capital investment in 2020.
▶ 0:25:42I look forward to exploring all these issues and more to ensure our private markets are appropriately regulated, transparent, and working for the long-term benefit of our small businesses and their employees, especially at a time when federal agencies are losing critical staff and funding. Thank you, Mr. Chairman. I yield back. Lady yields back. And I will now introduce our witnesses. Our first witness here with us today is Mr.
▶ 0:26:12Brett Palmer. Mr. Palmer has served as president of the Small Business Investor Alliance in Washington DC since 2008. Prior to that, Mr. Palmer worked as the managing director of government relations at the National Association of Insurance Commissioners. Before joining the SBIA, Mr. Palmer also served as a assistant secretary for legislative affairs and deputy assistant secretary for trade legislation at the Department of Commerce. He served in several roles in the house, including as a policy aid to former speaker N. Gingrich. Mr.
▶ 0:26:41Palmer holds a bachelor of arts degree from Davidson College. I want to thank you uh for being here today and taking time to let us hear your conversation with us. Our next witness here with us today is Bill Bal. Bill has served as as the managing director of the Ohio Innovation Fund in Columbus, Ohio since 2016. He spent more than 20 years as a venture capitalist in Silicon Valley before bringing his experience back to Ohio. Outside of the Ohio Innovation Fund, Mr.
▶ 0:27:08Balma serves as director at multiple companies including Aware, Sterling, Ultraore, Ultraord and others. In addition, Mr. Bal is an investor and adviser at Immuda uh and and Enable Injections, Trace 3D and Script Drop to name a few. He is also a member of the National Venture Capital Association. Mr. Bomble holds a master of business administration from the University of Michigan and a bachelor of science in accounting economics from Ohio State University.
▶ 0:27:37So, who do you root for on Saturday? That's the question. So, thanks for joining us today. We look forward to our conversation. Okay. And I now recognize a ranking member from New York, Miss Velasquez, to briefly introduce our last witness. Thank you, Mr. Chairman. I would like to introduce and welcome Mr. Anthony Simo Simino to the committee. Mr.
▶ 0:27:57Simino is vice president and head of policy accarta, a private markets infrastructure company that provides equity management and valuation services for more than 45,000 companies and fund administration services for 6,500 fund and fund vehicles. Prior to Carta, Mr. Simino worked on policy for trade associations focused on driving capital to more people, more entrepreneurs and more businesses.
▶ 0:28:28In addition, Mr. Simino served as a senior staff for the committee on financial services during the financial crisis and the committee's work on that front act. Mr. Simino has an MBA from Job Hopkins and an undergraduate degree from UCLA. Mr. Simino, thank you for joining us here this morning. Lady yields back and thank you to all of you again. We appreciate all of you being here today.
▶ 0:28:57So before I recognize the witnesses, I'd like to remind them that oral test that their oral testimony is restricted to five minutes in length. Now, if you see the light turn on in front of you, it means your five minutes is up and it's concluded and you need to wrap it up quick. And if you don't, you're going to hear this, okay? And that means it's over. All right? Uh so uh and also one other thing I want to say we have a lot of other hearings going on today. So you may see a lot of the committee including the ranking member and myself get up leave come back. Has nothing to do with your testimony.
▶ 0:29:26It's just that we got a lot going on today. We have the mark. We have a mark service. We do and that's a long thing to do right. If you'll keep it short we'll get clear quicker. We'll Okay. And now I now recognize Mr. Brett Palmer for his fiveminute opening remarks. Good morning, Chairman Williams and Rank Member Velasquez and members of the committee. Thank you for holding this hearing. Uh my name is Brett Palmer.
▶ 0:29:51I'm president of the Small Business Investor Alliance, and our mission is to maintain a robust, healthy, and competitive market for small business investing right here in the United States. SBA was formed in 1958 to represent small business investment companies, America's original venture capital and private equity funds. Prior to SBIC's, the only source of equity capital for new or growing businesses were corporations. in the three Fs of capital access, family, fools, and friends. Um, President Eisenhower knew we could do better than the three Fs.
▶ 0:30:18And for our small businesses, he created the SBIC's to kickstart a new private capital market that is now the envy of the world. It's hard to believe it, but it's true. The federal government created what we now call the venture capital industry with the establishment of the SBIC's. And for nearly 70 years, SBIC's have been a critical part of getting institutional capital to small businesses that are often overlooked by the biggest financial firms or in the most concentrated population areas.
▶ 0:30:41SBIC's are American success story, an example of successful public policy that aligns the power of private markets with the public interest of job creation, economic growth. While while some small businesses don't want to grow, that's fine. But some small businesses do. And that's what we want to do is we want to help them um grow because when they when they do grow they need outside capital and they need outside experts to help them scale up because sometimes it's called a valley of death from going from small to medium.
▶ 0:31:08The only way to be a successful SBIC is to find those smaller businesses and help them grow into bigger, better, more resilient businesses. Because SBIC's are only able to make a profit by successfully growing the small businesses. They cannot cut their way to profitability. They have to grow it. There are icons of American industry, including Federal Express, Apple, Intel, Callaway Golf, and many others that have received SBIC capital when they were small and when they were young. These companies are recognized globally, but most small businesses backed by SBI's simply grow into robust middlesized businesses.
▶ 0:31:37They never go public, but they succeed. The Library of Congress did a study a couple years ago. Um, when they looked at it, they found that SBIC investments that were debt oriented grew small business employment by about 150 jobs per small business. and for equity investments into those small businesses, it was about 350 new jobs. Those are really big numbers for small businesses. And the study found that when they um they looked back, the the SBIC's created about three million new jobs across those small businesses. That's really powerful.
▶ 0:32:07And while some of these small businesses are high-tech world changers that I mentioned, most are doing the services or manufacturing the products that are invisible in the national stage, but they make our economy robust and they make their community stronger. For example, Builder's Buyers Group in Representative Scolton's district. They help independent home builders lower costs by be helping them buy products at scale to compete with national builders and get better pricing. Since the SBIC investment, revenue and earnings have increased by more than 125%.
▶ 0:32:34Another is Advanced Industries in Representative Alford's districts. It's a small manufacturer of complex containers, some of which are used by DoD. Since their investment at the depth of pandemic, they haven't grown employment by over 16% from Peach Tree City Oakland uh from Peach Tree City to Oakland to Mission uh Kansas to Hardinsburg, Kentucky to Winona and Hayfield, Minnesota to Adessa, Missouri to Cornwall, Pennsylvania and Appleton, Wisconsin. They're small businesses, particularly small manufacturers that are able to grow.
▶ 0:33:01To put it in the simplest terms, SBIC funds are private investment vehicles that pull capital from institutional investors like pension funds and endowments. And then they leverage they use uh SBA leverage to invest in those small businesses. So the private capital leads and the SBA leverage follows and amplifies. It's 100% small business 100% domestic with a lot of investments in manufacturing and in low-income areas.
▶ 0:33:23All of which is which is done at zero subsidy to the taxpayer because access to capital is a key growth is a key to growth for small businesses and will always be a challenge to small businesses. Scale is real. It's a it's a challenge for everyone. And traditionally, as the ranking member pointed out, banks help finance small businesses that have a stable revenue history and assets to borrow against.
▶ 0:33:42Unfortunately, a lot of newer businesses and smaller businesses, particularly low-income areas and rural areas, and rural areas are generally low-income areas, uh, tend to have more difficulty accessing traditional sources of capital and credit because they don't have the balance sheet of big businesses and they're seen as too risky. This is where SBIC's fill the gap by changing the balance sheets and being the first institutional capital deployed into many small businesses. Once the SBIC capital is invested into a small business, then the small business is able to access conventional bank capital.
▶ 0:34:10With SBIC's, small businesses can access the capital markets in a similar way to big businesses. And the SBA is doing interesting things with DoD. There's a strategic partnership uh to license critical technology SBIC's. These funds are designed to support critical national security industries and supply chains to compete with other uh countries around the world who are being very aggressive um as far as you know what what they're doing with their economies versus ours.
▶ 0:34:34And demand for SBIC capital is such that SBIC's are looking at 400 to 500 individual small businesses before they invest in a single one. The demand for the capital is real and it's there. And there are about a 100 new SBIC's forming representing about 20 billion new dollars in small business investment that's going to help fill this ongoing gap. this gap is this this market has grown dramatically for private credit, private equity, uh venture and venture lending. Um and I thank the committee for having this hearing and I'll be happy to answer any questions that you may have.
▶ 0:35:03I now recognize Mr. Bal for his fiveminut opening remarks. Chairman Williams, Ranking Member Velasquez, and distinguished members of the US Committee on Small Business, thank you for the opportunity to discuss an issue vital to our country's prosperity. Empairing empowering America's entrepreneurship. I graduated from Ohio State, Michigan. My first venture capital startup investment was based in Baiji, Minnesota.
▶ 0:35:29The first company provide fiber home systems that bundle voice, video, and data services in underserved rural areas. I continue to invest and partner with founders across a variety of sectors. From groundbreaking health technologies like the first continuous glucose monitor for diabetics to cutting edge data security solutions used by global giants like Starbucks, Walmart, Chevron, Croup, General Motors, and the US Air Force. Over the years, many of the startups I've worked with have gone public or been acquired by companies like Nvidia, Into it, Metronic, Dell, and Oracle.
▶ 0:35:59I have worked 15 years in Silicon Valley in Boston and 15 years in the Midwest, partnering with hundreds of entrepreneurs to navigate the challenging journey of scaling a startup. Currently, I run the Ohio Innovation Fund, a venture capital firm founded in 2016, specializing in sectors like software, artificial intelligence, cyber security, and biotech.
▶ 0:36:21Our portfolio companies form partnerships with industry leaders like Santa Fe, Roast Janentech, Eli Liy, Samsung, Dell, Service Now and Snowflake with many of the Fortune 500 and leading medical institutions as clients or clinical trial partners. At Ohio Innovation Fund, we provide the real world experience and market insights that startup need startups need to succeed. Offering guidance on business strategy, product development, financing, and team building.
▶ 0:36:48Many of the entrepreneurs we work with in the Midwest are firsttime founders relying our expertise to realize their star's full potential. For example, we partner with Sterling Ultra Cold, a company based in Appalachian, Ohio, manufacturing ultra- low temperature freezers for leading bioarma companies. Our support helped them scale to 100 million annual shipments. And many of the original investors employees became millionaires and now they are local angel investors which has contributed a cycle of wealth creation and reinvestment in Appalachia.
▶ 0:37:17EFuse, a leading esports software platform, was founded by a college intern we mentored. In only five years, Efuse has grown to tens of millions in revenue, partnered with companies like Epic Games and Activision with influencers, investors such as Oda Beckham Jr. and Tim Tibo's Waterstone Impact Fund. Founder Matt Benson says, "Bill mentored me, offering both strategic guidance and invaluable access to his networking expertise. I'm living in proof of the impact OAF makes by empowering the next generation of innovators.
▶ 0:37:46OAF worked with the wear, a cyber security company leading to an acquisition by MCAST, which has established an AI hub in Columbus to provide enhanced and new innovative solutions to the combined 40,000 plus customers, creating jobs and expanding opportunities for our local community.
▶ 0:38:02Aware founder Jeff Schuman, head of AI strategy at Minecast, says OAF's worldrenowned go-to market expertise and hands-on collaborative approach was like bringing a superhero onto our team, equipping us with unparalleled power and Bank funding is not an option for most startups. So early stage venture funding partnering with public capital sources such as those from the Small Business Administration is essential.
▶ 0:38:25For Claret's CEO, without venture support from OAF and public funding sources like Carbex and the National Institute of Health, their groundbreaking biootherapies would not have reached clinical trials. This partnership enabled them to advance collaboration with a major biioarma company. Beyond supporting startups, we're committed to helping seed the next generation of entrepreneurs. Each year, we engage with hundreds of students through internships, boot camps, and mentoring, helping them gain practical experience connect with the startup world.
▶ 0:38:54Many go on to join top firms like Goldman Sachs, JP Morgan, and Anderil. But many more stay in the Midwest VC ecosystem, including at our high innovation fund, our companies, contributing to the growth of the next wave of innovators. Our success stories highlight the transformative potential of entrepreneurship outside traditional hubs. It's critical to continue fostering innovation areas like Ohio where capital is limited and ecosystems are still developing.
▶ 0:39:22State resources also play a key role. For example, Sterling Ultra Cold partnered with Jobs Ohio to receive capital help scale up those manufacturing operations to allow them to grow to hund00 million in revenue over a couple years. State res. Um, in conclusion, the success of entrepreneurs depends on a combined effort from venture capital, federal government support, and state resources. Together, we can provide the resources and guidance needed to create a high growth business that will drive the economy forward.
▶ 0:39:50Thank you again for the opportunity to testify, and I look forward to discussing how we can work together, improve capital access, and empower entrepreneurs across the United Thank you very much. And now we recognize Mr. Anthony Simino for his fiveminute opening remarks. Chairman Williams, Ranking Member Velasquez, and members of the committee, thank you for the opportunity to testify today on expanding investment in the role of the SBA. I'm proud to be here on behalf of Carta, a company that serves as the infrastructure for private capital.
▶ 0:40:21Carta provides equity management and valuation services for 50,000 private companies and their employees. We provide fund accounting, portfolio management, and investor reporting for approximately 7,000 funds. Our endto-end platform connects private capital, ultimately supporting the development of this ecosystem. Startups and small businesses and the private capital that backs them are this nation's economic and innovation engine. This ecosystem has created 70% of net new jobs since 2019.
▶ 0:40:50It accounts for half of US economic activity and it spurs innovation. Over the past 50 years, the US has started twice as many companies as the rest of the G7 combined. This is what has provided our nation its competitive edge and importantly led to more opportunities for more Americans. But to start and grow a business, to contribute to this economic dynamism, startups and small businesses need access to capital. It is a gating issue and for many entrepreneurs, traditional financing is not available.
▶ 0:41:20Banks typically do not lend against an idea or an unproven product in an unproven market. That is where private capital steps in. Private capital provides entrepreneurs and small businesses with long-term risk forward capital to launch and build companies. The company gets a check and the investors get a stake in the business. But these investments are more than a check. These funds become strategic and operational partners helping these companies succeed.
▶ 0:41:46In broad terms, venture capital helps turn a concept into a company and private equity can help it grow and mature. And yes, the private capital ecosystem is growing, but it is still too concentrated. Capital is the lifeblood of small businesses, but these funds are flowing to specific regions and to select communities. To illustrate this point, California companies attracted half of all venture investments last year.
▶ 0:42:10Even in New York, which attracted approximately 11% of venture funding, the bulk of that capital hit places like Manhattan, not necessarily places like Brooklyn. This disparity in access is even more stark when you examine it across the broader country. So our collective charge is to change this. We must not merely bolster this economic engine, but broaden it. Broaden it to more people, to more investors, to more companies, to more communities. And to do this, we need to expand the investor ecosystem into more regions.
▶ 0:42:40Regional capital can create regional economic hubs. This starts the flywheel. Emerging and regional managers tend to invest early, invest locally, and invest diversely. These investors back entrepreneurs in the region. And these entrepreneurs launch and build companies which attract employees to the region. These employees earn income, develop skills, further broadening the ecosystem in which to invest and on which to build. It all starts with the investors that increase access to capital.
▶ 0:43:08and policy can help drive this to more places in the country. First, we should build on the success of the program. This program enables proven investment managers to tap more capital to invest in startups and small businesses, all while being a strong steward of taxpayer resources. The SBIC's recent enhancements to allow acrruel Debenture and reinvestor offerings will align more with venture focused funds and put more money into the ecosystem.
▶ 0:43:35SBIC's are making a difference and we support ensuring the SBIC has the operational capacity to support this program and even more stakeholders to engage with it. Second, we should continue to improve the program. The bipartisan investing in all of America Act does just that. This legislation incentivizes capital deployment to overlooked and underserved rural areas and into the national security sector.
▶ 0:43:59Driving investment into these segments is in the national interest, both unlocking more economic growth and helping us maintain our global competitive edge. Third, we can do more to broaden employee ownership. Expanding ownership helps attract, retain, and align talent with the businesses, ultimately helping them thrive. And for employees, ownership enables them to participate in the profits they're helping build, as well as have access to an uncapped upside.
▶ 0:44:26And importantly for the community, employee ownership makes it likely that these small businesses will continue to operate and create e create economic growth even after an entrepreneur retires. American ingenuity is not limited to certain areas and people. Unfortunately, capital and consequently, some of that opportunity remains too concentrated. Policy can help change that, expanding access to capital to more small businesses and more communities. Carter looks forward to supporting this committee's effort.
▶ 0:44:55I thank the the committee and the staff that worked tirelessly on these issues and look forward to answering any of your questions. Thank you very much. And uh we will now move to member questions under the five-minute rule. Uh I recognize myself for five minutes. Mr. Palmer, strengthening domestic manufacturing and investing in is critical technologies are the key to enhancing economic competitiveness and national security.
▶ 0:45:18However, small businesses, especially those in rural communities, often struggle to access the funds needed to scale innovative manufacturing operations. President Trump and SBA administer Leler have taken immediate action to return manufacturing to America. Through SBA's putting American manufacturing first initiative, small businesses are put in the driver's seat of the resurgence. Infusing investments and other supporting small business manufacturers will bring the golden age of America to us.
▶ 0:45:46Small business investment companies play a critical role in investing in areas and industries that are fewer investment have fewer investment opportunities. So, Mr. Palmer, can you speak to how SBIC investments support the revitalization of American manufacturing and rural communities? Sure. Um, manufacturing is important. It's important nationally. It's important to SBIC's. It's important to our national security. It's important to our economy. Um, the uh our manufacturing base has to constantly be reinvented.
▶ 0:46:15We have new manufacturers need to be created but we also need to take the invest the manufacturing base that we have and take it to the next level with new technologies new uh efficiencies new markets and that's done commonly through SBIC's. We take we can SBIC's invest in old metal benders and reinvent them uh and take them to the next level. SBIC investments fail very rarely. They they overwhelmingly succeed. Uh and that manufacturing is a key part key part of that.
▶ 0:46:42Um, the Department of Defense partnership with the SBA is a really good idea. It's long overdue. I'm surprised we didn't come up with this 30 years ago. Um, but they're working, the DoD is collaborating very closely with the SBA to make sure that these small businesses that have that that are doing these issu these industries that are important to our manufacturing and to our global competitiveness, not just from a government contracting perspective, but just industries we want here and not in China, for example, that they can access that capital. And that's what the SBIC's are doing with DoD.
▶ 0:47:11I want to follow up on that. Your SBIC's have been engaging with the Department of Defense Office of Strategic Capital to uh track private investment into technologies critical to national security. So, can you tell us a little bit about how SBIC investments help boost America's national security? Sure. Um the best uh you know, just like in you know, sports, the best defense is a good offense. You know, just keep you know, just just keep keeps putting points on the board on the other other team.
▶ 0:47:40Um, you know, we've got to constantly be putting points on the board economically to our country, being a dynamic economy that's not rigid, that's constantly reinventing itself, and that's what the SBI's are doing. Um, and they're doing it in areas that are, you know, related to the computer industry, related to the manufacturing of of of metals that could used in defense industries that you could use in avionics for satellites and communications. It's all integrated. And it's also all used by civilians, too. We have to have both.
▶ 0:48:08They're not a separated economy and that's what the SBIC's are connecting. One more quick followup. What steps can Congress take to enhance SBIC's ability to invest in America's small businesses? Well, I I think I think the uh investing in all of America act by Congressman Muser and and Sculton is really critical um because it creates an incentive, not a financial incentive, but a a a investment incentive to invest in areas that have sometimes been forgotten or passed over. Uh and particularly for industries like manufacturing, it has a piece in there.
▶ 0:48:37So, I think that would be the best thing this committee could do. Okay, Mr. Bomb, on time I've got remaining just over two months, the Trump administration's already helped push $2 trillion into private investment in the United States. And these investments are important to help businesses grow as we enter the golden age of America. So, last Congress, we heard from small businesses about the barriers they face when looking to attract investors, particularly in rural communities again. So, Mr. Obama, you choose to create your investment fund in Ohio rather than California. And how has that decision helped to find investment opportunities that may have been overlooked?
▶ 0:49:07And what can be done to better connect the types of businesses you invest in with the investors throughout America? I mean, there is just as much talent in Ohio. Microphone. I'm sorry. Yeah. Sorry. Thank you. There's just as much talent in Ohio, Pennsylvania, um, all the different states in the Midwest as there is in Massachusetts, Boston, or in Silicon Valley. Uh the main thing is empowering, enabling them and bringing the expertise and that's what Ohio Innovation Fund brings. Um and so we've done that. Uh particularly in rural areas. Um I mentioned Sterling Ultra Cold before.
▶ 0:49:37Uh that's an advanced manufacturing company. Advanced manufacturing. Manufacturing was kind of a a necessary thing to do in the past. A lot of times outsourced manufacturing is now a strategic advantage. and to uh you know to uh uh the uh ranking member Velasquez's comment that also by doing that rural areas we actually partner with community colleges we partner with local universities and train the next generation of advanced manufacturing personnel you know to go in those areas um but the opportunities whether
▶ 0:50:07that be in biotech cyber security data science and all the different areas are just as strong in Ohio as anywhere else money and expertise my time is up and I would say don't forget Texas. Sorry about that, sir. Okay. Thank you. I now recognize the ranking member for 5 minutes of questions. Thank you, Mr. Chairman. Um, Mr. Simino, can you explain why the SBIC program remains an important source of investment financing for so many small businesses and startups?
▶ 0:50:38And can you explain how this program fulfills the the statutory mission of SBA? Yeah, it's a thank you for the question. When we look at most entrepreneurs, in many cases, they couldn't even access traditional financing. So unless they were independently wealthy, many of them would only be able to build those ideas at incumbent companies. So private capital itself is so critical to unlocking more people to become entrepreneurs and build small businesses, ultimately driving much of this economic growth.
▶ 0:51:08So the first part is the availability of that loan. The next piece is working with these fund managers in ways that can get customizable arrangements whether that's equity or debt that more aligns with the business and then becoming strategic partners where SBIC's come in is in many cases broadening that reach because as I mentioned 50% of the capital went to California on the venture side when you look at the SBIC program only 10% of the capital went to California that means 90% of that
▶ 0:51:38is going into the areas of the country that the traditional funders weren't. And this is exactly what SBIC is doing. It's taking that professional manager and giving more access to capital for more entrepreneurs. Thank you. Uh Mr. Paul Mayer, I I heard you uh mentioning the investment that have been made through the SBIC's in places like Kentucky, Michigan, Pennsylvania, Minnesota. I didn't hear even New York or Brooklyn. As as a as a New Yorker asleep. No, no.
▶ 0:52:07as as a as as a native New Yorker, I I apologize to to my my to my my New York brethren. I know New York is a is a huge area for um uh SBIC's. Um and uh there's a it's it's it's all over the place. I was mentioning that just because when you people think of investment, they think of New York, they think of Chicago, they think of San Francisco, they don't necessarily think of Maryland or Minnesota. And that's and so I was trying to just be inclusive, but I I apologize. U Mr.
▶ 0:52:37Palmer reinvestor SBIC's are an often overlooked SBIC type that is based on a fund of funds model that uses the cruel the venture and two times tiers of leverage to reach more underserved community. Can you explain how the reinvestor SBIC works and why it can help investment capital reach more more rural and underserved communities? Sure.
▶ 0:53:05No, actually I I think it's a great question because I don't get asked it very very much and I think people should know about it. The reinvestor model is basically a development league for new venture capital and new private equity funds to serve underserved industries like manufacturing, underserved markets like rural or lowincome or other underserved in different varieties, whatever you want to make it.
▶ 0:53:27Basically, it takes a SBIC and it's a fund of funds, which is not a common term outside of finance, but that the the SBI then invests in non-levered SBIC funds that are around the country that are investing in different types of businesses. So, it uses the portfolio effect to distribute risk, but develops a whole next generation of investors, whether it be venture, private equity, growth equity around the country. And it's it's a really market driven development league. Thank you. And uh Mr.
▶ 0:53:55Pormer uh let me start with you with on this question with the announced plan by the SBA to cut more than 40% of the work uh force um what consequences do you foresee happening to the SBIC program without the proper personnel in place to manage it especially when the SBIC requires technical understanding about market strategy time horizon license
▶ 0:54:25deal flaws and the utilization of leverage to properly manage and oversee. Sure. The SBIC program is about $50 billion and it's managed on about 11 million of salary. Um that's about a hundred times more efficient than generally the private sector runs on um uh when they're managing private equity funds. Um it's really specialized skill set that's needed. It's a taxpayer protection particularly on the licensing side to know what you're getting into.
▶ 0:54:54Um but so far we haven't seen any negative impacts on the SBIC side of the house yet. Again, it's it's early days, but it's um but it's important to maintain that that section. One of the things we'd like to see is the fees that the SBI's pay stay inside the SBIC program so that we can maintain the staff that we have and even bring in other expertise. Mr. Simon, would you care to comment? Yeah, I think it's really critical that we double down on the programs that are working.
▶ 0:55:18This is a private public private partnership that's driving capitals to capital to more entrepreneurs and it's doing so while protecting taxpayers that staffing to make sure that these funds are operating correctly gets at that point. So that mean that a chainsaw is not the proper tool to deal with reorganization. I we recommend this program maintain its support. I yield back. Lady yields back. I now recognize Congressman Stabber from the great state of Minnesota for 5 minutes. Thank you very much.
▶ 0:55:46You know, public private partnerships like the SBIC program pair governmentbacked support with private sector investment. These programs not only strengthen small businesses, but they also help secure supply chains and advance national security. Mr. Palmer, I for one don't mind that you mention Minnesota before you do New York. I appreciate that. It's the Midwest.
▶ 0:56:09Um couple of things I I would tell you that um you had mentioned something about the success rate uh when SBIC's get involved. Can you kind of give me a percentage of the success rate or maybe the the the limited failure rate? Um well the SBIC program runs a zero subsidy. It's been the SBIC debenture program has run zero subsidy for 27 years. That's a good long run. In the last two years they haven't had to ride off a dime of of of debentures there. It's been running at a surplus. We hope it continues that way.
▶ 0:56:38Even if the the the event that look not sometimes businesses things don't work out in that in the the unlikely event that happens everything's covered by fees um paid by the SBIC fund to protect the taxpayer. Um so the SBI's on again on average add about 150 new jobs for a debt uh offering private credit and about 350 for equity. Those are really big numbers for small businesses. It's very unusual to have a strikeout in the SBIC world. And so c can you explain a little bit more the SBIC's?
▶ 0:57:07Um they've been used to support manufacturers and underserved or rural communities like the one I represent. And what more can we do to the outreach? I love when you talk about 90% of the the venture capitalists go to the coastal elites. But what about in the heartland? This is the SBIC's come to the heartland. Are are we doing a good job of that? And what can we do even better? Well, Minnesota has a very large number of SBIC's. Um and actually the chairwoman of my board in I think three years will be from Minnesota.
▶ 0:57:37Um and you actually in in in excuse me if I butcher the name is it Bodet? Um yeah there you have a man pharmaceutical manufacturer. It's backed by an SBIC up there. I think the key is you have to have you know there geographic diversity matters because proximity matters and also sizes.
▶ 0:57:54you have to have allow for small SBIC's as well as big SBIC's because you know it you you just different check sizes that are different needed for different places and so the program has grown from when I started in 2008 from about $2 billion in private in in capital between private capital and SBA leverage to nearly $50 billion today and it's done that at zero subsidy that's continuing I think that there's massive room for more growth in that and I think the licensing is helpful they just licensed their first fund in North Dakota they've just given their first green light to a fund in
▶ 0:58:24Mississippi. Uh they're forming funds in Kentucky. Uh we have a number of them in Texas. Sorry, I left out Texas earlier, Mr. Chairman. Um but you know, we we should have more. Take Minnesota over Texas. You can say that first. I'm okay. Is that okay, Mr. Chair? Whatever you say. So I this is this is really good news. So this is as a small business committee. This is where we need to invest more of as the gentleman Mr.
▶ 0:58:47Simone said we need to invest where more where things are working and reduce the investment where they're not the return on the investment is this is working. Uh Mr. Balma, what advantages have you seen in investing in businesses outside the traditional coastal hubs and what more can be done to connect investors with small businesses regions like your central Ohio or my northern Minnesota? Yeah. Um as I mentioned my first investment was in Bamiji, Minnesota optical solutions. Yeah.
▶ 0:59:14um since then both both coast I said in Ohio in terms of um uh you know the Midwest the work ethic is absolutely strong the passion is very Could you repeat that the work ethic is very very strong there's a Midwest work ethic and a Texas work ethic um good one he covered you he covered you Mr.
▶ 0:59:36scary and there's a passion our founders not think about oh in data science what might be an interesting algorithm to write they're running a world of problems we have a a person in the case uh MD PhD program that says these binders of clinical studies are crazy and trying to find them and and where they are and compliance signoffs someone forgot and doing multi-trial sites well let's automate the automate all this and have a nice workflow that so the entrepreneurs are very passionate and and they they really believe in what they do and the the people don't which the grass isn't
▶ 1:00:06always greener. The people that join Midwestern startups stay and see it through. They have fortitude. They make it happen. I'm sure it's the same way in Texas. They make it happen. They're not looking for, oh, this could be better or this a little bit more attractive. My options here, my options there. Um I will tell you to your your previous question is we do get some people um that are SBIC back that co-invest with us, but not enough.
▶ 1:00:26Um, and if if in terms of doing that though, um, if the com if the regulation and compliance is reasonable, I think that will be key because I can't hire I mean I I'm operating under hundreds of thousands of dollars in fees, which isn't much to cover staff of six and everything else. I can't hire a whole compliance department and I can't go through a whole ton of regulation. Has to be reasonable. I I like that reasonable regulations. Mr. Chair, and I yield back. Gentleman yields back. I now recognize Mr. McGarvey from the great state of Kentucky for five minutes.
▶ 1:00:55Thank you, Mr. Chairman. Uh, appreciate everybody being here today. You know, I think we're we're at a fork in the road right now in our country and we have a choice to make between tearing down or or completely tearing apart these federal programs that have supported entrepreneurs and innovation for the last half century. We're continuing to invest in these partnerships that that have made the US a leader in innovation because we want to stay a leader in innovation.
▶ 1:01:26Just this morning, there's an interesting if angering and thoughtprovoking piece by Thomas Freedman in the New York Times about what is the future of American innovation. So, I think it's really important we're talking about this today and I think we can look at some of the successes we've had uh you know with the Defense Advanced Research Projects Agency commonly known as DARPA housed in the Department of Defense. Not only did we gain a technological advantage on the battlefield, it enabled us to have things like GPS. Uh it enabled us to to have great technologies.
▶ 1:01:56Uh the internet came out of DARPA that not only do we use uh for defense but have applications in all of our lives, private and in the business community. the SBIC program, the small business investment company. This has been really successful. This has helped us bring Amazon, Apple, Intel, Whole Foods, so many more American success stories, driving business, driving innovation right here in this country.
▶ 1:02:21I think the question we have to ask ourselves is not whether we can afford to invest in and support programs like the SBIC. Can we afford not to? And Mr. Mr. Bomb, I appreciate what you said about startups and that they're not just for the coastal elites. Now, you guys neglected to mention a Kentucky work ethic uh when you talked about these things, but you also went to Ohio State and Michigan.
▶ 1:02:48So, I don't know if you can be completely trusted, but I I I think you are 100% correct that we must remember the heartland and not just Silicon Valley and Wall Street when looking for the next in investment opportunity to invest in that next unicorn to invest in that next business which is going to do incredible and great things in our country. So, I'll start with you Mr. Bomb.
▶ 1:03:11What growth opportunities does the middle part of the country present and how can we encourage more investors to follow your path and to invest in small businesses and startups outside of Silicon Valley? Going back to Silicon Valley, everything started with Fairchild Semiconductor and from there Intel spun out, Kleiner Perkins spun out, all these things spun out. Um, very early on in the Midwest uh in Ohio, Kentucky and other areas.
▶ 1:03:36Um, there is a huge risk for entrepreneurs to start a business if there isn't reasonable access to capital. There's a huge risk for someone to leave Proctor and Gamble or Nationwide Insurance and join a startup if that startup, you know, 80% of the time might not work out. Where do I go next? Do I try and reapply to Nationwide?
▶ 1:03:56So, you know, programs that allow additional funding to come in and maybe incent people like myself, uh, they call us boomerangs that, you know, I was out in Silicon Valley, I've been in Boston, I've come back to do this in the heartland. We need to incent and and more, you know, seasoned venture capitalists who are willing to set up shop and willing to mentor and willing to train, willing to hire. And I know you know in Cincinnati we have a number of companies.
▶ 1:04:23Naval Injections that you know is likely is not you know that likely will be a unicorn type exit. Um providing you know kind of uh onbody drug delivery you know at home versus an IV in a clinic. Um Northern Kentucky I know that a lady uh just set up a a kind of biotech area there and there's a lot of biotech activity happening right across you know the Ohio River. Um you know we we but we need that capital.
▶ 1:04:48We need I mean there's myself and a few other people in Ohio there's not much um as far as experience there's there's not much so we need more you know this type of program to say okay we want to incent we want to enable we want to be somewhat user friendly and well you know with the people that we're trying to incent through the SBA programs to come and set up the venture fund and work with all them not make it a headache. Yeah appreciate that and this Mr. interest. Sure.
▶ 1:05:17Just on that, I agree with everything and we've talked about this that first check distance really matters. Capital is mobile, but proximity matters and there is actually a very significant body of research about how much distance matters. But it's also about building that flywheel, which I think you've done because what we've also seen is that a startup with the same positioning in a generic town versus that in SF, SF has a 277% chance more likelihood that that startup grows and has an exit. And the reason that is is because of talent.
▶ 1:05:47And so you not only need that first check, you need those SBIC's and those investors continuing to build that infrastructure around it. Otherwise, as soon as that startup or small business starts growing, they are encouraged to move back to where those infrastructures exist. So, it is a comprehensive problem that needs to be solved. That first check is so critical. But then it's to your point, how do we keep more investment going there. Thank you so much. And I think this partnership is so important to innovation, to growth in American business, and and if we're not doing it, other places are. Mr. Chairman, I yield back. Gentleman yields back. I now recognize Mr.
▶ 1:06:17Muer from the great state of Pennsylvania for five Thank you very much, Mr. Chairman, and thanks to our witnesses. Uh certainly a big fan of the SBIC as as we uh we really all should be. Uh we're very happy uh SBA administrator Kelly Laughafler uh and the Trump administration are going to be uh focused like a laser beam on fueling small business. Uh because small business has not had a good four years. Uh that needs to change.
▶ 1:06:47uh their in some cases their sales are up but their their net income is way down and that shows in the type of tax revenue that's coming in because tax revenue comes from profitability and small business tax revenue is uh is way down. Uh you can't argue with with those numbers but we're going to work on changing that. So the SBIC plays a big role here. Um uh and it's been very very successful.
▶ 1:07:14Uh the the fact is that through no subsidies um and cost to taxpayers um over $130 billion is being invested in in uh public private partnerships basically. Uh so there's a lot of private sector skin in the game. Uh and this has created great opportunities. Uh there's just it's it's a great government program which is which is hard hard to say, right?
▶ 1:07:38But it is um you know and and we're talking kind of joking about Minnesota versus New York and and uh uh California and uh Texas uh where things are booming. But the fact is that 75 to 80% of the SBIC current investments go towards urban areas. And that's primarily why Mr.
▶ 1:08:01Palmer, you're you're well aware and I think all of you are that we have uh that I'm introducing uh the investing in all of America act to expand uh beyond the uh the cap level of 175 billion to increase it by about 125 billion strictly towards or 175 million towards 125 billion would wouldn't be bad too either towards rural investments. That's where it's designated.
▶ 1:08:29So it's an on on top of what's currently uh allocated focused on manufacturing and critical technology sectors. So Mr. Palmer uh what do you think of that? How has this the SBI program has been successful uh in their current operation and how will the investing in all America act help enhance investments in Pennsylvania and in some of the more rural areas of our great nation?
▶ 1:08:57I think if if we get this legislation through and becomes law, I think you will see every SBIC or nearly every SBIC uh dedicate their business development teams to finding small businesses in those areas because it will it is a meaningful cap that they have now and that they will continue to have.
▶ 1:09:15But it is if you invest in manufacturing or if you invest in a rural area and frankly most new manufacturing is going to be in rural areas because of taxes, regulations, just where can you afford to buy the land to build a really big, you know, building to to put this stuff in. I think you'll see a meaningful pivot uh for a lot of those business development folks to get out of um where they normally are and and spread their uh their their deal sourcing and uh small business opportunity seeking to those areas both industry-wise as well as geographically. Mr.
▶ 1:09:44Bomb, do you agree? Do you think we need to expand this this great lending service where there's a two to one match from the SBA to your to the private lenders, SBIC, regulated lenders? Uh, anything that brings more capital to partner with the expertise and in sense the expertise to be in the heartland the better. Um, that, you know, that is about what I think on that. All right. Well, that that that sums it up. I like that. Uh do you agree Mr.
▶ 1:10:15uh Simeino Samino? Uh I do. We support the bill and I would just say coupling that with some of the recent refinements we've seen from the along like the fund of fund structures, it's going to I think do an even better job of finding additional avenues to drive uh investment into rural areas and broaden this ecosystem. Great. Would you encourage everyone on this committee perhaps throughout Congress to be supportive of of this allimp important bill? I think that's a great idea. Great. Thank you. Um hey um Mr.
▶ 1:10:42Obama, the SEC uh has estimates that going public these days cost $12 million for a business. So maybe elaborate a little bit on why these private markets are so important and and such a important alternative for small businesses to raise capital. Yeah, when I started venture capital um even with the internet, some companies with 1020 million went public. Now companies need to have hundreds of millions in some cases billions of dollars to go public.
▶ 1:11:07So access accessing you know these you know the public markets is difficult and the regulatory burden there is also very difficult. So growing these companies a public market to get to that point is in a longer process not a few years but a decade. Um and therefore that relationship is is is needed and the capital is needed and expertise is needed to get them there. Thank you all very much and please keep up the great Joe Neil's back. I now recognize Mr. Cisneros of the great state of California for 5 minutes. Thank you, Mr. Chairman.
▶ 1:11:37And look, um, no offense to our witnesses here today. Thank you for being here. Thank you for for taking time out of your schedules to be here today. But we really need to have somebody from the SBA administrator, you rather the administrator or other staff here to be here to answer these questions, uh, to talk about what the theme of this hearing is, fueling America's future. We should have people from the SBA here answering those questions.
▶ 1:12:05And if the I call on the uh the chairman and the committee to bring in the SBA administrator, bring in SBA staff to start answering these questions. And if the SBA administrator were here today, I would ask the following questions for her. You know, what is the extent of DOA's access to SBA headquarters and systems? And what has been done to the SBA to ensure that systems were not abused or accessed by individuals without clearance?
▶ 1:12:30What specific offices of depart our departments within the SBA are affected by the announced 43% reduction of the workforce and how is that going to affect SBIC's? Where is the SBA relocating the six regional offices and will any others be closed in the future and how is that going to affect SBIC's? You know, how are appropriated funds being used or not used with the SBA undergoing such drastic changes that Congress has not authorized?
▶ 1:12:58and what is the SBA's plan to handle 1.7 trillion student loan portfolio with less staff and staff not trained to work with such a complex student loan system. So again, I call on this committee to bring in the SBA administrator to bring in SBA staff and let them answer the questions about what their job is going to do and how they are going to handle that job as far as dealing with small businesses across America. And with that, I yield back. Yields back. I now recognize Mr.
▶ 1:13:28Finstead from the great state of Minnesota for 5 minutes. Thank you, Chairman Williams, and uh thank you to our witnesses for being here today. Uh since the start of President Trump's administration, optimism among our small our nation's small business owners has soared. President Trump has put small business owners first by cutting regulations and red tape for Main Street. Southern Minnesota is home to one of the some of the most innovative companies that do cutting edge manufacturing to provide critical products for our nation.
▶ 1:13:56We are the home of uh of great egg egg egg companies. Uh we have counties that have more pigs than people. We are the home of Hormell. If you like spam, you like southern Minnesota. We are the home of the Mayo Clinic and all of the great health care and uh medtech innovations that that come out of our district. We're really proud of that. And we also have a lot of uh small businesses that are working with our Department of Defense.
▶ 1:14:22Small businesses are the backbone of our economy in Minnesota, and we have the opportunity to craft meaningful policies to encourage investments in these businesses that produce critical goods for our nation's uh security while providing stable, high-paying jobs in our communities. So, with that being said, I want to talk to uh Mr. Bal. Uh throughout your career working in numerous states, including Minnesota, happy to hear you spent some time in Baiji. I'm sure you have worked with numerous companies that touch rural America.
▶ 1:14:50And as I travel around my district and and around the country, uh specifically in in rural America, you hear a lot of the same themes of, you know, access to capital, the lack thereof. Uh venture capital, uh looks at rural America as a flyover, uh area. And so want to talk to you a little bit about that. So with your fund, uh are you more likely to engage with entrepreneurs uh in rural communities located in middle middle America rather than companies located on the coast? And and why is that?
▶ 1:15:22You know, our fund is does not invest on the coast to any degree, less than probably 5% of capital. So, we're all within, you know, the h heartland, I'll call it. Um, within the heartland, probably about 25 to 30% of our investments are in rural America, such as Sterling, Ultra Cold, in Athens, Ohio, uh, and those sorts of things. As I mentioned previously, what we found is the entrepreneurs in those areas run into real problems.
▶ 1:15:47um and they want to solve those and so they create companies to do that but they have no idea how to scale that up um the hiring the product roadmap the strategic partnerships the marketing the sales the go to market um the the fundraising how to navigate SBIC how to navigate you know eventually as you become larger and profitable bank lending uh additional v venture rounds and um but these entrepreneurs are also very so hardworking and fortitude but they're also very reasonable so the you know we make have reasonable terms we We form a true partnership
▶ 1:16:18where everyone has equity, we have equity, they have equity, we all work together and we're just taking a pie and trying to make it as big as possible for everyone. And and what I found is when you do that, whether that's in Baiji within Minnesota, whether that's in Athens, Ohio, as I mentioned earlier, when there is that initial success, those you they catch a startup bug too.
▶ 1:16:38all the people, it's not just the founders, the people that work there, the people in engineering, the people in marketing, the people everywhere catch that startup bug and they don't they want to continue to do that and so then they form more startups and then you know and the people that made a nice return then invest as angel investors in startups. It's kind of a you know a cycle like that. Um and so I found it a very great place for innovation. Um it's also less competitive and less crazy.
▶ 1:17:02Uh it's you know keeping people focused is a lot easier in Athens and Columbus in Baiji Minnesota than it is in Silicon Valley. Um keeping them focused on the mission making it happen getting success. So our returns I mean we we're you know like Strong Ultraold we we sold the company for let's say anywhere from 200400 million because it's for stock um on on $10 million investment and like I said now there's 40 angel investors out there in Athens investing some of those proceeds in the next start that wants to you know succeed and such.
▶ 1:17:33I appreciate those comments and what I hear there is the investments and the partnerships with innovation and entrepreneurs in our rural communities really uh are a great opportunity not only to create jobs and wealth and and security for our rural communities but also future opportunities of investments and and catching that entrepreneurial bug that you talked about. That's great to hear.
▶ 1:17:53Um, so our colleagues across the aisle, you know, have have called for, you know, demanding the the SBA and and government to come in front of us and and talk to us about more government. I'm so happy that the chairman has chose to bring real people that are doing real things for our communities uh to to come in front of us today. And so with that being said, lastly, I just want to know, Mr.
▶ 1:18:14Rama, in your view uh and the experiences that you have on Main Street America, what can we do in Congress and on this committee to drive economic growth and rural America? I think, you know, as I said earlier, capital um and less, you know, uh over less regulatory, you know, tape around it and less barriers to that and then partnering with the expertise, the venture capitalists and people with experience in those areas to then deploy that and help these companies grow and keep that cycle going. appreciate those comments.
▶ 1:18:44I yield back. Gentleman yields back. I now recognize Mr. Alcheki from the great state of Maryland for 5 minutes. Thank you very much, Mr. Chairman. And uh thank you to all of our witnesses for your time today. Um I'm going to actually pick up I was not planning on doing this picking up on my colleagues comments uh as um we talk about the importance of the private sector but also government. And I'll just open with a question of for all of you.
▶ 1:19:11I mean there is value in partnership and we certainly believe in the private sector but there certainly is power and promise in having the government done right partner with the private sector. Is that something we can all agree to? Yes. Okay. Very good. So I Mr.
▶ 1:19:25Chairman, I I just want to say, you know, we certainly are grateful for the ways in which you are bringing in in folks who are uh real people leading the work out there, but I actually think that these conversations would be even more robust if we also had leadership of SBA alongside uh these leaders doing the work. So, gentlemen, thank you for being here, for the work you're leading. Uh but I'll just reinforce the point of my colleague that I think this is done best when we actually have those conversations together and collaboratively.
▶ 1:19:53Um, you know, I wanted to pick up a little bit on uh Mr. Simino, some of the comments uh you were talking about and this access to capital idea. Um, I was struck by a recent statistic that says that private credit firms are that are at least 50% women or or minority owned hold a combined total of less than 2% of 1.6 trillion of private credit assets under management.
▶ 1:20:20Now, those numbers are slightly higher in private equity at just over 3% and 6% in venture capital. I'm just curious what you think those statistics say about the state of these industries or the small businesses in which they're investing. Well, I think it's pretty clear that we've not done enough to drive more capital into the hands of these entrepreneurs. And I think that's what this committee is focused on on broadening access into not only the overlooked communities, but I would say untapped. There's a huge amount of ingenuity and talent in these communities and among these segments.
▶ 1:20:50And so, how do we actually get capital in their hands and help them build? We think about doing that through lowering barriers to entry and supporting more and more emerging managers that can be in these regions in these communities, helping not only drive capital, but partnering to broaden it and help them grow. That's great. I appreciate that. I mean, yeah, and according to recent data from Morgan Stanley, we could be missing out on more than $4 trillion in value by not investing in more underserved entrepreneurs.
▶ 1:21:15And so just for the panel, I just wanted to open it up um just sort of ideas on how we can get more capital uh to more places so that we can access this untapped potential. Well, one thing I would add, you me touched on on women. Like my my executive board is two-thirds women. I mean, the SBIC world, women are normal. Um you know, that's not necessarily true in the rest of the finance and banking world and the venture world. The SBIC world has done been far more opening and welcoming in that regard and supportive. Maybe that's because it's small versus big. I don't know.
▶ 1:21:44But we want to continue that. Um but ultimately, you know, the economics will drive it. Um but I think as as we see more women fund managers, as we see minor more minority fund managers, as we have more fund managers like like Bill mentioned about, you know, that are boomerangs that are leaving the the big, you know, money centers and coming back to middle America, I think we just have to make sure that we're we're open to everybody and being inclusive as far as like making sure that the top the meritocracy rises to the top and and then the good people will rise and we're going to see good things from that.
▶ 1:22:14Bill, I would like to add uh you know for example the National Venture Capital Association has something uh called the uh uh the the uh kind of the forward program which which is looking at you know those that typically haven't been represented as much in venture capital entrepreneurship. Um and actually myself and one of my colleagues Faith Voyovich worked were one of the initial men mentors of that program. So there are programs like that being done within the venture capital community to because it's more of a craft.
▶ 1:22:43So, you know, mentor, teach, and all that and open up that access, which can come across demographics as you mentioned, but also, you know, geographics in the Midwest. Yeah. Well, we certainly welcome the chance to work with you to bring more investment to Maryland as well. Uh, again, thank you all for your time and your feedback today, Mr. Chairman. With that, I'll yield back. Gentlemen yields back. I now recognize Mr. Downey from the great state of Montana for 5 minutes. Mr. Chairman, uh, thank you and thank you to our witnesses uh, for providing these testimonies.
▶ 1:23:10Uh I represent Montana's uh second congressional district. Uh it's one of the leastly least populated uh areas of the country. About 7.6 people per square mile. And uh another fun stat as we've got more than twice as many cows as people. You get a lot of windshield time driving around my district. Uh but uh the issues are a lot of these population centers are far apart.
▶ 1:23:37you know, these u far apart and isolated from a lot of these communities. And so it's hard, you know, having access to economic hubs, having access to capital, it can be difficult for small businesses uh and for for farms and ranches. Uh I believe we need to pay more attention to these rural uh capital access challenges. That's uh why I I introduced the expanding access to capital for rural job creators act earlier this year.
▶ 1:24:03This legislation requires the Securities and Exchange Commission's Office of the Advocate for Small Business Capital Formation to report on capital access issues faced by rural small businesses. So, I'm going to start uh Mr. Palmer.
▶ 1:24:18Um do you believe the federal government, particularly under the Biden administration, has paid adequate attention to the difficulties that rural small businesses face in uh securing Um I don't think anyone has provided adequate uh attention to rural America because part of it is because it's there are fewer people and it get just doesn't get media coverage.
▶ 1:24:40I mean I remember I was in New Orleans after Hurricane Katrina and New Orleans got all the coverage and people skipped over just what happened to Mississippi which was just as bad or worse because it just it just when you don't you can't see people crying and uh I think rural America has suffered from that for a long period of time. I think this is um this hearing has been fantastic and help highlighting that. But I do think the SEC looking at that and the small business advocate makes a lot of sense. I want to take a look at your legislation. I think the Muser bill helps in that regard.
▶ 1:25:07Um but there are definitely unique challenges that rural America has whether it be broadband, whether it be infrastructure for manufacturing as far as rail lines and highway lines, um employee base, you know, there there are unique challenges, but I think this is where informed public policy can help develop that. But you know, I think we really we have to be deliberate in helping rural rural America. It's just not going to happen magic. Can you provide any insight into what role SBIC's can play in supporting small businesses and you know less populated, less dense? Sure.
▶ 1:25:37I think one of the things that states like because Montana and Wyoming have had and Alaska have had very few Hawaii and other have had very few SBIC investments. Um they've had a handful but not not not nearly enough. I think part of that is um and this is something Bill touched on is the cost of forming an SBIC can run north of $500,000 to form one.
▶ 1:25:58And if you're you need you need smaller funds in smaller markets, you know, I mean there sure it'd be great if someone had a multi-billion dollar platform in Bosezeman, you know, and you know, like to hike in the Bob Marshall Wilderness, one one of my favorite places in the world, but you know, you need a small you need smaller funds for these smaller markets that can write smaller checks for the deal for the for the transactions and these small businesses need.
▶ 1:26:19Um, and I think that h not losing sight of the smaller funds is important because they can serve places like Nevada and Wyoming and and that's what we need. We need some more smaller funds, not just big. And and so how do you see or what specific advantages do you think SBIC's have uh to provide for rural small businesses than traditional bank lending and government issued loans? Well, I I think the they do two things. One, they're a capital amplifier. So the private sector leads.
▶ 1:26:47It's not the government saying you shall invest this way because it's generally not going to work. You you know the the private sector sees the opportunity. They put their money where their mouth is themselves first and then the SBA amplifies it with the SBIC. I think that's really helpful. I think having more of these u SBI's in smaller markets will be helpful but to do that they need to allow more smaller funds to get formed because for a long time they wouldn't license anyone who hadn't raised at least 25 or $30 million in a 2 to1. That's a $90 million fund.
▶ 1:27:16Look, every small business would love a, you know, a $10 million check. Some of them need a million dollar check or a $500,000 check. And so, we've got to make sure the program scales down to these smaller markets to make sure that they can be developed markets, too. So, in my district, we don't have any registered SBIC's. Uh, what are some ways that uh we can expand participation and access to these programs? Um, I think uh for from Montana and Wyoming, too, which is one of your neighbors uh who has faces a similar challenge.
▶ 1:27:44Uh I think bringing the banks together is the first start because the bank up until um Graham Lee Blly most banks actually had an SBIC internally because banks aren't allowed to take equity positions in small businesses that um uh they weren't allowed to under glass steagel that changed McLilly but SBIC's used to have an internal one so they could take some of their capital and do equity investments the likes of which banks can't normally do but banks are allowed to invest in SBIC's and so if we get the regional banks in and the and the um and also RBIC's,
▶ 1:28:14rural business investment companies, which are done by USDA, which are our members. I think if we can get them together, you know, I think I'd be happy to talk to you offline. I hear the tapping of the G. I' I've run out of time. Thank you very much. I'd be happy to talk. Uh, Mr. Chair, I yield. Gentlemen, yields back. I now recognize Mr. Tran for Cal Great State of California for five minutes. Thank you, Mr. Chairman. Uh, Mr. Palmer. Uh, in December of 2022, the Biden administration launched the Small Business Investment Company critical technology initiative.
▶ 1:28:43This is a joint initiative between the SBA and defense department that utilizes the SBIC program to strengthen US national security by attracting and scaling public private investment into the DoD critical technology areas. Uh first, are you supportive of the initiative? Very. And if uh if so, can you explain why SBIC's are appropriately positioned to further this this initiative? Well, a couple reasons.
▶ 1:29:10one uh SBIC's are market driven and so it's not you know just you know subsidy and pumping things up. It's looking for genuine opportunities that can sustain themselves. They're geographically dispersed um where not everything else is.
▶ 1:29:23Uh, and they're a um they're they're regulated in a way that can limit um foreign investors as DoD I think sometimes needs because one of the things that does happen is you know one of the ways you can do industrial spycraft um if you're a hostile foreign power is you have your folks invest in venture funds or private equity funds and you see what technologies are working which ones aren't and so I think you know have knowing who you're doing government contracts with or or things are adjacent to government contracts tax
▶ 1:29:53to make sure that they're aligned with Americans national security interest just makes a lot of sense. Yeah. And and on that same note, um you know, and from a more macroeconomic perspective, can you explain the importance of continuing to utilize SBIC program to invest in critical technologies in order to compete on the global stage against foreign adversaries including um the CCP?
▶ 1:30:16Yeah, I I think we we need to compete with with everyone, but particularly these other countries are actively supporting their their companies with subsidies, with industrial espionage, with all sorts of other things. We don't need to do the underhanded stuff. We just need to do the smart stuff. And the smart stuff is making sure we're putting our money where our mouth is. Making sure we're supporting, investing in American manufacturing in industries that we want here that may not be manufacturing. And these aren't all government contractors. There are certain industries like AI that we need here.
▶ 1:30:46And I think you know Bill touched on like you know super cooling like these computers you got to keep them cold you know for a high-speed you know transaction in certain cases and so some of that technology and some of those research that has been done by the department of defense that the US taxpayers already paid for. Let's make sure that technology is being used for American companies to do those things because you know it's it's already there. Let's let's get in the right hands of the right Americans to to to uh to make use of it. Thank you. Thank you. And Mr. uh Simino similar question.
▶ 1:31:15Are you supportive of this initiative and how do you recommend we engage further uh scale up investments in critical technology both in terms of the SBIC program and more broadly? Yes, we do support the program uh and the expansion of it. This is to I think your last point. This is how we actually win as a country is continuing to double down on what works and specifically the private capital model is what allows this type of scale and growth.
▶ 1:31:41Not only does it provide that long-term patient capital where it's going to be challenging hard problems, but putting the capital and investment behind it to tackle it, but then it's going to be strategic partners that have the same vision in mind to ultimately build that. When you couple that with the SBIC's process on everything from licensing to oversight, it does ensure that those visions are aligned for a very not only good technological outcome, but one that benefits the country. Thank you.
▶ 1:32:09And uh you know I proudly represent California's 45th congressional district which is which is a majority minority community where minorityowned businesses are a significant part of Orange County's local economy. But minority entrepreneurs still face numerous barriers to success such as having a difficult time obtaining capital from external investors or lenders.
▶ 1:32:28According to a recent data published by Morgan Stanley, venture capital investors could be missing out on more than 4 trillion in value by not investing in more underserved um communities and entrepreneurs. Uh Mr. uh Sim Seamino, uh wouldn't you agree that focusing more on underserved entrepreneurs and small business owners could help investors increase their returns? 100%.
▶ 1:32:51It would not only lead to economic activity uh and benefit for the specific entrepreneur and the people they employ in the community, but it would lead to a huge amount of untapped economic opportunity for those investors. And we need to do more to support that. And when we think about that, it goes down to emerging managers, which when you look at the study, minority emerging managers are 40% more likely than their counterparts to invest in underserved communities.
▶ 1:33:17And so really empowering them and making it easier for them to form funds and deploy capital starts to address some of that problem. Ultimately that leads to wealth creation, attracting even more capital and supporting that ecosystem. Thank you so much and thank you all the witnesses for being here. Mr. Chairman, I yield back. I now recognize Miss King Hines from the Northern Marana Islands for five minutes. So everybody's giving a shout out to their states. I don't know if you've heard of the Northern Marianas, but I represent the Northern Marianas.
▶ 1:33:46So, you know, there's um underserved and rural and then there's the northern Marana Islands. Uh we are just isolated. Shipping costs are insane. Um you know, and right now our economy is tanking as we speak. We have one primary economic engine which is tourism. It hasn't recovered to pre pandemic levels. And so, you know, I'm here looking for opportunities for my community.
▶ 1:34:16Every single business in the Northern Marianas is practically a small business. Um, and I thank you for offering your time and your ideas because what I want to hear are your thoughts on how we can, you know, what what can the SBA do to get um to get SBIC backed investments working in the Marianis?
▶ 1:34:44I'm not going to pretend to be an expert on some of these problems and I do think we need to deliberately think about it, but I think this goes back to what was discussed a little bit earlier is how do we help more fund managers, smaller fund managers with smaller checks be identifying and supporting these areas.
▶ 1:34:59I know we talked a little bit about what the SEC can do on that front, but I think from an SBA and SBIC perspective, I am optimistic and I don't think this will happen by itself, but that we can use things like their recent expansion into that uh fundto fund or reinvestor program where you have fund managers that might be sitting in Ohio or in San Francisco, but recognize that there's opportunities elsewhere and what they know is that they don't have the expertise, but they can start tapping into and helping smaller fund managers form, grow and ultimately
▶ 1:35:29deploy that capital into these communities. It will not happen overnight, but I think the SBIC is already moving in that direction through the fund of fund strategy. Hopefully, we can be a little bit more deliberate not only to solve some of your problems, but to other rural areas that we've already talked about as well. Uh we have trouble getting investments in Hawaii um because it's it's difficult. Uh it's it's not a concentrated area.
▶ 1:35:52the the northern Marianas and and other um you know American territories are are tough really really tough now I will say again I was not I I don't have an an easy answer for you on that or a quick answer but one of the things that's been kicked around both of the last administration the bid administration proposed a sovereign wealth fund President Trump has proposed a sovereign wealth fund if they do a sovereign wealth fund and I think they are serious about doing that but it's an if I don't know but if they do one I would encourage this committee to have a separate small one
▶ 1:36:22for small business and not have it wrapped up in the giant fund because it's very easy for small business to sort of get crammed down and sort of forgotten about. But if you had a sovereign wealth fund, you could equitize and sort of anchor invest you know uh you know uh funds in for specific purposes to specific local needs that are unique because I think the CNMI have unique issues. Um, but I think, you know, if as that that idea, you know, percolates and develops, that might be something to pay attention to.
▶ 1:36:50Um, but I don't know of any easy answers to that in the in the short term, but I'd be happy to talk to you when we have when we're not under a fivem minute clock. For sure. Thank you. Did you want to chime in? I guess you I don't have like like he was saying, I don't have any easy answers. I'll just tell you when you're going into an emerging when I've been going into emerging communities, one of the things that has to be done is really understanding kind of the core and history of that community.
▶ 1:37:15For example, in Ohio, there's a ton of health care nationwide children's western medical center, Cincinnati Children's, Cleveland Clinic. How do we leverage that, you know, to create new companies? Enable injections, the the onbody uh drug delivery, the needles from Cincinnati Children's. We have two biotech companies that spun out partnered with NIH um and and Bart and CarbEx uh and and biootherrapeutics and such.
▶ 1:37:38So I don't know enough about you know your community but really looking at that community saying is there some history or area that we can be innovative in you know within tourism or whatever it is um you know for for software opportunities or marketplace type opportunities or what have you. So each region has its unique history to to and and base to leverage in its own unique way. That's all I can really offer. Thank you. Thank you for sharing your thoughts and thank you for your time. I owe my time. Lady back. I now recognize Mr.
▶ 1:38:08Latimer from the great state of New York for five minutes. Thank you, Mr. Chairman, and and thank you to our guests for being here today. Uh I represent the coastal elites of the North Bronx of the cities of Yoners Mount Vernon and while we're on the east coast uh we have our challenges as well and and I do just want to say in general and and I take some of the comments you know with a grain of humor but America to me is one nation indivisible and the rural parts of this nation are important even though I don't represent them
▶ 1:38:39as the urban areas are important that I do represent in the suburban areas. I've lived in the state of Pennsylvania. I've lived in the state of Ohio. I worked for a corporation. In my corporate years for 11 years, I was headquartered in Texas and I had to return to Texas uh monthly uh to interact with people. So, I see all of that together in one broad context. I I must say I have not been to the Northern Mariana Islands. I don't know if my seat on foreign affairs will allow that, but time will tell.
▶ 1:39:05Um, more specifically though, we've talked a lot about the needs in the rural areas, which I respect, but uh, the urban areas too represent an area not only of need, but of potential growth. And when I talk to uh, the people in my district this morning, I was on a chamber of commerce call for one of the cities that I represent. I went to one of them when I was in the district last week. I hear other issues that rise. I I hear the issues about the insurity of what this tariff imposition will be and what it's going to mean to them in terms of the products that they sell.
▶ 1:39:35I hear about the insurity of workforce issues with the immigration policies that we have and will they find themselves unable to properly staff up to provide the services do the things they need to do in back of the house situations. So, so there are other issues aside from access to capital. Access to capital is very high on that list. And just very simply one question that which I'd appreciate each of you commenting on. How do you see the challenges of and the strategies necessary to incentivize small businesses in urban settings? And we know that there are large businesses.
▶ 1:40:05I have them in my home county. I was county executive for seven years. Well aware of those businesses and the equivalent ones that exist in Silicon Valley and so forth. But there is still a a an urban um energy and entrepreneurship that we have to figure out how do we incentivize that. It might fall into the category of women or minority, but it may or may not. but they are in an urban environment and so I'd appreciate your thinking on I'll start with Mr. Samino and appreciate each of you commenting.
▶ 1:40:32It's a first I really commend your comments of I know we were all joking around but yes it's very much a united uh front here. I think to drive more capital is key as we've discussed but I think the other component of capital and I completely understand your point of like it's not just about capital but when we see investment come in through private sources they often turn into partners and so the SEC has recently talked about businesses that accept investment from either venture or P are 12% less likely to fail and
▶ 1:41:02that's because they become strategic partners and help them think through everything from how might a government regulation need to be adhered to or navigated to how they might help with connecting them to partners, customers, the right technologies. And so we treat this very much as there's skin in the game for these businesses.
▶ 1:41:19I think the other component there that we've got to look to is how do we think about empowering more of the employee base to have ownership in these types of companies because ultimately that not only as I said earlier in my statement improves performance of the company itself by creating a more talented and aligned workforce but then helps them have a stake in an economic benefit that comes out of that company and makes them even more part of that community where they're able to tap into more and more of that network.
▶ 1:41:49quickly what we've done in some of the uh urban communities uh you know downtown Cleveland, downtown Columbus and uh downtown Cincinnati is create a space for that um that looks innovative that is open that allows collaboration and all those sorts of things.
▶ 1:42:05So, you need some sort, it's tough walking down the street and saying, "I'm just going to start a a startup in downtown Columbus or in Brooklyn or or or such." But if you have an area, you know, that's meant for these startups to get started, to work together, to collaborate, to share stories and all that, that kind of that epicenter can really be helpful in in in allowing, you know, entrepreneurs to come together, you know, and and grow. Uh, Congressman, I would say that a lot of the reason why the discussions about rural is because that's where it's missing.
▶ 1:42:36Um, a huge amount of the investment by SBIC's and to and private equity and venture is in urban. There's just a lot more economic activity and opportunity in urban areas. You have more people, you have more money around, you have more connectivity of universities and other things. Um, so there's a lot there. And actually, as relates to the SPIC's, we have a lot of them. Uh, forgive me for being a Long Islander of everything north of Harlem is upstate.
▶ 1:42:59Um but uh it's a uh there is a there we have a lot our dis the the bulk of the SBIC's in in New York are in upstate New York in Buffalo, Albany, places not not that far from you, but they're investing in places like your backyard. Um but I think the key thing is just making sure for urban areas um making sure that it's a vibrant, safe uh place. You have a lot of banks, a lot of financial institutions, keeping those chambers of commerce together to connect with the private capital markets. and they're they're huge advantages they have over everyone else.
▶ 1:43:30Time is up. Thank you, Mr. Chairman. Now, heels back. I now re recognize Mr. Weed from the great state of Wisconsin for 5 minutes. Well, thank you, Mr. Chairman, for holding this hearing and thank you to the witnesses who've come here today to share their experiences. Small Business Investment Companies, SBIC, with the support of the Small Business Administration provide important capital investment to small businesses across our nation. In my district, manufacturers are significant portion of our economy.
▶ 1:43:58We have over 1,000 manufacturing firms employing almost one quarter of our working population with 89% of those manufacturing firms in my district classified as small businesses. SBIC SBIC's provide needed capital investment for manufacturers like Vehicle Security Innovators in Green Bay, which hired six new employees after SBIC investment. However, gaps in manufacturers access to capital continue to exist.
▶ 1:44:26To help fill those important gaps, I'm proud to co-sponsor the Investing in All of America Act, which will incentivize SBIC's to invest further in manufacturers in rural America, where I call Real America, Main Street, uh, which is our district with no new spending mandates or subsidies. So, Mr. Palmer. Under administrator Leler, the SBAAA has made revitalizing American manufacturing a top priority.
▶ 1:44:54So, how will increasing manufacturers access to SBIC investment help American manufacturers? I I think you have first of all, thank you very much for sponsoring the bill. Um, and yes, we we have some SBI investments in manufacturers in Apple. Um, uh, Quaker Bakery Brands and others do some really interesting stuff. And you have some Century Tool Companies in Green Bay and other areas.
▶ 1:45:14Um but if the more we can amplify capital not on we have a lot of capital that's being raised from let me take back a step further there's a the private market sees the opportunity of small business they don't always know how to access it and one of the things about the SBIC's is they know how to access it and they're leading with that private capital and a lot a lot of times because the limits of where they are now that that capital can't be amplified because it hits the caps that SBA will do.
▶ 1:45:40What your legislation would do is say, "Hey, if you invest in a manufacturer, that cap doesn't apply to that." You still have that that investment. You still have to have the same amount of private capital, which is the taxpayer protection in front of the SBA capital, but we're not going to put an artificial break on anything that's in a rural area or a lowinccome area, whether that's a rural or urban low-income area, uh, and particularly for manufacturing and these independence sectors. So, it just lets the private capital lead without restraint. So, I think it'd be very helpful and thank you for your support.
▶ 1:46:10And uh Mr. Bal uh my district is several hours away from large cities like Madison and Milwaukee. What can this committee do to ensure small business have access to the capital they need to grow and innovate? I mean we have the same situation in you know in in Ohio where Athens is about an hour and a half drive, Dayton's about an hour drive.
▶ 1:46:31Um, so you I I I I don't know specifics other than, you know, experienced fund managers who are willing to go out there with SBIC and other type money and make that drive and such. And most people that are in these communities like in Wisconsin, Ohio do have that passion, you know, to follow up. And the other thing I say is there's a lot of macroeconomic things that can be done as well.
▶ 1:46:52I know there's a new uh developing and empowering our aspiring leaders act coming up as well that would allow young fund managers who have very limited fees. The average you know early stage fund is about $20 million about you know $200,000 to $400,000 annual fees to cover every expense all the employees the rent and everything else. You know getting the regulatory burden down with filings with the SEC.
▶ 1:47:16um allowing these small businesses to uh you know to expense R&D more quickly and those sorts of things. So there's both macroeconomic and microeconomic solutions. Great. Thank you for all the work you do. And with that, I yield Gentleman yields back. I now recognize Mrs. Simone from great state of California for five minutes. Thank you, Williams. I appreciate you all being here today and I would agree before I go into my comments.
▶ 1:47:43Um, I'm very interested this quarter in this committee having an opportunity to uh meet with and have a conversation in a hearing form with the leadership of SBA. I think we would all learn so much particularly to understand, you know, what the next four years will look like under uh the new SBA brass. I'm very excited about that opportunity and I hope we get it.
▶ 1:48:08You know, I'm from the great state of California, from Oakland, California, the surrounding Berkeley and Emeryville and Alama. And I got to tell you that California's 12th district is the hub. And actually, I want to thank many of you all for your investments in my district.
▶ 1:48:26uh particularly you all know that the the AI revolution, the biotech revolution, it's happening right across the street from my office and I'm proud to be in that district.
▶ 1:48:40You know, there are a couple of amazing small businesses that have benefited so deeply from the private sector, from venture, um, that haven't had the opportunity to seek support from SBA or even the thought of obtaining NIH funding in this moment is also really, really difficult for some of these companies. I want to talk about a couple of them. There's a group called Science Corp.
▶ 1:49:08which is in Alama and Science Corp. which is a small business led by brilliant engineers and physicians and data scientist. And we believe within the next 10 years, this group will cure pigmentotosa and macular degeneration. The brilliant folks at Science Corp are going day in and day out, coming early and leaving late to innovate to make sure that folks likeelves with visual impairments have hope.
▶ 1:49:35There's another group that I visited that requires a ton of research and support uh for what they're doing to ensure that mothers actually live past a terminal diagnosis of breast cancer. Ex Alexis is right in Alama County. Institutions like these have created opportunity, not only employment opportunities, but really deep hope for folks who are struggling with ailments and disabilities.
▶ 1:50:05Between 2020 and 2023, $5.8 billion was invested in Oakland entrepreneurs. And this is double what Oakland businesses received in the three years before the pandemic. My district sees tremendous venture capital investment. And so again, I am thankful. But what about our underserved communities?
▶ 1:50:30I understand that this administration doesn't want to talk about inclusion, but I do in this conversation. You know, I think it's important that we continue to lift up a a whole America. According to Crunchb, venture capital funding to blackowned businesses in the Bay Area fell 88% since 2001.
▶ 1:50:54Again, venture capital funding to blackowned businesses in the Bay Area fell 88% since 2001. In fact, less than 1% of venture capital funds go to black businesses nationwide. I'll read that again. Less than 1% of venture capital funds go to black le businesses nationwide. You know, I have a question just quickly for Mr. Camino.
▶ 1:51:23According to the data published by Morgan Stanley, venture capital investors could be missing out on more than $4 trillion in value by not investing in more under represented entrepreneurs. So like the big question is well well why why and how are we getting this so wrong in our economy?
▶ 1:51:47And wouldn't you agree that focusing more on underserved communities like the ones that I have mentioned and focusing and supporting those entrepreneurs and small businesses could help investors increase their own Absolutely. And I think that you've you've said it very well. This isn't about taking things away from your district. It's about bolstering that, but it's also about broadening it to more folks within your district, but also more places around the country.
▶ 1:52:11One of the ways we see that opportunity is by making it easier and empowering more fund managers, especially those with diverse backgrounds because the data shows that a diverse fund manager is up to 40% more likely to invest in a diverse founder. And so to your point, that's likely to get more capital into these communities. And frankly, these are untapped talent where they're going to outperform. They're going to show that that value is not only for them and their business, but for the investors.
▶ 1:52:40And I think as you start to see more and more of that data, you'll start to see more of the investment community look to resource those communities. Thank you. We're leaving genius on the table. I yield back. Gentle lady yields back. I now recognize Mr. Jack from the great state of Georgia for 5 minutes. Thank you, Mr. Chairman, and thank you for your continued leadership uh in this space. Uh and thank you to our witnesses for testifying today.
▶ 1:53:02Um, just to personalize this, my congressional district, based on some data that our our team pulled together, we've got over 7,000 private equity backed companies to provide roughly $418,000 jobs within my district, which represents about a $730 million investment within my district alone. So, I'm grateful for each and every one of your testimony today because, you know, impacts the people that I serve uh here in Congress. But, if I could start um and also want to thank Mr.
▶ 1:53:28Palmer, I think your your testimony is incredibly insightful, and I would love to walk through, if I could, and give you an opportunity uh within those policy recommendations. You've spoken to a couple of my colleagues today on it, but specifically, I'd like to highlight uh the bill that uh Mr. Muer and Miss Schultton uh introduced. Could you walk me through why SBIA so strongly supports passage of this bill? Well, the program works. Um and that's number one. If if things if if we're not actually getting the outcomes of helping small businesses, we want to stop it.
▶ 1:53:57It protects the taxpayer. We don't want the taxpayer exposed to anything. That's good. There's more opportunity for more small businesses to get capital for for more businesses to innovate. And we're capped. Inflation has chewed up the leverage caps that were put in place in about 2010, 2012, that that time period. And so there's more cap there's more private market interest in small business, but it can't be levered. And so it's sort of caps and we're cutting ourselves off even though we know the model works.
▶ 1:54:24Also, we know there are parts of America that have been forgotten for a long time and have been overlooked and they need to be looked at. That that that covers manufacturing, that covers rural America, that also covers, you know, inner city lowincome areas. And so what it does is it uses a market-driven mechanism, not government mandate, but opportunity to for for private equity funds, the venture capital funds to look at those areas and then invest in them and be able to access the SBIC leverage.
▶ 1:54:48So, it is a market-driven incentive to get more to all of America and that's and that's the name of the the title of the bill. It just works and so we're excited about it. And would you mind elaborating on one of the third policy recommendations you provided to the committee uh was talking about some of the fees collected uh as it relates to SBIC's. Could you walk me through um rather expound upon that? Sure.
▶ 1:55:10So the the every um there are a number of fees that are collected um by the SBA on the SBIC's and some of those are effectively an insurance policy to make sure that there's no taxpayer um exposure and that's worked for 27 years and that's good and that's those should be maintained. Um and the other thing that they charge they charge for licensing fees and that's so when you apply for a license you pay I think $25,000 or so. uh and you know that folks that are coming through the process pay that fee and then their examination fees.
▶ 1:55:40But some of those some of those those funds then get diverted to other parts of the SBA instead of staying inside the SBIC program. And the SBIC program is about 11 million in total salary for $50 billion of management. I mean normally when you're when you're managing in the venture world, private equity world, it's one and a half to 2% for of the assets is what you charge for a fee to run it. The government's being about 100% more effective and more efficient than that.
▶ 1:56:03Now, that's good to a point, but you do need to make sure you have the resources in hand to make sure that you have someone overlooking the the SBIC's to make sure there are no bad actors, there is no fraud. And so, we want to make sure that that those fees stay inside the program to make sure that uh we have the cops on the beat to make sure we're we're serving those small businesses and protecting the taxpayers simultaneously. Thank you very much. And uh Mr. Camino. Um, you mentioned in your testimony that private capital is is highly concentrated in in you know certain areas.
▶ 1:56:32California, the Northeast, I think the two regions you specifically uh referenced. And while it's plentiful, it's, you know, clearly at times unevenly distributed. So, I'm just curious recommendations that you have to this committee as how we can attract more capital to say, you know, my home district, Georgia's third congressional district, just southwest of Atlanta. Yeah, it's it's definitely the charge that we've got before us. Um, one, I think what the SBA's SBIC program is already doing is working.
▶ 1:56:59When we look at the data, about 50% of venture goes to California, but when you look at the SBIC's allocation, only 10% goes to California. And so, it's already broadening capital out there. And especially enhancements that not only include the fund of fund piece, but acrruel that fits the venture model better, venture model better are helpful. and then investing in all of America which you're obviously expert on will I think add to that.
▶ 1:57:22I think even beyond this committee though there's opportunities as you think through tax around how you drive capital and talent to the ecosystem things like qualified small business stock but there's also some SEC related regulations all of which get at how do we support the investment community because if you can support the investment community they are more likely to invest early locally and diversely that then identifies those entrepreneurs that can build companies those companies hire the talent it just starts turning that flywheel of an ecosystem and building that those building out those infrastructures.
▶ 1:57:53Very well put. Thank all of our witnesses for the testimony. And Mr. Chairman, I yield back. Thank you. Gentleman yields back. I now recognize Miss Goodlander from the great state of New Hampshire for 5 minutes. Thank you, Mr. Chairman. And thanks to our witnesses for being here today. Mr. Palmer, I wanted to you're thank you for your testimony. Um, you point out that over I guess around 2400 in the lifetime of the SBIC program, SBA has SBA has l many acronyms in this hearing. It's a mouthful.
▶ 1:58:23Has licensed 2400 SBIC's, small business investment companies. New Hampshire is not home to an SBIC currently. It has one C Coast Capital. All right, we've got one. H what is your advice to to those of us who are representing mostly rural districts and what difference have you seen uh what is the difference that's made by having more SBIC's actually in our in our community? It helps.
▶ 1:58:50I mean, it proximity matters and uh uh you know, you if you're around people that are investing in businesses, you're more likely to be able to connect them because this is not like, you know, the publicly traded markets where you go online and say, "I'm going to my Schwab account and I'm going to find small business X and put money into them." It's it's a relationship business and you have to understand, you know, what you're getting into. So having more locally is very helpful. And given the proximity to Boston, uh I'd like to see more funds formed in New Hampshire.
▶ 1:59:18And when back in the um 90s there were several SBIC funds in New Hampshire and Vermont. When they pivoted away from equity investing, uh it concentrated the venture world in in only a couple markets and it also they sort of disappeared from a lot of these smaller markets that were doing these small dollar venture funds and private equity checks. as the SBA has pivoted back to allowing more equity investing, I think you're going to see more of those develop.
▶ 1:59:46I think the key is, and this goes to to Congressman Jack's point, is you have to have make sure the barriers to entry aren't, you know, overly uh aren't too big for smaller funds to form because bigger funds forming, they've got the resources, they've got the lawyers, they've got the compliance people, but you have to have smaller funds that can get into access these SBA products to be able to serve these smaller business in these smaller markets. And then they may not be small after a while. They may grow and grow everything around them. So it's it is an ecosystem matter.
▶ 2:00:16Thank you for that. You also uh mentioned in your testimony the SBIC critical technologies initiative. I serve on the House Armed Services Committee and you know being on both of these committees is I think really important because as I look at the US economy I see consolidation everywhere especially when it comes to our defense industrial base.
▶ 2:00:37what what changes can be made and especially what what more could DoD be doing to leverage this program and to really grow this incredibly important sector of our economy? I think they're on the right track. I mean, I think the the the the partnership between the SBA and DoD was the right move.
▶ 2:00:54the creation of these critical technology SBIC's and this joint lensure type model they have where the DoD doesn't license them but they're involved in who gets the licenses to make sure we've got the right people in our national security places you know makes a lot of sense um you know I think establishing the ones that are forming now as successes and sort of setting the market model that hey this works this isn't you know because when things are new they're scary and they're you know it requires training and hey why am I going to build a business around this new concept concept.
▶ 2:01:24Let me see if the concept works. We've got this concept started, anchored. I think it's going to be a significant success. And as that success takes off, I think we can get more of these these critical technology funds in more parts of the country. Uh, and I think it's a real opportunity. So, I think it's a it's not a pilot. It's a real established entity. But I think with a little bit of time, once those those critical technology SBIC's really latch into the market, I think you're going to see a lot more funds forming as them.
▶ 2:01:49Well, would welcome any recommendations you have or other witnesses here today have to how to for how we could improve upon this program and get DoD's involvement. Okay. I have one going back to your original comment. I'm actually surprised that there's only one SBIC in New Hampshire because I remember I did a lot of early on a lot of investing in Boston. I actually think I flew out of through Southwest back out of New Hampshire. So what we've done in Ohio Manchester Boston region airport excellent airport. Yeah, excellent airport. I mean, one of the things we've done in Ohio is talked about the quality of life versus other areas.
▶ 2:02:19And we've actually attract a lot of people from Boston where, you know, the it's a little bit more simple. The house is a little bit more affordable. It's a little different quality of life. I think, you know, as a state, I think you can do that in terms of attracting both venture capital professionals up there as well as, you know, companies to form there. Um, particularly if they can have some SPIC's around there. So, I actually think your problem's very solvable. And if I could just maybe add really quickly to kind of combine a little bit of two things that were added.
▶ 2:02:46One, if you can grow more funds and even on the Carter platform, there's actually 11 or 12 funds in New Hampshire. You've obviously got the proximity to Boston. Hopefully the SBIC's fund of fund structure can help. But it's interesting on the DoD point to your point, people don't like to do unproven things. We've actually had funds come to us and say, is this SBIC program itself, not even the DoD part, for real? And these are pretty prominent funds. I think the more education around this, more funds will be interested in realizing this is actually working.
▶ 2:03:13It's an additive process for us and all of a sudden they'll start thinking about how to leverage it more and so the more education we can do about it, the better. Well, I thank you all and I yield back, Mr. Chairman. Gentle lady yields back. And I'd like to thank our witnesses today for being here for your testimony and for appearing for before us. Now without objection, members have five legislative days to submit additional materials and written questions for the witnesses to the chair which will be forwarded to the witnesses. I ask the witnesses to please respond promptly if that happens.
▶ 2:03:41If there's no further business without objection, the committee is adjourned. you. See you. Thank you, Mr. Chairman. When do you get to head home? I'm going to go home tomorrow. Good for you. Yeah. Go Cats. Go cats. Are you a cat?