Once largely ignored by venture capitalists, a $3 billion pool of federal money set aside to help small business is suddenly attracting a lot of attention.
With private investors on the sidelines, VCs are increasingly willing go the extra mile to tap into the Small Business Administration’s Small Business Investment Company program. Under the program, VC firms that acquire an SBIC license may borrow from the government pool and use that to invest in a small business.
The SBA issued just six SBIC licenses in FY 2008, says Brett Palmer, president of the National Association of Small Business Investment Companies, which advocates for the lower middle market of the private equity industry, including SBICs. However, 11 licenses were issued in FY 2009; there should be seven more by the end of October. An additional 25 SBIC applications are in the pipeline.
An SBIC-licensed fund can borrow as much as three times its existing capital from the SBA. That money has to be used to fund small businesses with up to $18 million net worth or $6 million in after-tax income in the prior two years. The fund typically takes both a debt and equity interest in that business, says Palmer.
Getting an SBIC license has traditionally taken a year. But the current administration and Congress are working to cut the wait to just a few months. It has also loosened some restrictions on how the money is used. “So far we’ve been very pleased with the changes,” says Palmer. “I think we’re going to continue to see a push to make the program more efficient and effective and fully utilized.”
Patton Boggs partner Phil Feigen says he now gets calls on a weekly basis from people interested in obtaining an SBIC license. His advice to them: act quickly. “It’s not so much that the pool of money is going to run out, but that the SBA can only handle so much at once,” he says. “You need to get in line early.”
While the 51-year-old SBIC program has been underutilized in recent years, its track record is notable—and encouraging to companies looking to tap into it. The long roster of well-known American companies that have benefited from early SBIC financing includes Intel, Federal Express and Staples. —J.P.T. 
When evaluating a takeover target, acquirers often focus their due diligence on hard assets such as land, buildings and inventories. But evaluating a target’s intellectual property, even if it is less tangible, is just as important in preventing serious legal trouble down the road.
Take the case of Greatbatch, a New York-based implantable medical products manufacturer founded by William Greatbatch, co-inventor of the pacemaker. Greatbatch has gobbled up seven other companies in the past year alone as it seeks to expand its business to include orthopedic and vascular products. The acquisition spree has boosted its patent portfolio to more than 650 active patents from about 200.
For every takeover, the company deployed a team that included its in-house IP attorney as well as several scientists who delved into the target company’s portfolio, specifically looking into issues such as patent exclusivity, ownership rights and potential infringement claims. Key to the success of the patent portfolio review, says Greatbatch General Counsel Tim McEvoy, was involving scientists with specific expertise in the target company’s field—even if it meant hiring outside experts.
“Intellectual property is really the lifeblood of this company,” says McEvoy. “It was essential that we get this right.” —J.P.T.
POLITICAL SPEECH VS. "BUREAUCRATS"
“We don’t put our First Amendment rights in the hands of FEC bureaucrats.”
The U.S. Supreme Court seems likely to overturn the ban on corporate money that was a central tenet of campaign finance reform, says William McGinley, of counsel at Patton Boggs.
In Citizens United v. Federal Elections Commission, conservative nonprofit Citizens United sought to broadcast a documentary critical of then-presidential candidate Hillary Clinton during the run-up to the 2008 presidential primaries. The case hinges on the constitutionality of a provision in the McCain-Feingold campaign finance law prohibiting certain corporate-funded political ads from being aired during a campaign season.
Rather than opining on that narrow provision as expected last June, the Court took the rare step of ordering re-arguments focusing on whether certain Court precedents upholding the the ban on campaign spending by corporations—which includes not just for-profit companies but also trade associations and many nonprofits—should be overturned.
During the September 9 hearing, Chief Justice Roberts stated, “We don’t put our First Amendment rights in the hands of FEC bureaucrats.” The statement spurred many observers to predict that Justice Roberts and Justice Alito might be swing votes in a ruling that favors Citizens United, McGinley says.
Lifting that ban could be a game-changer for the congressional races coming up next year. McGinley says he’ll post updates on the case in his new political law blog, expressadvocacy.com, which tracks news and offers analysis on issues ranging from campaign finance laws to lobbying regulations to ethics. —J.P.T.
When the global credit crunch slammed into the U.S. economy with the destructive force of a Category 5 hurricane, among the victims were just about every kind of commercial real estate project imaginable. Money is to real estate what jet fuel is to a Boeing 777, so when the credit markets froze up, a lot of properties were in danger of crashing.
These are hectic times for attorneys who specialize in real estate workouts, including Patton Boggs partner Allan Goldstein, who says the current real estate crisis is the worst he has seen in over 20 years of private practice. Goldstein’s goal is to forge a deal between borrower and lender that prevents a property from being dumped on the market as a distressed asset. “Many lenders I have worked with have taken the position that they don’t want the property back,” he explains. Thus, lenders are often willing to modify financial covenants, lower interest rates and rework the loan to keep the asset in the hands of its original owners.
Goldstein says the credit crunch has impacted a wide variety of commercial properties, including high-rise office towers, hotels, multifamily units and retail stores. Although many commercial banks are still reluctant to lend, and the complete shutdown of the securitization market for commercial real estate loans has deprived developers and investors of another vital funding source, Goldstein believes the crisis is slowly beginning to ease. “I think we’re through the worst,” he says. “I’d like to think that at some point the real estate market would bounce back like the stock market has.”
Until then, Goldstein tries to keep good properties from being dumped on the market in the kind of fire sale that hurts borrower and lender alike. “We’re trying to buy some time and ride out the storm until the market improves,” he says. “We’re trying to keep the thing alive.” —J.W.M.
Capital Thinking "Currency" is written by By Jennifer Pilla Taylor & John W. Milligan
