[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                  FULL COMMITTEE HEARING ON INCREASING
                    INVESTMENT IN OUR NATION'S SMALL
                               BUSINESSES

=======================================================================

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 21, 2007

                               __________

                          Serial Number 110-32

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                                 ______
                                     
                    U.S. GOVERNMENT PRINTING OFFICE
36-107                      WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001


                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DEAN HELLER, Nevada
YVETTE CLARKE, New York              DAVID DAVIS, Tennessee
BRAD ELLSWORTH, Indiana              MARY FALLIN, Oklahoma
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  


           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2
Moore, Hon. Gwen.................................................     5

                               WITNESSES

Hager, Michael, U.S. Small Business Administration...............     4
Lerner, Josh, Harvard Business School............................     7
May, John, Angel Capital Association.............................     9
Vivian, Steve, National Association of Small Business Investment 
  Companies......................................................    11

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    29
Chabot, Hon. Steve...............................................    31
Hager, Michael, U.S. Small Business Administration...............    33
Lerner, Josh, Harvard Business School............................    38
May, John, Angel Capital Association.............................    44
Vivian, Steve, National Association of Small Business Investment 
  Companies......................................................    50

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                      INCREASING INVESTMENT IN OUR
                       NATION'S SMALL BUSINESSES

                              ----------                              


                        THURSDAY, JUNE 21, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 2:04 p.m., inRoom 
2360, Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Shuler, Moore, Altmire, 
Clarke, and Chabot.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. I am pleased to call this hearing to 
order. I want to thank all the witnesses for being here today. 
Today's hearing will examine the role of venture capital in 
growing and sustaining our Nation's small businesses. There can 
be little doubt that venture capital remains as important as 
ever to our Nation's small businesses. This is particularly 
true for a key segment of the business community, startup and 
early stage businesses. These businesses are the engines that 
generate new ideas and new products. Their contributions to our 
communities and economy are frequently new, invigorating and 
transformational. Venture capital represents the lifeblood for 
these businesses, and without this vital resource, many startup 
companies will not reach their full potential.
    Yet, despite the obvious importance of venture capital, it 
remains extremely difficult for startup businesses to attract 
this investment. Over the last 5 years we have seen a steady 
movement of venture capital toward later-stage small 
businesses. Recent industry studies confirm this trend and show 
that funding dollars for early-stage firms declined 30 percent 
in the first quarter of 2007 to only $1.1 billion.
    Today, private venture capital places a substantial focus 
on later-stage businesses that have an established capacity to 
generate investment returns immediately. While this focus makes 
sense for investors, it is leaving many startups without access 
to the equity capital they need to succeed. The result is less 
innovation, slower economic growth and fewer new jobs for our 
Nation's small businesses.
    In order to fill these gaps, Congress created the Small 
Business Administration's investment programs. However, many of 
these programs are falling short, for a wide range of reasons, 
of achieving their potential. Some lack support both 
organizationally and financially, while others do not have a 
clear purpose.
    Today, we will be begin the process of reviewing these 
programs to better understand how we can address these 
problems. Foremost among the agency's investment programs is 
the Small Business Investment Company program which has a 
proven record of success. Together with private investment 
topping $12 billion, the initiative totals over $23 billion in 
financing resources dedicated to small businesses. It has led 
to the creation of over 228,000 jobs and has brought investment 
to virtually every State and across a wider range of industry 
than has been served by the traditional venture capital 
industry.
    Despite its successes, more must be done to channel 
investment to our Nation's small companies.
    In 2005 the SBA ceased licensing new investment firms in 
the Participating Securities SBIC program. This initiative was 
the only SBA program focused on providing equity financing to 
early-stage and startup businesses.
    In the 1990s, SBICs made nearly 50 percent of their 
investments in startup small businesses; over the past few 
years, this number has dropped to less than 30 percent and 
continues to decline. This development has been mirrored by the 
lack of support for the New Markets Venture Capital program, a 
program dedicated to bringing investment to small businesses in 
low-income areas. Together, these developments have cast a pall 
of uncertainty over the SBA's remaining investment programs and 
have undermined confidence in the Administration's commitment 
to its investment mandate.
    One way to increase the availability of early-stage capital 
is to draw on new investment strategies. In today's hearing we 
will hear about one such approach, angel investment, which 
holds a great deal of promise for helping our Nation's 
entrepreneurs. It is my hope that we can help foster increased 
angel investment in small businesses to fill the void for seed 
capital that has been created by the elimination of the 
Participating Securities program.
    It is with this goal in mind that I am introducing 
legislation this morning to support increased angel investment. 
By doing so, we can make certain the small firms have the 
capital they need to grow stronger.
    It is important that we are here today to consider the 
availability of venture capital for small firms. Without such 
investment there will be less risk-taking and less innovation 
in our economy.
    As this country continues to rely on entrepreneurs to spur 
economic development and create jobs, the need for equity 
investment only continues to grow. I look forward to this 
hearing and I want to thank again all the witnesses for their 
testimony.
    I now yield to the ranking member, Mr. Chabot, for his 
opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you very much, Madam Chair. Before I get 
into my opening statement, I would just like to recognize a 
young lady who is in the back of the room--back there.
    Would you stand up?
    Tyler Banks is a senior at the School for the Creative and 
Performing Arts in my district in Cincinnati, Ohio, and she is 
up here with the Congressional Youth Leadership Council's 
National Young Leaders Conference. She is an excellent student 
and I am sure that we haven't heard the last. She would like to 
make a career up here and perhaps some day be living right down 
the street at the White House.
    ChairwomanVelazquez. Welcome, welcome.
    Mr.Chabot. Thank you, Tyler.
    I want to thank you, Madam Chair, for holding this hearing 
here this afternoon. It is an important hearing on programs 
designed to increase the equity investment in small businesses.
    Small businesses may finance their operations through debt 
or equity. Debt's primary benefit is that the owners maintain 
control of the company, but that comes at the cost of increased 
cash flow out of the company to service the debt. Equity 
investment reduces cash needed, especially in the early years 
of a business, but comes at the cost of reduced control by the 
owners.
    Federal assistance to small businesses has come in the form 
of both debt and equity. Debt programs available through 
Federal-private partnerships include the 7a guaranteed loan, 
the microloan, and Certified Development Company, or CDC, 
programs. Equity investment is available through the Small 
Business Investment Company and New Market Venture Capital 
programs.
    The committee already has addressed necessary changes in 
the 7a and CDC programs. Last week, the committee held a 
hearing on the microloan program, and will be addressing 
legislation on that issue soon.
    It is now time for the committee to turn its attention to 
the equity programs operated by the Small Business 
Administration. First and foremost, the committee needs to 
understand the nature of equity investment in small businesses; 
then the committee must consider the quality of existing 
programs that assist small businesses to obtain equity 
investments. Finally, if those programs are inadequate, the 
committee should consider changes to improve the efficacy of 
existing programs or eliminate them and create more cost-
effective, new ones.
    For example, if the committee finds that the largest equity 
investment in small businesses comes from the personal assets 
of the business owner, then Congress must adopt tax policies 
that ensure the business owner keeps those assets rather than 
returning them to the Treasury in the form of taxes.
    On the other hand, if significant equity investment in 
small businesses derives from investment firms such as small 
business investment companies, the committee certainly needs to 
make sure that the program meets its objectives without placing 
undue risk on the public treasury.
    The review of equity investment programs also must examine 
where investment is lacking. I know the chairwoman has been to 
my district and seen the need in certain areas to increase 
investment as a component of economic revitalization. I would 
like to work with all the members of the committee in finding 
appropriate, cost-effective incentives that will raise the 
amount of equity investment in areas that have sorely lacked 
such investment.
    Finally, I would like to thank the chairwoman for examining 
the angel investment phenomenon. Although angel investors may 
be an appropriate savior for small business, it is difficult 
for many small business owners to find an angel investor. 
Congress may have the opportunity to reduce the cost of raising 
equity funds from angel investors by eliminating burdensome and 
multiplicative Federal and State legislation.
    Again, I would like to thank the chairwoman for holding 
this hearing and look forward to the ideas offered by our 
distinguished panelists here this afternoon. And I yield the 
balance of my time.

    ChairwomanVelazquez. Thank you, Mr. Chabot.
    Our first witness is Mr. Michael Hager. Mr. Hager is the 
Associate Administrator for Capital Access at the United States 
Small Business Administration. The Office of Capital Access 
manages the administration business loan programs and performs 
lender oversight functions at SBA.
    Welcome, sir.


STATEMENT OF MICHAEL HAGER, ASSOCIATE ADMINISTRATOR FOR CAPITAL 
           ACCESS, U.S. SMALL BUSINESS ADMINISTRATION

    Mr.Hager. Thank you very much. It is nice to be here, Madam 
Chair. I want to thank you for the opportunity to testify on 
the status of small business investment company programs at the 
SBA.
    The past few years have been challenging for the SBIC 
programs. Performance in the participating security programs, 
as you have indicated, experienced significant financial 
challenges over the last several years. Current estimates 
continue to project likely losses of 2.4 billion on the more 
than 8.5 billion that we have guaranteed through fiscal year 
2006. Again, 2.4 out of 8.5.
    Since the end of fiscal year 2006, the Investment Division 
has taken significant steps and devoted the majority of the 
management time for the SBIC program to manage the risk of the 
remaining Participating Securities portfolio. I am happy to 
report that with these solid management steps and the improved 
economic conditions, the current portfolio of Participating 
Securities licensees has stabilized. While some additional 
losses are still predicted to occur, the majority of 
liquidations have been recorded.
    In fact, distribution activity among Participating 
Securities licensees has been robust in the last 8 quarters and 
the SBA and bondholders received distributions of almost 1.5 
billion. For example, in December, the SBA issued a revised 
policy that allows a capitally impaired SBIC to emerge from 
restricted operations to resume normal investment activities.
    In the debenture program the SBA continues to see solid 
performance from the licensees and is now beginning to see 
renewed interest in the SBIC debenture product.
    In 2006, the SBA guaranteed over 400 million in SBIC 
debentures, and we anticipate exceeding that level this year. 
In the debenture program the SBA has been focused on making 
capital available to small business in low- and moderate-income 
areas more than ever in the past. Currently, almost 20 percent 
of debenture funding goes to LMI areas.
    Additionally, in our reference to address underserved 
markets, the New Markets Venture Capital program continues to 
foster economic development in low-income areas. The program, 
based on the SBIC program, is unique in that the fund managers 
of the New Market Venture Capital companies receive grant 
funding about operational assistance to actual and potential 
portfolio companies to reduce the risk of investing in these 
nontraditional areas.
    To date, we have made over $40 million in equity and 
investments in over 50 portfolio companies, creating over 400 
new jobs and sustaining some 1,100 jobs. The New Market Venture 
Capital companies also provided over 10 million in no-cost 
operational assistance to over 170 actual or potential 
portfolio companies in their targeted geographic areas. While 
these initial results are promising, it would be too premature 
to judge the success at this early stage of investing period.
    The Agency is working diligently to strengthen its 
relationship with the industry. We have reinstituted our 
quarterly meetings with industry leadership to address issues 
and concerns on an ongoing basis. The SBA is actively seeking 
industry input on making the SBIC program more attractive to 
both venture fund managers and investors.
    We continue to believe that the debenture program can have 
a substantial positive impact on the communities where SBICs 
invest, and we want to ensure the program is positioned to its 
maximum potential.
    Chairwoman Velazquez, the SBA has a long history with 
venture capital and still views venture investment as an 
important source of funding for the small business community. 
The problems we see now are mechanisms available for the SBA's 
involvement in venture capital efforts and balancing those 
needs with the need to protect the taxpayers' investment.
    We look forward to working with you to address these 
issues. We thank you for the opportunity to testify before the 
committee today. We look forward to questions from the 
committee.
    ChairwomanVelazquez. Thank you, Mr. Hager.
    [The statement of Mr. Hager may be found on page 33 of the 
Appendix.]

    ChairwomanVelazquez. Before I introduce our next witness, 
Dr. Lerner, I would recognize the gentlelady from Wisconsin, 
Ms. Moore, for an opening statement.

                 OPENING STATEMENT OF MS. MOORE

    Ms.Moore. Thank you so much, Madam Chair. I will try to be 
brief.
    I really did enjoy the testimony of Mr. Hager, and I am 
glad to hear that he still thinks that venture capital is 
extremely important. No guts, no glory. You really do have to 
take risks in order to spur our economy along.
    I just want to say to the Chair and the ranking member that 
I am so appreciative of your having this hearing today. You 
guys have had great stewardship over this committee. We hear 
time and time again people talk about how aspiring 
entrepreneurs need access to capital in order to fulfill their 
goals and to stimulate the economy and to create new jobs, and 
it is important to keep those things forward in our mind and 
not try to always balance that off with, quote, unquote, 
"protecting the taxpayers' dollars" because I think that we are 
at a growth rate in our country where we have got to help our 
entrepreneurs, who create 97 percent all new jobs, our small 
businesses, and the taxpayers. We definitely need to be in the 
position to help grow our economy for their benefit.
    So many small businesses located in low-income and urban 
areas and rural areas lack this venture capital because they 
don't have angel investors and they don't have the three Fs--
family, friends and fools--to help them get into business. So 
it really is important for us to realize that it is our 
responsibility to help spur folks that are going to constitute 
the majority of our economy.
    President Clinton was really aware of this when he unveiled 
the New Market Venture Capital program as part of the larger 
initiative to meet this unmet challenge. I have to give 
President Bush credit because he, in fact, did continue to 
authorize this program for the past 7 years, although he 
requested no money for this initiative. But it still is on the 
books, unlike the Participating Securities program, which is 
virtually shut down.
    What are we going to do with urban and rural areas if we 
don't, as you know, Mr. Hager, try to figure out ways to make 
our products, our venture capital products really, really work? 
In the first--in 2006, three regions, Silicon Valley, New 
England, and Los Angeles accounted for approximately 60 percent 
of all venture capital dollars invested and 50 percent of all 
deals.
    The reason I asked to make an opening statement is because 
I am a really big stakeholder in what we do here. My district 
of Milwaukee, that the New Market Venture Capital program has 
not yet had time or resources to reach, ranks 48th out of 50th 
of the largest U.S. cities in terms of venture capital dollars, 
and we are in the midst of the Rust Belt. We need help with 
venture capital.
    So my question to you, Madam Chairperson, ranking member, 
what is the best way to get equity capital to underserved 
markets? And I believe we ought to look at funding the New 
Markets program in another round as a potential solution.
    Just briefly, because I realize that my time is waning, we 
have invested more than $13.4 million in this patient capital 
in 29 companies. They have provided $6 million in operational 
assistance to 163 businesses and entrepreneurs, and they have 
created or maintained 1,500 jobs in low-income communities. The 
difference between this program and SBIC's is that New Market 
Venture Capital specifically targeted low-income communities.
    To build on this initiative, I introduced the Securing 
Equity for Economic Development of Low-Income Areas, the SEED 
Act, which would reauthorize a New Market Venture Capital 
program. It would go further to incorporate small manufacturers 
into the mission of the program, something that was really 
important to our former chairman, Mr. Manzullo.
    So, Madam Chair, with that, I would yield back. And I thank 
you all for your indulgence.

    ChairwomanVelazquez. Thank you, Ms. Moore.
    I will ask any other member who wishes to open.
    So I would like to introduce Dr. Josh Lerner. Mr. Lerner is 
the Jacob H. Schiff Professor of Investment Banking at Harvard 
Business School, with a joint appointment in the Finance and 
Entrepreneurial Management units. Dr. Lerner worked for several 
years on issues related to technological innovation and public 
policy at the Brookings Institution for a public-private task 
force in Chicago and on Capitol Hill before earning a Ph.D. 
From Harvard's Economics Department. Much of his research 
focuses on the structure and role of venture capital on private 
equity organizations.
    Dr. Lerner, welcome. You will have 5 minutes to make your 
presentation. Thank you.


    STATEMENT OF JOHN LERNER, JACOB H. SCHIFF PROFESSOR OF 
          INVESTMENT BANKING, HARVARD BUSINESS SCHOOL

    Mr.Lerner. Thank you very much for the introduction and the 
invitation to testify today as part of this review of the Small 
Business Administration's equity investment programs.
    In my testimony today I will emphasize two points, first, 
that venture capital can play a powerful role in encouraging 
innovation and economic growth; and second, that it is natural 
to believe that government programs can boost venture capital. 
At the same time, however, these efforts must be carefully 
designed to work with and listen to the private venture capital 
market and its dictates and to embody thoughtful evaluation of 
the programs.
    Financing of young firms is a challenging process. Young 
companies, particularly those in high technology industries, 
but also more generally, are often characterized by a 
considerable degree of uncertainty and substantial information 
gaps.
    We have argued that specialized financial intermediaries 
such as venture capital organizations can address these 
information problems and these uncertainty problems. By 
intensively scrutinizing firms before they provide capital and 
then monitoring them afterwards, venture capitalists can 
alleviate the information gaps and reduce the capital 
constraints that several members of the committee have talked 
about in their opening statements.
    Venture capital seems to play a very important role in our 
economy. While it is challenging to figure out exactly how much 
innovation is caused by venture capital, there have been a 
variety of studies which have tried to piece together this 
relationship.
    After looking at a number of considerations, venture 
capital has a very strong positive impact on innovation. While 
the estimates vary somewhat with the techniques used, on 
average, a dollar of venture capital appears to be three to 
four times more powerful in stimulating innovation than a 
dollar of traditional corporate R&D. Since innovation is 
closely linked to economic growth, rising productivity and 
increased wages, venture capital is clearly playing a vitally 
important role.
    At the same time, the impact of venture capital on 
innovation does not appear to be uniform. In many instances, 
the levels of venture capital an promising technologies may 
undershoot the desired levels. In these cases, promising 
companies may be unable to get funding no matter how good their 
ideas. Moreover, as Congresswoman Moore pointed out, venture 
capital is highly geographically concentrated in a few regions 
in the country.
    Given these patterns, it is natural to view government 
funding as a potential solution. The characteristics of a 
venture capital market lead there to be a natural government 
role in stimulating the evolution.
    Venture capital is a business where there are increasing 
returns. Put another way, it is far easier being a venture 
capitalist if there are 10 other venture capitalists nearby 
than if one is the first one. It is in these types of settings 
where there are what economists call "externalities" that 
government can often play a very positive role.
    At the same time, however, governments must avoid the 
common pitfalls that befall venture capital initiatives. One 
common failing is to ignore the realities of the venture 
capital process. For instance, many venture capital initiatives 
have been abandoned after a few years. The programs' authors 
have apparently not understood that these initiatives take many 
years to become successful. In other cases, they have added 
requirements that have proved to be counterproductive.
    A closely related problem is the creation of programs that 
ignore the market's dictates. Far too often government 
officials have sought to encourage funding in industries or 
geographic regions where the private interest is simply not 
there. As a result, the result has been wasted resources.
    Effective programs, such as the Yozma Program in Israel, 
address this problem by demanding that credible private sector 
players provide matching funds. Thus, when encouraging new 
venture funds under the New Markets program it will be 
important to ensure whether, through matching funds 
requirements or other means, that these new funds are 
fundamentally viable ones.
    Finally, it is important to have careful evaluation, as 
well, as part of these fund, scrutinizing not only the 
companies, but also the venture groups themselves.
    I want to thank you once again for this chance to testify.
    ChairwomanVelazquez. Thank you, Dr. Lerner. I think that we 
could do this in 5 minutes.
    [The statement of Mr. Lerner may be found on page 38 of the 
Appendix.]

    ChairwomanVelazquez. Our next witness is Mr. May. Mr. May 
is the Chair of the Angel Capital Association, a peer 
organization of Angel Investing Groups in North America. Mr. 
May is also the managing partner of New Vantage Group, a 
Virginia firm that mobilizes private equity into early-stage 
companies and provides advisory services to both firms and 
private investors.
    Mr. May's experience in private equity capital spans 15 
years and ranges from venture capital fund management to angel 
investing.
    Welcome, sir.

   STATEMENT OF JOHN MAY, CHAIRMAN, ANGEL CAPITAL ASSOCIATION

    Mr.May. Thank you very much. I could do this in 2 minutes, 
2 hours or 2 days, but I appreciate the 5 minutes.
    I really appreciate being able to represent the early-stage 
venture capital which is angel investors. I am part of a group 
that has just been formed over the last year called the Angel 
Capital Association, which just shows the maturation of the 
group of angel investors who try to pool their capital and be a 
more sophisticated resource to all 50 States.
    We have grown to represent groups that have 10 or 12 
investors, groups that have 270 investors. And there are about 
5- or 6,000 high-net-worth individuals who belong to these 
groups.
    But my experience has been that the U.S. is struggling with 
an absence of early-stage institutional venture capital. In our 
written testimony, we talk quite a bit about this lack of 
capital, and I really appreciate your attention at the 
committee level, Madam Chairwoman.
    The institutional venture capital industry is only at about 
$260 billion and puts out about $25 billion a year. We estimate 
with the little bit of research that has been done on high-net-
worth individuals, angels, that it is about the same size, 
about $25 billion. But we think we probably put it out in about 
50,000 transactions, whereas last year the venture capital 
industry had about 3- or 4,000 transactions.
    So there is an opportunity here if we can grow more high-
net-worth individuals to play in this risky space; and to feel 
comfortable mentoring, that we have a chance to greatly 
leverage the institutional venture capital that is out there.
    Let me just quickly read this quote that talks about who an 
angel is. They become an angel "for a variety of reasons, 
including achievement of financial return," which is key, "to 
support their community," which is also key, "to create and 
grow companies, to find a new job, to learn new things, to make 
use of their expertise," and a very important sidebar, "for 
personal enjoyment."
    So this is a giving back phenomenon, this is a patient 
capital phenomenon, and it is a mentoring phenomenon. It is the 
most valuable resource for the high-net-worth individual who 
invests in a stranger for long-term capital gain and to grow 
their regional economy. Ninety-eight percent of angel groups 
invest in their local economy--in Milwaukee, Golden Angels. All 
around the United States there are local groups that invest 1 
hour drive time. They have to have some reward while they wait 
for financial return, which usually takes 3, 5, 7 and 9 years.
    So let me just tell you where I think there could be help. 
This is a very touchy area, as Josh said, about how can 
nonprofits and government direct the for-profit, the 
individual, with their after-tax dollars to spend their time 
and money? I think we should study this some more, but the key 
to me is education, readiness programs, and awareness training.
    The more we can help find ways to educate entrepreneurs 
what an angel or venture capitalist is looking for--because the 
most valuable resource we have is time, so if we waste time in 
the hunt between the two parties, it is really deadly--and how 
to educate more angels. There are some programs out there I 
think we could support.
    Also infrastructure and development of angel groups. There 
are a lot of States, such as Wisconsin, Ohio, Pennsylvania, 
that have found ways with six-figure investments to spread the 
word on how to educate angels, how to match the right 
entrepreneur with the right program--a very small amount of 
dollars to get a lot of bank for the buck.
    There is a lot of discussion about a Federal tax credit 
program to enhance and to help. There is a lot of controversy 
over the success of the 19 or 20 State programs that have 
existed in the past. It is--just to note, the National 
Governors Association is about to publish a 20-State report on 
the effectiveness of State programs' funding, tax credit and so 
forth. So we would like to support dissemination of that study 
as soon as it is available in early July.
    We definitely think leveraging private investors--and I 
would suggest we go beyond supporting the wonderful work of 
SBICs, which we have co-invested with and made money; and with 
the New Markets Fund, in which we have co-invested as angels 
with the one in College Park and made money, and we suggest you 
look at coinvestment or matching fund programs. Scotland has 
one, there are a number of States that have one.
    If a group of angels or venture capitalists are willing to 
put their dollars at risk, that should be enough to trigger a 
matching amount from a leverage program. The UK has just 
instituted that program, and very successfully, to try to build 
on the experience.
    So, as you know, I could go on. I am very enthusiastic 
about this. AngelAssociation.org, everything you wanted to know 
about angels in all 50 States. And thank you for this chance.
    ChairwomanVelazquez. Thank you, Mr. May. You will have an 
opportunity to expand when the members will have an opportunity 
to make questions.
    [The statement of Mr. May may be found on page 44 of the 
Appendix.]

    ChairwomanVelazquez. So now the committee will stand in 
recess and we will resume right after the vote.
    [Recess.]
    ChairwomanVelazquez. The hearing is called to order.
    Our next witness is Mr. Stephen Vivian. Mr. Vivian is the 
Vice Chairman of the Board of Governors of the National 
Association of Small Business Investment Companies, the 
professional association for the small business investment 
company, SBIC, industry.
    Mr. Vivian is also a partner with Chicago-based Prism 
Capital, Prism Opportunity Fund, one of only a handful of 
groups in the country managing both Participating Securities 
and debenture SBICs.
    Mr. Vivian, welcome.


STATEMENT OF STEPHEN VIVIAN, VICE CHAIRMAN, BOARD OF GOVERNORS, 
 NATIONAL ASSOCIATION OF SMALL BUSINESS INVESTMENT COMPANIES, 
                   AND PARTNER, PRISM CAPITAL

    Mr.Vivian. Thank you. Thank you, Chairwoman Velazquez and 
Ranking Member Chabot for inviting me to testify and for all 
your hard work on the SBIC program over the years. I appreciate 
the opportunity to testify on behalf of NASBIC; it is something 
I am very passionate about, and also gives me the opportunity 
to apologize for record to Barry, whom I called Michael during 
the intermission.
    Barry, I apologize for that.
    As Chairwoman Velazquez mentioned, I am the incoming 
Chairman of NASBIC, and we represent the over 350 licensed 
SBICs across the country. As a brief background I just wanted 
to touch on the three different aspects of the SBIC program and 
give a little status update.
    The debenture program, which is today the most thriving 
part of the SBIC program, has approximately 135 licensees and 
invests $5.8 billion in capital--or manages 5.8 billion in 
capital and invested about 1.2 billion in fiscal 2006. That 
program matches private capital raised by general partners, 
such as ourselves, with a two-to-one match from the government 
to invest, primarily debt, in small businesses. And the SBA 
sets the rate, the hurdle interest rate, that we put on and can 
maximize and charge the companies that we invest in.
    The second component of the SBIC program consists of now 
only about 58 bank-owned SBICs, which have traditionally been 
nonleveraged, and since the passage of Graham-Leach-Bliley in 
1999, most bank holding companies no longer invest through 
their SBIC licensees.
    The third component, as the Chairwoman mentioned, was the 
Participating Securities program, which we do have a license 
for, which was started in 1994; and as Chairwoman Velazquez 
also mentioned, the SBA discontinued licensing new 
Participating Securities funds after fiscal 2004, really due to 
a couple of things--one, because of losses, and also because of 
a determination that the program no longer qualified for the 
Credit Reform Act.
    Currently, the last of the SBA-guaranteed Participating 
Securities leverage will expire on September 30, 2008. There 
are currently 167 remaining Participating Securities funds. 
They manage about $11.5 billion of capital and invested about 
1.5 billion in 2006.
    After chairing the legislative committee a couple of years 
ago in attempts to revitalize the Participating Securities 
program, NASBIC took a different course this year and decided 
our mission for this year would be to try to work with the SBA 
and with the committees to rehabilitate the reputation of the 
SBIC programs that were remaining and thriving; and so, to that 
end, we proposed and supported the legislative initiatives that 
you all are considering to amend the SBIC program.
    I just wanted to briefly go over the three things we talked 
about relative to the legislation that we support, because we 
do believe they help to improve the profile of the SBIC program 
with both investors that could invest in the program and with 
general partners that might want to run SBICs.
    The first proposal is to increase the maximum amount that 
SBICs can invest in any single company. Today, that hurdle rate 
is low by market standards and artificially lowers the amount 
of investing that SBICs do into small businesses as general 
partners limit the amount of money and mete it out to the small 
businesses that they invest in. An increase in that overlying 
limit we believe would be very beneficial to funding small 
businesses by debenture SBICs.
    The second proposal deals with the amount of capital under 
management by any single independent SBIC manager or multiple 
funds under management by SBIC fund managers; and we believe 
that increasing those rates which have been pegged and not 
increased enough, in our estimation, in recent years will help 
to promote further interest in the program over time and 
continue to drive managers to the program.
    The third piece of the proposal is really the last shot 
that NASBIC has made in working with you all to try to solve a 
little bit of the pain for the remaining Participating 
Securities licensees that are left, and that is really a 
technical change to allow Participating Securities funds to 
draw leverage a little bit faster than they are currently able 
to draw leverage, in hopes that the leverage, which they have 
already paid for, will allow them access to slightly more 
leverage than they currently would able to get under the 
current legislative program.
    So we really appreciate your support for the program over 
the years and your support for these legislative initiatives; 
and though they are technical in nature, we think they really 
are a step in the right direction to help keep promoting the 
debenture program and keep improving it so we can have it 
remain attractive for both small businesses and general 
partners.
    ChairwomanVelazquez. Thank you, Mr. Vivian.
    [The statement of Mr. Vivian may be found on page 50 of the 
Appendix.]

    ChairwomanVelazquez. Mr. Hager, I would like to address my 
first question to you.
    Can you tell us which of the SBA's existing programs help 
early-stage startup small businesses with investment capital?
    Mr.Hager. We have a number of instruments to use. I mean, 
arguably the debenture program would work. We are also, of 
course--
    ChairwomanVelazquez. What do you mean by "arguably"?
    Mr.Hager. There could be some push-back to say it is not 
for startup, but clearly it has a 50-year history with all 
sorts of applications, including startup. Some that would push 
back to say "no."
    ChairwomanVelazquez. What other the programs?
    Mr.Hager. The New Market Venture Capital program that we 
have, it is still early--we are about 5 years into the 
program--but we also think that program would offer some 
startup. The startup has obviously dropped off, as you have 
indicated. However, the last couple of years it has been very 
stable, and we hope that it will maintain the current level 
that it is today.
    ChairwomanVelazquez. Let me ask you, how can a startup 
business with limited cash flow and a heavy need for capital 
investment benefit, how will that benefit?
    Mr.Hager. It would be--again, to go back, the debenture 
program has been here for 50 years, and it has historically 
been able to provide capital to startups.
    ChairwomanVelazquez. Let's take the debenture program. If 
you are using the debenture program to fill the gap left by 
eliminating Participating Securities, can you explain to us, 
then, why has your agency proposed to keep the program level 
flat?
    Mr.Hager. "the program level flat"? Help me with that. 
Which program level are you talking about?
    ChairwomanVelazquez. The authorization of 3.5 million. Did 
you ask for that increase?
    Mr.Hager. No.
    ChairwomanVelazquez. How then can you fill the gap that 
exists?
    Mr.Hager. There will be some dropout from the participating 
program that won't be filled.
    ChairwomanVelazquez. So that shows the commitment of the 
administration.
    Mr.Hager. The commitment of the administration is as strong 
as every. We have a 50-year--
    ChairwomanVelazquez. The facts are there or?
    Mr.Hager. The participating program was a program we could 
not support for the future. Out of 8.5 billion, 2.4 billion has 
been lost. Another 300 to 700 million is forecast to be lost. 
It is a program that didn't have good balance as much as we 
want to reach out, as much as we want to help. The 
participating program is a program that clearly did not have 
good balance.
    ChairwomanVelazquez. Where are the forecasts when you talk 
about the losses?
    Mr.Hager. Our current forecasts in the SBA of the 
participating program, we are right now 2.4 billion that we 
know we are going to lose. We are looking at a commitment of 
another 2.1 billion roughly.
    ChairwomanVelazquez. You mentioned the $2.5 billion in 
losses. So I just want to ask you: Has your agency actually 
realized losses in the participating security program in the 
amount that you quote, or are those projected losses?
    Mr.Hager. Projected losses.
    ChairwomanVelazquez. Okay. So Mr. Hager, one of the biggest 
challenges that women-, veteran- and minority-owned small 
businesses have to overcome is the inaccessibility of 
investment capital in the conventional capital venture 
industry. What is the SBA doing to increase equity investment 
in women-, veteran- and minority-owned businesses?
    Mr.Hager. No. It wouldn't take a lot to look at the numbers 
to understand that there is a problem there. We don't deny that 
there is not a problem there.
    ChairwomanVelazquez. So, for the record, let me share with 
you and the people here, the numbers.
    In fiscal year 2005, only 3.4 percent of all financing in 
the SBIC program that went to that were majority black owned. 
For women-owned businesses, the numbers were worse with those 
businesses receiving 2.37 percent of SBIC financing.
    For Hispanic-owned businesses, the statistics were even 
worse with only 1.39 percent of SBIC financing. And veteran-
owned small businesses faired the worst receiving only half of 
one percent of all SBIC financing.
    So if this is the result of the SBA current efforts to help 
this group, wouldn't you agree that a lot more needs to be 
done?
    Mr.Hager. We agree that we have to do everything we can to 
enhance those numbers. You know, when you look at the number 
of--from 2002 through 2006, the number of businesses in women-
minority-owned--that are women-minority-owned, was roughly 20 
percent.
    Those numbers, not necessarily where we would like them, 
but 20 percent is the number that was achieved for those years. 
We have a number of programs that we are looking at. We have a 
number of outreach programs that have been launched. We 
recently conducted a symposium at the agency that was focused 
on women and minorities.
    ChairwomanVelazquez. We got a problem. You know that; 
right? We have a problem. The administration has a problem with 
those numbers. You have to do better.
    Mr.Hager. We would like to see the numbers improve.
    ChairwomanVelazquez. So let us talk about the New Market 
Venture Capital Program.
    As we all know, it was designed to increase investment in 
small businesses in low-income areas.
    Do you feel, Mr. Hager, that this is a worthwhile goal for 
the SBI even if the program requires increased funding?
    Mr.Hager. We believe that the funding level for the program 
today is where it ought to be. It is a program that was 
developed roughly 5 years ago. It was implemented. We are 
tracking the progress. It is still in the harvest period, as we 
call it. We don't know yet until we get some more experience 
with the program. We do believe it offers hope for us. We do 
believe that there is a potential here to expand it.
    But we don't want to artificially, prematurely make a 
recommendation on this program until we see the results.
    ChairwomanVelazquez. And so can you tell us, where is the 
funding level for the program? At what level?
    Mr.Hager. We have committed some $7 billion for this 
program; $40-some million has been, you know, committed, has 
been allocated. There is still a balance in the program. It is 
a new program, relatively new.
    ChairwomanVelazquez. When was the last time that it got 
funded?
    Mr.Hager. I think the year for that--
    ChairwomanVelazquez. I will help you, 2003.
    Mr. Hager, the New Market Venture Capital was a 
manifestation of Congress's belief that small businesses in 
low-income areas need additional support in acquiring 
investment capital.
    What has the agency done to fulfill this mission?
    Mr.Hager. We believe that we have, again, a number of 
venues to address that issue both on the venture side--I keep 
coming back to that. That program has served us well for 50 
years. We maintain it is a strong program. We maintain there is 
a good balance between taxpayers and recipients of those funds. 
And we think it is a good approach.
    We have a New Market Venture Capital Program that we talk 
about. That offers a lot of hope for the future based on, you 
know, the success of the program.
    ChairwomanVelazquez. Without money? Without the 
administration coming to ask for money?
    Mr.Hager. Until we see what happens with the program, we 
think we are where we ought to be right now.
    ChairwomanVelazquez. You talk a lot about the New Market 
Venture Capital Program a lot in your testimony, and then your 
agency--you are saying that the agency is truly committed to 
fostering development through this program. And I just cannot 
understand, if you come here and say and talk about how much 
this program can accomplish and how committed you are, and then 
your agency does not request--hasn't requested any more money 
for the program for the last 4 years, something is wrong with 
this picture, sir.
    Mr.Hager. We are passionate about what we do.
    ChairwomanVelazquez. I can see that.
    Mr.Hager. We are, and we work very hard at it. We don't 
want to propose additional funding on a program that is new, 
unproven. We don't want another participating security--
participating program where we have to come back to say we have 
a problem here. Well, what kind of problem? $2.4 billion 
problem. We don't want--we don't want to--
    ChairwomanVelazquez. Sir, don't continue to say $2.4 
billion when you answered to me my question about saying that 
those are estimates. You don't know the numbers.
    Mr.Hager. We can't guarantee it, but with great 
predictability, those are real numbers.
    ChairwomanVelazquez. I will now recognize Mr. Chabot.
    Mr.Chabot. Thank you, Madam Chair.
    And, Mr. Hager, I will follow up with you if I can.
    Could you tell us which outreach efforts are in place so 
that small business owners know more about possible angel 
investors?
    Mr.Hager. We have a whole host of outreach programs that we 
have launched in the last couple of years. It would include 
hosting work groups, brain storming meetings. We have done that 
in a number of major cities throughout the country. Holding 
frequent discussions with NAIC, 3 years in a row of supporting 
events cosponsored by NAIC, participating in speaking at the 
North American Alliance gathering.
    I can go on and on, outreach programs that are underway, 
including a symposium that was conducted back in December of 
last year where we brought in industry leaders, academicians, 
people that would be able to assist us in how we can come up 
with new ideas in outreach.
    We came up with a whole host of suggestions that are being 
evaluated right now. And we will continue these outreach 
programs.
    Some of these suggestions will no doubt be implemented.
    Mr.Chabot. Thank you.
    Dr. Lerner, if I could move to you next.
    You had mentioned in your testimony that venture funds tend 
to sort of group together, and the first one is obviously 
tougher environment and kind of breaking ground, and it is 
easier if you have a group of them or if you are following. And 
you had also mentioned that there has to be interest in the 
private sector if it isn't--if the market isn't going to 
support it, no matter how much money you dump into something, 
it is just not going to ultimately work.
    Could you expound upon that, both of those things, a little 
bit?
    Mr.Lerner. What you are getting at is one of the 
fundamental challenges here. That, on the one hand, you know, 
we just have this natural desire to see venture capital and 
entrepreneurial activities taking place everywhere. And ideally 
that would be the way that would be sort of spread out, you 
know, very evenly and have activity taking place in all places.
    Unfortunately, it seems that when governments have tried to 
do this, and there are examples ranging from, you know, from 
around the globe where they have said, let us just sort of try 
and encourage activity evenly so everyone is saying it just 
fundamentally doesn't work; this is an activity that seems to 
be concentrated and lumpy in its nature.
    Now that, when you first state that, it doesn't sound very 
appealing. And in fact, when I have made statements like this, 
I have been criticized in all corners of the globe from Finland 
to China for having said something along those lines.
    At the same time, though, I think there is hope. And it is 
not--we don't need to take this sort of Draconian view, and 
Silicon Valley and Massachusetts are venture capital; we can't 
do anything anywhere else. But I think it does make sense to 
say, rather than trying to duplicate Silicon Valley, rather 
than trying to create a little high-tech cluster in every 
region, we need to think very carefully about what are the 
strengths of each given region and what are the things where 
there is a real potential for private sector activity and real 
vibrancy.
    To just simply throw money in the hopes of duplicating 
Silicon Valley is unlikely to be successful, but if we can 
figure out ways and places where the--where there is potential 
in getting the private sector involved in terms of providing 
matching funds, is an important way of doing it. We can 
duplicate features of the venture model in many different 
places around the Nation.
    Mr.Chabot. Mr. May, would you agree that an increase in the 
tax rate for long-term capital gains would be harmful to 
investors in two ways: It would reduce the return on angel 
investments, and it would reduce the funds that angels have to 
invest? And also, is the Angel Capital Association supportive 
of extending the President's tax cuts?
    Mr.May. Thank you for the question.
    No high-net-worth individual doing long-term capital gain 
patient investing in a high-risk environment would like to see 
a higher tax rate on those long-term capital gains. When I go 
around the world talking about, is the U.S. government 
sponsoring and supporting angel and venture activity in the 
United States, I say, no, except for 15 percent long-term 
capital gains tax rates as an encouragement to take the risk on 
that capital.
    Because, in general, this has been a grassroots-up 
phenomenon, not a top-down like in the EU, the Angel Capital 
Association is so new, less than a year old, and just 
formulating how it should approach policy among what we call 
herding cats.
    As you can imagine, we have angels from all walks of life 
and all jurisdictions. We have not yet taken a policy position 
on anything, but we are developing it. We would be glad to know 
what areas we should be responding to these kinds of questions.
    But as a group, it is too new to have a stated policy like 
a trade association. You can imagine trying to deal with all of 
those different individuals and get a vote.
    So it is neutral on it to date.
    Mr.Chabot. And, finally, Madam Chair, if I have time to ask 
Mr. Vivian a question.
    Are there specific industry sectors or geographic areas 
that need more SBIC funding and cannot obtain it through the 
limited programs operated by the SBA?
    Mr.Vivian. My opinion, the answer would clearly be, yes. If 
you go outside the regions that include Silicon Valley or Route 
128 or Austin, Texas, there is a dearth of private equity. The 
statistics will show well over two-thirds of the dollars 
invested, and if you break it down by county, it is staggering 
how much venture capital is concentrated in a handful of 
counties.
    So, clearly, there is a dearth of venture capital and 
private equity outside of those regions. And quite frankly, one 
of the very disappointing things to NASBIC, as it related to 
the Participating Securities programs, was we could debate 
whether the structure was right or wrong, but the intent and 
the spirit of the program--the program worked, and it drove 
capital. Our little firm in Chicago, and other people can say 
Chicago is full of private equity, but we write checks and in a 
range from $750,000 to $3 million in our equity fund, and that 
money does not exist.
    So, clearly, there is a need, and I think one of the things 
that Josh mentioned I would also echo. If there are legislative 
initiatives around programs, there needs to be a long-term 
horizon and a vision to keep those around.
    One of the problems that the Participating Securities 
program was rolled into along with the rest of the venture 
industry was they ramped the commitments into the teeth of the 
recession and the economic bubble and the dot-com bubble. 
Everybody lost money during that period. Not just the SBA. I 
would argue that SBICs performed as well or better than the 
vintage year funds that the rest of the private equity industry 
put forth during those years, but you have to have a duration 
and a perspective and a willingness which is why maybe do 
tweaks to a program so that it won't result in a backlash if 
there are losses, because if you are screwing around in private 
equity, there are going to be losses. That is just the nature 
of the beast.
    Mr.Chabot. Thank you very much. I yield back.
    ChairwomanVelazquez. Ms. Clarke.
    Ms.Clarke. Thank you very much.
    It is really disheartening to hear today that many of the 
Small Business Administration's programs being discussed are 
being eliminated from the Federal budget.
    The administration must continue to fund these initiatives 
in order for these programs to thrive and to flourish and, you 
know, to hear that the 50-year track record that you have is 
what you used to sort of substantiate success, it just doesn't 
jive when we see so many businesses out there in need of our 
support.
    It is really an imperative, and I hope that you will really 
reassess that and do some, what I believe, is some really in-
depth analysis. We have got so many businesses out there that 
really need the help and the support at the same time that we 
are cutting funds, it just seems counter-intuitive.
    The SBA was created to aid and counsel and assist and 
protect small business concerns.
    As you already know, small businesses remain a critical 
component of our economy in the 21st century, and your 
administration must do all it can to make sure that women and 
minority-owned businesses start, build and grow in the years to 
come.
    I would like to ask Mr. Hager.
    It has been recently reported that SBA plans to reduce fees 
for small business investment companies which use the 
government-backed loans to make venture capital investments, 
and according to the administration, these fee cuts will allow 
small businesses to avail themselves to the SBIC program more 
than they did last year.
    The SBA, however, also has ceased issuing new leverage 
commitments to many entrepreneurs due to your administration's 
decision to move to the program to a zero subsidy, thus making 
it virtually insolvent.
    Why has the SBA continued to pursue a zero-subsidy policy 
in the fiscal year 2008 budget which negatively impacts on 
minority entrepreneurs in receiving capital investments?
    Mr.Hager. The whole issue of zero subsidy is not only in 
the capital markets group, but it is also in the loan area.
    We strive, we work very hard at achieving zero subsidy to 
eliminate the requirement to come forth and have various costs 
created and covered by budgeting from Congress every year.
    Many times the budget doesn't get approved on time. We then 
have to cease programs.
    We, by far, would rather see a program that is zero 
subsidy, is paying for itself because we have proven time and 
time again that, in the long run, we believe the programs are 
far healthier; we don't expose ourselves to interrupted 
capital; and we believe the end result--
    Ms.Clarke. With all due respect, if that is what you would 
like to see, why hasn't a real viable option been proposed by 
SBA? To just stop it and not present a viable alternative 
doesn't help the people of our communities, the entrepreneurs 
of our communities. I am sure there is a lot of brilliance and 
intellect over there at the SBA. With a little bit of 
imagination and with all of the gentlemen sitting with you here 
today, it shouldn't take coming before us to realize that, if 
you stop this, it is going to have an adverse impact somewhere.
    And it would seem to me that, before we make these type of 
Draconian moves, we would, you know, consult with those and 
say, look, you know, this is not the type of cost that we want 
to absorb any longer, but we know that there are folks that 
rely on this out there.
    What can you come up with that we can present to these 
communities, to the people of the United States, that will 
substitute for what we will have to phase out?
    Isn't there anyone thinking at that level at the SBA 
currently?
    Mr.Hager. We think about it a lot.
    Ms.Clarke. Okay. You answered that question. I am glad you 
think about it a lot.
    Mr.Hager. Thank you very much.
    Ms.Clarke. Where are we in proposing what the next steps 
are going to be?
    Mr.Hager. For example, the New Market Venture Capital 
program is new. It is 5-years old. And by the way, that program 
is well funded. If first payment doesn't occur, repayment for 5 
years after the conception of the program. So that funding will 
go out covering us for the next couple of years without a 
problem at all.
    The participating program is the one that we have indicated 
we do not support it going forward. Why? We did not have a good 
balance between the user of that program and the taxpayer. The 
projected losses for that program that we have absolute 
certainty will occur are Draconian. I mean, it is not fair, in 
our opinion, to the taxpayer to be making that up.
    Therefore, we have ceased supporting that program with 
annual funds, and we have also indicated that, if we were to 
apply fees to cover the expense of that program, nobody would 
participate.
    Ms.Clarke. But, Mr. Hager, I understand what you are 
saying. At the same time, the alternative, if it is the New 
Market Venture Capital program, which made over 40 million in 
equity investments and over 50 portfolio companies creating 400 
new jobs, you claim that it is premature to judge the overall 
effectiveness of the program in your written testimony.
    These numbers seem very impressive. Don't you think that 
additional funding would not only bring new companies into the 
program there by increasing equity financing to entrepreneurs 
in low-income areas but also increase the companies' success 
rate.
    Mr.Hager. I totally understand where you are coming from.
    Where we are coming from on the assessment of the program, 
the first payments aren't due in for up to another year. And 
until we start seeing what actually happens on the repayment, 
we can't say we need more money to expand this program. It is 
in a--we want to see what the--
    Ms.Clarke. Is this like a pilot that you are running here 
that says that, you know, we are going to have a control group, 
and until that control group is manifested, we are going to 
hold back on what we know is a need in the United States of 
America; is that where we are at this stage?
    Mr.Hager. It was not set up that way.
    Ms.Clarke. I didn't think so.
    So that is why I am a bit concerned about, you know, the 
way that we are going about this. That is because business does 
not operate in a static environment like that. It doesn't 
thrive in a static environment like that. And certainly our 
communities, you know, deserve better than that. And so if we 
are going to set up these control groups situation, which is in 
effect what we are doing--
    ChairwomanVelazquez. Would the gentlelady yield to me for a 
second?
    Ms.Clarke. Okay.
    ChairwomanVelazquez. Mr. Vivian, I would like to askyou, if 
this is the way you invest, you invest and then you wait for 6, 
7 years?
    Mr.Vivian. No.
    ChairwomanVelazquez. You have one more minute.
    Ms.Clarke. I think the point has really been made.
    I am just disappointed. I am a new Member here. And, you 
know, I have been just dumbfounded, quite frankly, by the way 
that we are not looking at using the best of our talent, skill 
and ability to do what needs to be done to assist in our 
communities and the SBA. So many people are looking to you for 
your help and your guidance and your support. If in fact you 
feel that there is a danger to the taxpayers' money, I think it 
is also your obligation to look at other alternatives that can 
be created.
    Like I said, the talent expertise is sitting right next to 
you there. These are folks you can draw on and say, listen, 
right now this fund looks like, you know, it is going to be a 
pain in the butt for all of us for the future, for the 
foreseeable future, what can you suggest that we can do as a 
product that we can get it to these communities immediately as 
an alternative to assist those entrepreneurs?
    I just don't hear that coming forth, and I hope that that--
ultimately, that is what I will be looking at.
    Mr.Hager. But I hear you loud and clear, and to show you an 
example, on a quarterly basis, we meet with the trade group to 
say--we address a whole host of issues. But certainly as we 
talk about product phase-out, you know, what can we do? What 
are the options going forward? You know, certainly the New 
Market program is one. Certainly we need to take a look at a 
program that just started in 2001. What kind of risk are we 
exposed to, to make sure that we have a good balance between, 
again, the recipient of the dollars, the capital and the 
taxpayer?
    ChairwomanVelazquez. Time has expired.
    Ms.Clarke. Thank you very much, Madam Chair.
    ChairwomanVelazquez. Dr. Lerner, one of the shortcomings 
you mentioned in the government investment program has been a 
high emphasis on early results and a tendency to terminate 
these programs prematurely had those results not been achieved.
    So in the case of patient equity investment, what time 
frame should we expect before a program begins to bear fruit?
    Mr.Lerner. I think it is an excellent question, and we can 
point to many examples where programs have been killed too 
soon. I think a great example is France, where it seems every 
time a new president has been elected, they announce a new 
entrepreneur program. And then, 2 years later, they say France 
doesn't have an entrepreneurship, so let us get rid of the 
program.
    But clearly doing evaluation is important in understanding 
what is going on. But it is simply the process of growing--when 
you think about creating a new venture industry, particularly 
in an area where it hasn't been there beforehand--is going to 
take a while for this to happen. You are not just creating 
companies, you are creating a whole system in terms of not only 
the financiers but the lawyers to help them with the process, 
the accountants who understand working with these firms and so 
forth.
    So I do think that to think about this as something that 
can be done in a couple of years is, you know, probably naive; 
that we are talking about more like the length of a decade or 
even longer. It is obviously challenging in the sense that, in 
the position of a steward for public funds, one doesn't want to 
waste money or throw good money after bad. But at the same 
time, you have to realize that even if we look at some of the, 
you know, very successful programs that have been very--that 
have been out there, such as the original SBIC program, the 
first 10 years of it were not a great success. In fact, there 
were numerous hearings where Congressmen sitting in this very 
room berated people for having set up the program in the first 
place.
    So one really needs to think about it in the time frame of 
a decade or longer rather than a couple of years.
    ChairwomanVelazquez. In your testimony, Mr. May, you say 
that government leverage, if appropriately structured, could 
play a role in increasing angel investment in small businesses. 
How should this leverage be structured and what should be 
avoided if the SBA's involvement in angel investing is to be 
successful?
    Mr.May. That is a great question we are struggling with. 
And as we do that, I am going to keep you all informed.
    The only thing that I have seen as a new initiative that I 
think has some merit that I have seen in other countries is a 
matching approach as opposed to a an entirely new bureaucracy 
or a new attempt at raising capital.
    And the State of Ohio, for example, has a wonderful program 
that the Ohio Tech Angels have one-third of a side car fund 
from Nationwide Insurance, one-third from the Ohio State 
University and one-third from the State of Ohio, putting its 
funds on a dollar-by-dollar basis side by side with risk 
capital directed solely by private angel investors.
    So I guess what I am saying is the kind of discussion that 
we are going to have over time now that, you know, we are 
taking a little bit more public role, would be to explore some 
of these creative things being done at the State and local 
level and see if they were used at the national level, whether 
it be underserved markets or national, whether that has some 
fruit as opposed to a new bureaucracy.
    ChairwomanVelazquez. Dr. Lerner, you mentioned that a 
common failing in government investment programs is a tendency 
to focus on unrealistic metrics to measure the program's 
success.
    How should an investment program's success be measured?
    Mr.Lerner. I think it is a great question.
    I mean, clearly, at the end of the day, one thing that you 
do want to look at is financial return. Now it is important, as 
we talked about before, to look not look just simply at 
absolute return but at return relative to what other funds in 
the market are doing.
    But I think it is also clear that, if we are spending 
public money, it is not simply because of financial return.
    We have a much broader set of social goals as well. And 
these include things where it is alluded to earlier in terms of 
employment creation, in terms of creating, you know, creating 
an environment where it is easier for the next generation, for 
entrepreneurs and so forth.
    And certainly when we have--when I have been in a situation 
advising governments about undertaking evaluations of programs, 
what we have tried to push for is both a quantitative and a 
qualitative side and saying, let us not just look at things 
that can be easily measured, but let us also look at the 
broader kind of investments. And, of course, those make us a 
little nervous because it is hard to necessarily quantify all 
of that stuff.
    But it is important to take that broader view and to get a 
sense of success and failure.
    Mr.May. I just wanted to mention, I really do think a way 
to get at some of the current data would be this study that I 
know is about to come out from the National Governors' 
Association recommending to the Governors what they have found 
at their Center for Competitiveness has been the experience of 
different tax credits systems at the State level, funding, seed 
level. Our comments are due back to them at the end of June. So 
as early as July, I would hope that the staff and the SBA avail 
themselves of that recent research.
    ChairwomanVelazquez. Mr. Vivian, you heard me when I was 
asking Mr. Hager, in terms of the numbers regarding the SBIC 
success, the program continues to have difficulty in providing 
investment to small businesses that are majority owned by 
women, minorities or veterans.
    What more can be done to increase investment in this group?
    Mr.Vivian. I think--there is no simple answer to that 
question. The challenge always comes back to, when we have been 
asked that question as either an association or as investment 
professionals, we have never turned a business down based on 
the gender or nationality of the entrepreneur. We look at the 
merits of the business.
    And I think the challenge that SBA has is the programs that 
have been called in the past directed or targeted programs have 
never really caught fire, for whatever reason. I don't know the 
answer to that question as to why the more directed programs 
have not received as much interest among the investment 
community or investors.
    And, you know, I don't have a great answer to that 
question, Chairman. I wish I did. I do know that, in the 
broader limited partner community, which is the pension funds 
and endowments and foundations that are really the drivers of 
investment into private equity and capital communities, there 
is a major focus now on what they are calling double bottom 
line investing where they get both financial return and social 
return for what they do.
    And I think the leadership within the investment community 
and discussion and education and leadership by SBA in those 
initiatives, I believe, is starting to make a difference. And, 
you know, the proxy that I use is the number of women and 
minority general partners that I see and that we see at 
conferences, in fact, there was a conference held in New York 
about a week ago on minority- and women-owned venture capital 
and private equity firms and investing in those firms.
    I believe there is a building wave of interest amongst the 
financial community to recognize that there is a problem there. 
And there is--something needs to be done, and it needs to 
probably be a collective effort on a public-private partnership 
to figure out how to solve those problems.
    ChairwomanVelazquez. Thank you.
    Mr. Chabot.
    Mr.Chabot. Thank you.
    Dr. Lerner, does the amount of Federal and State 
regulations impede the capacity of small businesses to obtain 
equity financing? And do you think that Congress should take 
any action to eliminate the duplicative regulation of 
securities markets by Federal and State regulators, and would 
such an action improve the capability of small business owners 
to obtain such capital?
    Mr.Lerner. What you are raising is a set of really 
important issues.
    Clearly we have seen, you know, a decline in terms of the 
share of, for instance, initial public offerings taking place 
in the United States on a worldwide basis, a pretty dramatic 
pattern over the last 5 years.
    Now part of that probably just simply reflects the growth 
of entrepreneurship in markets like India and China and more 
recently in Europe and probably was inevitable. But it is hard 
not to feel that the failure of companies to go public and 
access the public markets here reflects a combination of 
regulatory constraints, some of which are associated with 
Sarbanes-Oxley, but others which aren't; fear of litigation and 
particularly the proliferation of, you know, the continued role 
of shareholder litigation against young companies and simply 
more structural changes in terms of the investment banking 
industry where there has simply been less time and resources 
for analysts to cover young growing companies.
    All of these factors have combined to make going public 
less attractive, and this has also made it much more difficult 
for companies to get earlier stages of financing because you 
don't have the promise of ultimately being able to go public.
    So I think that regulatory issues are part of the story, 
but I don't think they are all the story. And certainly there 
is a variety--it is probably one of a number of things that 
fits into this which is the brew of what is going on.
    Mr.Chabot. Let me follow up with something that is totally 
unrelated to that.
    Do you think it makes sense that the vast majority of small 
business owners start their business using credit card debt, 
and if it doesn't make economic sense, that it really kind of 
shows a market failure in small business financing that it 
forces a lot of owners to finance the start-up of their 
businesses using such expensive credit card debt which is 
obviously much higher than one would hope that you start a 
business at.
    Mr.Hager. It is an important issue. I mean, clearly, when 
you are at that stage of starting a young company, except for 
the very fortunate few, most of whom have already been 
entrepreneurs and been successful and made money for their 
investors, except for that group, it is very hard to raise 
money.
    You have to just somehow get on the playing field any way 
you can and sort of bring that idea along to the point where 
you can--where you can sort of have the--have something to 
really show to potential investors, like angels.
    And I think here, again, we can think about, you know, some 
of two difficulties particularly that minority investors face 
in the sense that the challenges of being able to access 
traditional capital markets in these instances often are going 
to be greater due to a lack of information or simply outright 
discrimination.
    So I think it is clearly, this is a very expensive--credit 
cards are a very expensive form of financing. And you can think 
about many examples of entrepreneurs who ran up huge amounts of 
credit card debt and had very difficult situations.
    But I don't think there is an easy solution or an easy way 
to get around this. Simply because that initial phase, it is so 
tough to raise money because you really have nothing but a 
dream to convince people to give you funding.
    Mr.Vivian. Just to echo a little bit.
    I think there are some endemic challenges in growing small 
business. I don't think it is a problem. The beauty of being an 
entrepreneur, you believe passionately in what you are doing 
and you don't care if anybody else believes in what you are 
doing. And the challenge is endemic to the private equity 
community; even if there were an abundance of seed capital, 
there are a lot of businesses that just aren't good venture 
capital investments.
    The investments that we need to make into venture funds to 
drive returns that allow us to stay in business don't align 
with the vast majority of the companies and small businesses 
that get started.
    Equity investing of the professional kind is driven at 
high-risk, high-return, and a lot of businesses--it doesn't 
mean they are not fine businesses that create jobs and add a 
lot of value to our country, but they are just not good venture 
capital investments just by the nature of the fact that they 
are unlikely to make someone 5 to 10 to 15 times their invested 
capital on a return basis in a short period of time.
    ChairwomanVelazquez. Ms. Clarke.
    Ms.Clarke. Thank you very much, Madam Chair.
    I wanted to ask Mr. May.
    Angel investments have accounted for more than 51,000 
entrepreneurial investments a year and are rapidly becoming a 
way for investments to obtain early seed capital. The need for 
the early stage start-up capital for small businesses is being 
unmet by the SBA's existing investment programs, Particularly 
since the elimination of the funding for the SBIC securities 
program.
    Angel investments have been great for job growth, mainly in 
the health care services industry. But individual investors 
tend to focus more on profits and not on community growth.
    How can Congress make angel investing a more probable 
choice in many communities since it could help improve the 
economy?
    Mr.May. I am not sure I have the answer to that. I am not 
sure that there is a one-stop-shop way to do that. But it is 
true that it is so clear that there is this widening gap of 
institutional funding that is not available for high-growth 
companies, and that is really what we are talking about is the 
tip of the iceberg of these high-growth entrepreneurs that can 
never get funding from any of us.
    But, yeah, it has gotten where there is less than a 
thousand transactions a year by the mainstream institutional 
venture capitalists in the same space that, as you say, there 
are 40,000 or 50,000 from angels and angel groups.
    The problem is trying to force an individual to take the 
risk through any kind of government program is tough. I think 
what is needed, and we are looking at, is upstream. What we are 
doing is getting them to a stage that we need, if they are 
successful, to hand them off to somebody else who will provide 
follow-on financing.
    The New Market Growth Fund we have co-invested with, and I 
think from the one example I have had here, is a successful 
program and might well merit expansion because when we need to 
find a $2 million investment after our $600,000 investment, if 
those kind of sources are available, that is good for the 
economy. And, again, whether it should be government-backed or 
whether there should be CRA credits or whatever it is, I think 
you are more likely to have the ability to help move the SBIC 
money than you will ever be able to push the angel money.
    But we are trying, and we will continue the dialogue.
    Ms.Clarke. Mr. Vivian, I wanted to ask you, NASBIC, you 
heard some of the conversation I had with Mr. Hager. And there 
has to be some, you know, unconventional thinking going on 
right now given what we know is going to be a real hardship in 
the market of trying to fund start-ups and assist 
entrepreneurs.
    Are there any legislative proposals that Congress should 
consider in order to improve the current SBIC program that you 
have given consideration to?
    Mr.Vivian. I think that is an excellent question.
    NASBIC worked for over a year, and I chaired the 
legislative committee when we tried to restructure the 
Participating Securities program. And, you know, there were 
arguably flaws in the way that program was structured. It 
didn't mean it didn't work. And this is your world. It is not a 
world I understand. But in this political climate, it did not 
appear that there was a lot of broad support to push that 
initiative through.
    Would the initiative have kept the program alive and 
arguably kept licensing and kept seed and early-stage capital 
going? I believe, as a practitioner, because we did it, yes. So 
if there is something to consider for the future, perhaps it is 
a structural change to a program that, in my opinion, worked. 
And it worked well, and it drove a lot of capital to small 
businesses that needed it.
    Just a real quick aside on your question to John as it 
relates to, what can the government do for angels?
    The other place to look is something like tax breaks 
because these angels are wealthy individuals, and if they are 
looking to--if you want to spur their investment in a certain 
area, if give them a break for investing however you codify 
that to invest in seed and early-stage companies or seed and 
early-stage funds or funds of a specific size, you can incent 
people to take the risk.
    I am not sure matching dollars incents a wealthy individual 
to take a risk in backing an entrepreneur.
    If you juice their return, that might be a way to do it.
    ChairwomanVelazquez. I would like to add to your question 
to him, that is part of the angel investment legislation that I 
introduced today. And hopefully, Ways and Means will consider.
    Ms.Clarke. I am finished.
    ChairwomanVelazquez. Mr. May, I would like to ask another 
question.
    You talk of a need for education on line infrastructure and 
other frameworks to support angel groups and develop angel 
networks. This is this type of support needed at the Federal 
level?
    Mr.May. I am not sure--I know for sure it is needed at the 
local and the State level. I don't know, and I would have to 
look at your legislation and talk to you and your staff as to 
what mechanism you think administratively this legislation 
would penetrate to get to us, but what I know is that 
communities that have had successful educational seminars and 
other activities have then tended to get more activity. What I 
am amazed about in the United States is that there are 4 to 6 
million millionaires; there are only 250,000 to 300,000 
practicing angels by any of the research that we have done, 
about 5 percent. And there are only 5 percent of those that are 
practicing in groups that have a Web site, that meet monthly. 
So it is not as if everybody is doing it.
    So we need a lot of help, and we are working on this 
personally. The academics are helping us with some of the 
research, but maybe there is something we can do together 
because there are a lot of people that have the capacity; they 
have the will.
    ChairwomanVelazquez. Would you like to add, Dr. Lerner?
    Mr.Lerner. I think there is a need for a great deal of 
education on both sides. I think that this certainly is one of 
the barriers, is that I frequently will encounter people who 
are very enthusiastic and very passionate about their 
entrepreneurship dream, which is great, but in many senses, 
there are a lot of landmines along the road to entrepreneurial 
success.
    And, you know, while certainly some things you have to 
learn by doing, there are other things that can be taught and 
sort of understanding, you know, how you go about the process 
of structuring a deal or how you look at people who are 
potentially giving money and trying to figure out whether they 
are serious or not. There is a lot that could be done.
    And, again, I am not sure what the right level or the right 
place is for it, but I think it could certainly very much boost 
the entrepreneur success rate.
    There have been a lot of academic studies that suggest that 
one of the main barriers to minority entrepreneurship has been 
the fact that people didn't grow up in families where a father 
or a mother were an entrepreneur already, and somehow it seems 
that when you grow up in that sort of family environment, you 
absorb a lot of these lessons, sort of, you know, sort of 
automatically. And it seems that education can play a really 
important role in overcoming some of the gaps and trying to 
make people in a position to be more effective entrepreneurs.
    ChairwomanVelazquez. Mr. May, why does angel investing have 
the capacity to generate investment in regions where there are 
not currently large numbers of venture capitalists?
    Mr.May. The statistics about where professional investors 
are located, are just staggering. The National Association of 
Seed Venture Funds found that 26 States had zero or only one 
venture capital investment in their State last year; 77 percent 
of institutional venture capital over the last 10 years went to 
23 States.
    So it is true, you can't force the money in there. But it 
is true that, if we could find ways through the angel programs 
and through maybe some of these educational programs--I am 
finding that in Lexington, Kentucky; Kalamazoo, Michigan; 
Milwaukee--there is a lot of interest in keeping their people 
home, transfer from their universities. A lot of people are 
realizing, not everybody can go to Silicon Valley and Boston.
    So one of our efforts is try to have a lot of educational 
seminars and work in helping people to understand how to do it 
in their backyard and not to feel inferior because they are not 
at MIT.
    ChairwomanVelazquez. Dr. Lerner, you spoke about the 
program in Israel as an example of a successful government 
venture capital program.
    Could you talk about--could this program be duplicated in 
the United States, and if so, what characteristics of this 
program were most important to its success?
    Mr.Lerner. Well, I think that, in many senses, it does 
provide a model that we could think about for trying to 
encourage venture activity in a variety of regions as well as 
in a variety of industries which are under-served. And in 
particular, the crucial elements were, first, that it relied on 
matching funds, so there was no amount of having to get funds 
from the outside. But they also structured in a way that made 
it very attractive, which is that not only did the government 
put in some money, a dollar to match the private money, but 
they then limited how much money the government could make as a 
return.
    So they had this feature where the government's stake could 
be bought out once you got to a return of somewhere around 15 
percent.
    So, in other words, if you had a big winner. You would just 
simply go and buy out the government's half of it. The 
government would make a nice return, which is, you will get us 
money back for 15 percent.
    But the view of the people in the Israeli government was 
saying we are going to win in any case. If we get successful 
companies, these are people who are going to be employing 
people, who are going to be paying taxes and many other things. 
We don't need to make sure that we get some huge--
    ChairwomanVelazquez. That is the type of mentality that is 
lacking sometimes in our government.
    Mr.Lerner. Certainly the idea of having multiple metrics 
and looking at having broader social returns is an important 
aspect.
    ChairwomanVelazquez. Any members of the panel would like to 
add anything else?
    Mr.Vivian. That sounds an awful lot like the Participating 
Securities program.
    ChairwomanVelazquez. Exactly.
    Well, here we are.
    It has been quite an insightful and very interesting 
hearing. Definitely we are going to move forward with 
legislation that will try to address some of the concerns that 
have been raised here this morning.
    So members have 5 legislative days to enter a statement or 
other materials into the hearing record.
    And with that, the hearing is adjourned.
    Thank you.
    [Whereupon, at 4:25 p.m., the committee was adjourned.]

    [GRAPHIC] [TIFF OMITTED] T6107.001
    
    [GRAPHIC] [TIFF OMITTED] T6107.002
    
    [GRAPHIC] [TIFF OMITTED] T6107.003
    
    [GRAPHIC] [TIFF OMITTED] T6107.004
    
    [GRAPHIC] [TIFF OMITTED] T6107.005
    
    [GRAPHIC] [TIFF OMITTED] T6107.006
    
    [GRAPHIC] [TIFF OMITTED] T6107.007
    
    [GRAPHIC] [TIFF OMITTED] T6107.008
    
    [GRAPHIC] [TIFF OMITTED] T6107.009
    
    [GRAPHIC] [TIFF OMITTED] T6107.010
    
    [GRAPHIC] [TIFF OMITTED] T6107.011
    
    [GRAPHIC] [TIFF OMITTED] T6107.012
    
    [GRAPHIC] [TIFF OMITTED] T6107.013
    
    [GRAPHIC] [TIFF OMITTED] T6107.014
    
    [GRAPHIC] [TIFF OMITTED] T6107.015
    
    [GRAPHIC] [TIFF OMITTED] T6107.016
    
    [GRAPHIC] [TIFF OMITTED] T6107.017
    
    [GRAPHIC] [TIFF OMITTED] T6107.018
    
    [GRAPHIC] [TIFF OMITTED] T6107.019
    
    [GRAPHIC] [TIFF OMITTED] T6107.020
    
    [GRAPHIC] [TIFF OMITTED] T6107.021
    
    [GRAPHIC] [TIFF OMITTED] T6107.022
    
    [GRAPHIC] [TIFF OMITTED] T6107.023
    
    [GRAPHIC] [TIFF OMITTED] T6107.024
    
    [GRAPHIC] [TIFF OMITTED] T6107.025
    
    [GRAPHIC] [TIFF OMITTED] T6107.026
    
    [GRAPHIC] [TIFF OMITTED] T6107.027
    
    [GRAPHIC] [TIFF OMITTED] T6107.028
    
                                 
