[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
FUELING AMERICA'S FUTURE: HOW INVESTMENT
EMPOWERS SMALL-BUSINESS GROWTH
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
APRIL 2, 2025
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 119-007
Available via the GPO Website: www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
59-818 WASHINGTON : 2025
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HOUSE COMMITTEE ON SMALL BUSINESS
ROGER WILLIAMS, Texas, Chairman
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
BETH VAN DUYNE, Texas
JAKE ELLZEY, Texas
MARK ALFORD, Missouri
NICK LALOTA, New York
BRAD FINSTAD, Minnesota
TONY WIED, Wisconsin
ROB BRESNAHAN, Pennsylvania
BRIAN JACK, Georgia
TROY DOWNING, Montana
KIMBERLYN KING-HINDS, Northern Marina Islands
DEREK SCHMIDT, Kansas
NYDIA VELAZQUEZ, New York, Ranking Member
MORGAN MCGARVEY, Kentucky
HILLARY SCHOLTEN, Michigan
LAMONICA MCIVER, New Jersey
GIL CISNEROS, California
KELLY MORRISON, Minnesota
GEORGE LATIMER, New York
DEREK TRAN, California
LATEEFAH SIMON, California
JOHNNY OLSZEWSKI, Maryland
HERB CONAWAY, New Jersey
MAGGIE GOODLANDER, New Hampshire
Lauren Holmes, Majority Staff Director
Melissa Jung, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Roger Williams.............................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. Brett Palmer, President, Small Business Investor Alliance,
Washington, DC................................................. 5
Mr. William Baumel, Managing Director, Ohio Innovation Fund,
Dublin, OH..................................................... 7
Mr. Anthony Cimino, Vice President & Head of Public Policy,
Carta, San Francisco, CA....................................... 9
APPENDIX
Prepared Statements:
Mr. Brett Palmer, President, Small Business Investor
Alliance, Washington, DC................................... 40
Mr. William Baumel, Managing Director, Ohio Innovation Fund,
Dublin, OH................................................. 51
Mr. Anthony Cimino, Vice President & Head of Public Policy,
Carta, San Francisco, CA................................... 56
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
H.R. 2066 - Investing in All of America Act of 2025.......... 64
FUELING AMERICA'S FUTURE: HOW
INVESTMENT EMPOWERS SMALL-BUSINESS GROWTH
----------
WEDNESDAY, APRIL 2, 2025
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:03 a.m., in Room
2360, Rayburn House Office Building, Hon. Roger Williams
[chairman of the Committee] presiding.
Present: Representatives Williams, Stauber, Meuser, LaLota,
Finstad, Wied, Jack, Downing, King-Hinds, Schmidt, Velazquez,
McGarvey, Cisneros, Latimer, Tran, Simon, Olszewski, and
Goodlander.
Chairman WILLIAMS. Let me welcome everybody.
And before we get started, I want to welcome Congressman
Stauber from the great State of Minnesota to lead us in the
pledge and a prayer.
Mr. STAUBER. Dear Lord, thanks for this wonderful day.
Thanks for bringing us together. Thanks for the leadership of
our Ranking Member and our Chairman today as we do the people's
business.
Lord, we thank you for the safe travels of our witnesses to
come here and testify, give us their experience.
And we pray for all of our staff, who work so hard behind
the scenes to help us all become successful. We are one United
States of America, and we shall never forget that.
In your name, we pray. Amen.
Chairman WILLIAMS. Amen.
Mr. STAUBER. Would you please join me in the Pledge of
Allegiance?
I pledge allegiance to the Flag of the United States of
America, and to the Republic for which it stands, one nation,
under God, indivisible, with liberty and justice for all.
Chairman WILLIAMS. Okay. Good morning to everyone. And I
now call the Committee on Small Business to order.
Without objection, the Chair is authorized to declare a
recess of the Committee at any time.
I now recognize myself for my opening statement.
Welcome to today's hearing, ``Fueling America's Future: How
Investment Empowers Small-Business Growth.''
I want to thank our witnesses for being here today. Many of
you have traveled a long way to share your experience and
perspectives, and we deeply value your time and your voice.
When small businesses succeed, America succeeds. Small
businesses excel when they have access to the capital needed
for growth on terms that support them.
Today's hearing will focus on the essential role of private
capital and public-private partnerships in small-business
investment.
Given the tightening of bank lending standards and the
persistence of high interest rates from Biden's disastrous
economic policies, creating investment opportunities for small
businesses is more valuable today than ever before.
Thankfully, under the leadership of President Donald Trump,
Main Street America is more hopeful than ever. President Trump
is bringing back American manufacturing, cutting regulatory red
tape, revitalizing small business, and supporting American
investment.
By prioritizing economic growth over political agendas, we
are unleashing capital back into the hands of job creators and
innovators and fueling a new era of prosperity that strengthens
main street and empowers small-business owners.
Renewed optimism in America's next golden age is inspiring
greater investment in small businesses, which drives
entrepreneurship and American innovation. These private
investments will help fuel small-business growth, creating
opportunities for strategic guidance, mentorship, and industry
connections.
In addition to private investment, small businesses can
also seek out public-private partnerships. The SBA's Small
Business Investment Companies program, known as the SBIC
program, demonstrates how the government partnering with
private investors and allowing the private sector to make
investment decisions stimulates innovation, strengthens
domestic supply chains, and enhances national security.
SBICs are privately owned companies that are licensed and
regulated by the SBA. SBICs raise private capital to invest in
small businesses through debt and equity. The SBA doesn't
invest directly in SBICs, but supplements private capital with
government-backed funds to strengthen support for small
businesses.
My friend and colleague, Congressman Dan Meuser from the
great State of Pennsylvania, introduced a bipartisan bill, the
Investing in All of America Act of 2025, to expand access to
capital through SBICs for small businesses in manufacturing,
critical technology industries, and rural areas. I look forward
to working across the aisle and with the Senate to move this
bill forward.
When investors support business growth and businesses
generate returns for investors and the business itself, it
creates a cycle of success that strengthens America's economy
and propels main street toward economic success.
With that, I will yield to our distinguished Ranking Member
from New York, my friend, Ms. Velazquez, for her opening
remarks.
Ms. VELAZQUEZ. Thank you, Mr. Chairman. This is a very
important and timely hearing. I want to thank all the witnesses
for being here this morning.
Today is ``Liberation Day,'' the day President Trump said
he plans to roll out a set of tariffs that he promises will
free the United States from foreign goods. In anticipation of
today, our public markets slipped again yesterday in another
volatile day of trading.
The uncertainty surrounding the President's tariff policies
has put our public markets on a roller-coaster ride. On Monday,
the S&P 500 touched a 6-month low. For the first quarter, the
index lost 4.6 percent, while the NASDAQ Composite dropped 10
percent. That marked the worst quarterly performance for both
benchmarks since 2022. The Dow has dropped 1.3 percent during
the first 3 months of the year.
With confidence in our public markets never shakier, it is
vital that our private markets step up and facilitate financing
to our nation's small businesses.
Traditionally, small businesses have been more reliant on
bank financing for their credit needs than large businesses.
But, as we will explore today, in recent years, small employers
have increasingly relied on private forms of investment and
credit to meet their financing needs.
The SBA SBIC program is a responsible and effective method
for small businesses and startups to partner with private
equity investors. Currently, the SBA partners with more than
300 privately-owned and -managed SBICs to provide financing to
small businesses with private capital the SBIC has raised
through an SBA-guaranteed debenture. As of 2024, the SBIC
program has made more than 194,000 investments and deployed
more than $130 billion of capital to small businesses.
Under the Biden-Harris administration, the SBA created two
new types of SBIC, the Accrual and Reinvestor SBIC, and made
important updates to the program. I look forward to discussing
how these changes have streamlined and modernized the program.
More broadly, private funds, like private equity, private
credit, and venture funds, have become a critical source of
financing for small firms, particularly those that need
retooling or are just on the cusp of growth. For example, the
private equity industry invested in 18,000 businesses in 2022,
40 percent of which had fewer than 50 employees. Likewise,
private credit firms facilitated loans to 3,600 companies in
2022 and tend to serve small- to middle-market businesses with
150 employees or fewer.
So, while there is no doubt that the role private funds
play in the American economy is significant, these funds can
also present serious risks for small businesses, their
employees, and their communities. It is important to note,
these funds have drawn significant criticism over the years for
the strategies they at times choose to employ.
Like conventional bank loans, the research unfortunately
demonstrates that women- and minority-owned and small
businesses outside a certain geographic area have less access
to private funds that their counterparts. For example, Black
and Hispanic female entrepreneurs received less than 1 percent
of all venture capital investment in 2020.
I look forward to exploring all these issues and more to
ensure our private markets are appropriately regulated,
transparent, and working for the long-term benefit of our small
businesses and their employees, especially at a time when
federal agencies are losing critical staff and funding.
Thank you, Mr. Chairman. I will yield back.
Chairman WILLIAMS. The gentlelady yields back.
And I will now introduce our witnesses.
Our first witness here with us today is Mr. Brett Palmer.
Mr. Palmer has served as president of the Small Business
Investor Alliance in Washington, D.C., since 2008.
Prior to that, Mr. Palmer worked as the managing director
of government relations at the National Association of
Insurance Commissioners. Before joining the SBIA, Mr. Palmer
also served as an Assistant Secretary for Legislative Affairs
and Deputy Assistant Secretary for Trade Legislation at the
Department of Commerce. He has served in several roles in the
House, including as a policy aide to former Speaker Newt
Gingrich.
Mr. Palmer holds a Bachelor of Arts degree from Davidson
College.
And I want to thank you for being here today and taking
time to let us hear your conversation with us.
Our next witness here with us today is Bill Baumel. Bill
has served as the managing director of the Ohio Innovation Fund
in Columbus, Ohio, since 2016. He spent more than 20 years as a
venture capitalist in Silicon Valley before bringing his
experience back to Ohio.
Outside of the Ohio Innovation Fund, Mr. Baumel serves as
director at multiple companies, including Aware, Stirling
Ultracold, and others. In addition, Mr. Baumel is an investor
and an advisor at Immuta, Enable Injections, Trace 3D, and
ScriptDrop to name a few. He is also a member of the National
Venture Capital Association.
Mr. Baumel holds a Master of Business Administration from
the University of Michigan and a Bachelor of Science in
accounting and economics from The Ohio State University.
So who do you root for on Saturday? That----
Mr. BAUMEL. Ohio State.
Chairman WILLIAMS.--is the question.
So thanks for joining us today, and we look forward it our
conversation, okay?
And I now recognize the Ranking Member from New York, Ms.
Velazquez, to briefly introduce our last witness.
Ms. VELAZQUEZ. Thank you, Mr, Chairman.
I would like to introduce and welcome Mr. Anthony Cimino to
the Committee.
Mr. Cimino is Vice President and Head of Policy at Carta, a
private markets infrastructure company that provides equity
management and valuation services for more than 45,000
companies and fund administration services for 6,500 funds and
fund vehicles.
Prior to Carta, Mr. Cimino worked on policy for trade
associations focused on driving capital to more people, more
entrepreneurs, and more businesses. In addition, Mr. Cimino
served as senior staff for the Committee on Financial Services
during the financial crisis and the Committee's work on the
Dodd-Frank Act.
Mr. Cimino has an MBA from Johns Hopkins and an
undergraduate degree from UCLA.
Mr. Cimino, thank you for joining us here this morning.
I yield back.
Chairman WILLIAMS. The gentlelady yields back.
And thank you to all of you again. We appreciate all of you
being here today.
So, before I recognize the witnesses, I would like to
remind them that their oral testimony is restricted to 5
minutes in length.
Now, if you see the light turn on in front of you, it means
your 5 minutes is up, it has concluded, and you need to wrap it
up quick. And if you don't, you are going to hear this: [Bangs
gavel.] Okay? And that means it's over, all right?
And, also, one other thing I want to say: We have a lot of
other hearings going on today, so you may see a lot of the
Committee, including the Ranking Member and myself, get up and
leave, come back. It has nothing to do with it your testimony;
it is just that we have a lot going on today.
Ms. VELAZQUEZ. We have a markup----
Chairman WILLIAMS. We have a markup----
Ms. VELAZQUEZ.--in Financial Services.
Chairman WILLIAMS. We do.
Ms. VELAZQUEZ. Yeah.
Chairman WILLIAMS. And that is a long thing to do, right?
Ms. VELAZQUEZ. Yeah.
Chairman WILLIAMS. If you will keep it short, we will get
through quicker.
Okay. I now recognize Mr. Brett Palmer for his 5-minute
opening remarks.
STATEMENTS OF BRETT PALMER, PRESIDENT, SMALL BUSINESS INVESTOR
ALLIANCE; BILL BAUMEL, MANAGING DIRECTOR, OHIO INNOVATION FUND,
ON BEHALF OF THE NATIONAL VENTURE CAPITAL ASSOCIATION; AND
ANTHONY CIMINO, VICE PRESIDENT AND HEAD OF PUBLIC POLICY, CARTA
STATEMENT OF BRETT PALMER
Mr. PALMER. Good morning, Chairman Williams and Ranking
Member Velazquez and Members of the Committee. Thank you for
holding this hearing.
My name is Brett Palmer. I am president of the Small
Business Investor Alliance, and our mission is to maintain a
robust, healthy, and competitive market for small-business
investing right here in the United States.
SBIA was formed in 1958 to represent small-business
investment companies, America's original venture capital and
private equity funds. Prior to SBICs, the only source of equity
capital for new or growing businesses were corporations and the
three F's of capital access--family, fools, and friends.
President Eisenhower knew he could do better than the three
F's, and for our small businesses, he created the SBICs to
kick-start a new private capital market that is now the envy of
the world.
It is hard to believe it, but it is true; the federal
government created what we now call the venture capital
industry with the establishment of the SBICs. And for nearly 70
years, SBICs have been a critical part of getting institutional
capital to small businesses that are often overlooked by the
biggest financial firms or in the most concentrated population
areas.
SBIC is an American success story, an example of successful
public policy that aligns the power of private markets with the
public interest of job creation and economic growth.
While some small businesses don't want to grow, that is
fine. But some small businesses do. And that is what we want to
do, is we want to help them grow. Because when they do grow,
they need outside capital and they need outside experts to help
them scale up. Because sometimes it is called a valley of
death, going from small to medium.
The only way to be a successful SBIC is to find those
smaller businesses and help them grow into bigger, better, more
resilient businesses. Because SBICs are only able to make a
profit by successfully growing the small businesses, they
cannot cut their way to profitability; they have to grow it.
There are icons of American industry, including Federal
Express, Apple, Intel, Callaway Golf, and many others, that
have received SBIC capital when they were small and when they
were young. These companies are recognized globally. But most
small businesses backed by SBICs simply grow into robust
middle-size businesses. They never go public, but they succeed.
The Library of Congress did a study a couple years ago, and
when they looked at it, they found that SBIC investments that
were debt-oriented grew small-business employment by about 150
jobs per small business, and for equity investments into those
small businesses, it was about 350 new jobs. Those are really
big numbers for small businesses. And the study found that,
when they looked back, the SBICs created about 3 million new
jobs across those small businesses. That is really powerful.
And while some of these small businesses are high-tech
world-changers that I mentioned, most are doing the services or
are manufacturing the products that are invisible on the
national stage, but they make our economy robust and they make
their communities stronger.
For example, Builders Buying Group in Representative
Scholten's district. They help independent home builders lower
costs by helping them buy products at scale to compete with
national builders and get better pricing. Since the SBIC
investment, revenue and earnings have increased by more than
125 percent.
Another is Advanced Industries in Representative Alford's
district. It is a small manufacturer of complex containers,
some of which are used by DOD. Since their investment at the
depth of the pandemic, they have been growing employment by
over 16 percent.
From Peachtree City; to Oakland; to Mission, Kansas; to
Hardinsburg, Kentucky; to Winona and Hayfield, Minnesota; to
Odessa, Missouri; to Cornwall, Pennsylvania; and Appleton,
Wisconsin, there are small businesses and particularly small
manufacturers that are able to grow.
To put it in the simplest terms, SBIC funds are private
investment vehicles that pool capital from institutional
investors like pension funds and endowments, and then they use
SBA leverage to invest in those small businesses. So the
private capital leads and the SBA leverage follows and
amplifies. It is 100 percent small business, 100 percent
domestic, with a lot of investments in manufacturing and in
low-income areas, all of which is done at zero subsidy to the
taxpayer.
Because access to capital is key to growth for small
businesses and will always be a challenge to small businesses,
scale is real. It is a challenge for everyone.
And, traditionally, as the Ranking Member pointed out,
banks help finance small businesses that have a stable revenue
history and assets to borrow against. Unfortunately, a lot of
newer businesses and smaller businesses, particularly in low-
income areas and rural areas--and rural areas are generally
low-income areas--tend to have more difficulty accessing
traditional sources of capital and credit because they don't
have the balance sheet of big businesses and they are seen as
too risky.
This is where SBICs fill the gap by changing the balance
sheets and being the first institutional capital deployed into
many small businesses. Once the SBIC capital is invested into a
small business, then a small business is able to access
conventional bank capital. With SBICs, small businesses can
access the capital markets in a similar way to big businesses.
And the SBA is doing interesting things with DOD. There is
a strategic partnership to license critical technology SBICs.
These funds are designed to support critical national-security
industries and supply chains to compete with other countries
around the world who are being very aggressive as far as, you
know, what they are doing with their economies versus ours.
And demand for SBIC capital is such that SBICs are looking
at 400 to 500 individual small businesses before they invest in
a single one. The demand for the capital is real and it is
there. And there are about 100 new SBICs forming, representing
about 20 billion new dollars in small-business investment that
is going to help fill this ongoing gap. This market has grown
dramatically for private credit, private equity, venture, and
venture lending.
And I thank the Committee for having this hearing, and I
would be happy to answer any questions that you may have.
Chairman WILLIAMS. I now recognize Mr. Baumel for his 5-
minute opening remarks.
STATEMENT OF BILL BAUMEL
Mr. BAUMEL. Chairman Williams, Ranking Member Velazquez,
and distinguished Members of the U.S. Committee on Small
Business, thank you for the opportunity to discuss an issue
vital to our country's prosperity: empowering America's
entrepreneurship.
I graduated from Ohio State and Michigan. My first venture
capital startup investment was based in Bemidji, Minnesota--the
first company to provide fiber home systems that bundled voice,
video, and data services in underserved rural areas.
I continue to invest and partner with founders across a
variety of sectors, from groundbreaking health technology like
the first continuous glucose monitor for diabetics, to cutting-
edge data security solutions used by global giants like
Starbucks, Walmart, Chevron, Citigroup, General Motors, and the
U.S. Air Force.
Over the years, many of the startups I have worked with
have gone public or been acquired by companies like Nvidia,
Intuit, Medtronic, Dell, and Oracle. I have worked 15 years in
Silicon Valley and Boston and 15 years in the Midwest,
partnering with hundreds of entrepreneurs to navigate the
challenging journey of scaling a startup.
Currently, I run the Ohio Innovation Fund, a venture
capital firm founded in 2016 specializing in sectors like
software, artificial intelligence, cybersecurity, and biotech.
Our portfolio companies form partnerships with industry leaders
like Sanofi, Roche Genentech, Eli Lilly, Samsung, Dell,
ServiceNow, and Snowflake, with many of the Fortune 500 and
leading medical institutions as clients or clinical trial
partners.
At Ohio Innovation Fund, we provide the real-world
experience and market insights that startups need to succeed,
offering guidance on business strategy, product development,
financing, and team-building. Many of the entrepreneurs we work
with in the Midwest are first-time founders relying on our
expertise to realize their startup's full potential.
For example, we partnered with Stirling Ultracold, a
company based in Appalachian Ohio manufacturing ultra-low-
temperature freezers for leading biopharma companies. Our
support helped them scale to 100 million annual shipments, and
many of the original investors and employees became
millionaires. And now they are local angel investors, which has
contributed to a cycle of wealth creation and reinvestment in
Appalachia.
eFuse, a leading e-sports software platform, was founded by
a college intern we mentored. In only 5 years, eFuse has grown
to tens of millions in revenue, partnered with companies like
Epic Games and Activision, with influencers and investors such
as Odell Beckham, Jr., and Tim Tebow's WaterStone Impact Fund.
Founder Matt Benson says, ``Bill mentored me, offering both
strategic guidance and invaluable access to his networking
expertise. I am living proof of the impact OIF makes by
empowering the next generation of innovators.''
OIF worked with Aware, a cybersecurity company, leading to
an acquisition by Mimecast, which has established an AI hub in
Columbus to provide enhanced and new, innovative solutions to
their combined 40,000-plus customers, creating jobs and
expanding opportunities for our local community. Aware founder
Jeff Schumann, head of AI strategy at Mimecast, says, ``OIF's
world-renowned go-to-market expertise and hands-on,
collaborative approach was like bringing a superhero onto our
team, equipping us with unparalleled power and capability.''
Bank funding is not an option for most startups, so early-
stage venture funding partnered with public capital sources,
such as those from the Small Business Administration, is
essential.
For Clarametyx's CEO, without venture support from OIF and
public funding sources like CARB-X and the National Institutes
of Health, their groundbreaking biotherapies would not have
reached clinical trials. This partnership enabled them to
advance collaboration with a major biopharma company.
Beyond supporting startups, we are committed to helping
seed the next generation of entrepreneurs. Each year, we engage
with hundreds of students through internships, boot camps, and
mentoring, helping them gain practical experience and connect
with the startup world. Many go on to join top firms like
Goldman Sachs, J.P. Morgan, and Anduril, but many more stay in
the Midwest VC ecosystem, including at Ohio Innovation Fund and
our companies, contributing to the growth of the next wave of
innovators.
Our success stories highlight the transformative potential
of entrepreneurship outside traditional hubs. It is critical to
continue fostering innovation in areas like Ohio, where capital
is limited and ecosystems are still developing.
State resources also play a key role. For example, Stirling
Ultracold partnered with JobsOhio to receive capital to help
scale up his manufacturing operations, which allowed him to
grow to $100 million in revenue over a couple years.
In conclusion, the success of entrepreneurs depends on a
combined effort from venture capital, federal government
support, and State resources. Together, we can provide the
resources and guidance needed to create a high-growth business
that will drive the economy forward.
Thank you again for the opportunity to testify, and I look
forward to discussing how we can work together to improve
capital access to empower entrepreneurs across the United
States.
Chairman WILLIAMS. Thank you very much.
And now we recognize Mr. Anthony Cimino for his 5-minute
opening remarks.
STATEMENT OF ANTHONY CIMINO
Mr. CIMINO. Chairman Williams, Ranking Member Velazquez,
and Members of the Committee, thank you for the opportunity to
testify today on expanding investment and the role of the SBA.
I am proud to be here on behalf of Carta, a company that
serves as the infrastructure for private capital. Carta
provides equity management and valuation services for 50,000
private companies and their employees. We provide fund
accounting, portfolio management, and investor reporting for
approximately 7,000 funds. Our end-to-end platform connects
private capital, ultimately supporting the development of this
ecosystem.
Startups and small businesses and the private capital that
backs them are this nation's economic and innovation engine.
This ecosystem has created 70 percent of net new jobs since
2019. It accounts for half of U.S. economic activity, and it
spurs innovation. Over the past 50 years, the U.S. has started
twice as many companies as the rest of the G7 combined. This is
what has provided our nation its competitive edge and,
importantly, led to more opportunities for more Americans.
But to start and grow a business to contribute to this
economic dynamism, startups and small businesses need access to
capital. It is a gating issue. And for many entrepreneurs,
traditional financing is not available. Banks typically do not
lend against an idea or an unproven product in an unproven
market.
That is where private capital steps in. Private capital
provides entrepreneurs and small businesses with long-term,
risk-forward capital to launch and build companies. The company
gets a check, and the investors get a stake in the business.
But these investments are more than a check. These funds
become strategic and operational partners helping these
companies succeed. In broad terms, venture capital helps turn a
concept into a company, and private equity can help it grow and
mature.
And, yes, the private capital ecosystem is growing, but it
is still too concentrated. Capital is the lifeblood of small
businesses, but these funds are flowing to specific regions and
to select communities.
To illustrate this point, California companies attracted
half of all venture investments last year. Even in New York,
which attracted approximately 11 percent of venture funding,
the bulk of that capital hit places like Manhattan, not
necessarily places like Brooklyn. This disparity in access is
even more stark when you examine it across the broader country.
So our collective charge is to change this. We must not
merely bolster this economic engine, but broaden it--broaden it
to more people, to more investors, to more companies, to more
communities.
And to do this, we need to expand the investor ecosystem
into more regions. Regional capital can create regional
economic hubs. This starts the flywheel: Emerging and regional
managers tend to invest early, invest locally, and invest
diversely. These investors back entrepreneurs in the region,
and these entrepreneurs launch and build companies, which
attract employees to the region. These employees earn income,
develop skills, further broadening the ecosystem in which to
invest and on which to build.
It all starts with the investors that increase access to
capital. And policy can help drive this to more places in the
country.
First, we should build on the success of the SBIC program.
This program enables proven investment managers to tap more
capital to invest in startups and small businesses, all while
being a strong steward of taxpayer resources. The SBIC's recent
enhancements to allow accrual debenture and reinvestor
offerings will align more with venture-focused funds and put
more money into the ecosystem. SBICs are making a difference,
and we support ensuring the SBIC has the operational capacity
to support this program and even more stakeholders to engage
with it.
Second, we should continue to improve the SBIC program. The
bipartisan Investing in All of America Act does just that. This
legislation incentivizes capital deployment to overlooked and
underserved rural areas and into the national-security sector.
Driving investment into these segments is in the national
interest, both unlocking more economic growth and helping us
maintain our global competitive edge.
Third, we can do more to broaden employee ownership.
Expanding ownership helps attract, retain, and align talent
with the businesses, ultimately helping them thrive. And for
employees, ownership enables them to participate in the profits
they are helping build as well as have access to an uncapped
upside. And, importantly for the community, employee ownership
makes it likely that these small businesses will continue to
operate and create economic growth even after an entrepreneur
retires.
American ingenuity is not limited to certain areas and
people. Unfortunately, capital--and, consequently, some of that
opportunity--remains too concentrated. Policy can help change
that, expanding access to capital to more small businesses and
more communities.
Carta looks forward to supporting this Committee's effort.
I thank the Committee and the staff that work tirelessly on
these issues, and look forward to answering any of your
questions.
Chairman WILLIAMS. Thank you very much.
And we will now move to Member questions under the 5-minute
rule. I recognize myself for 5 minutes.
Mr. Palmer, strengthening domestic manufacturing and
investing in critical technologies are the key to enhancing
economic competitiveness and national security. However, small
businesses, especially those in rural communities, often
struggle to access the funds needed to scale innovative
manufacturing operations.
President Trump and SBA Administrator Loeffler have taken
immediate action to return manufacturing to America. Through
SBA's Putting American Manufacturing First initiative, small
businesses are put in the driver's seat of the resurgence.
Infusing investments and other support to small-business
manufacturers will bring the golden age of America to us.
Small-business investment companies play a critical role in
investing in areas and industries that have fewer investment
opportunities.
So, Mr. Palmer, can you speak to how SBIC investments
support the revitalization of American manufacturing in rural
communities?
Mr. PALMER. Sure.
Manufacturing is important. It is important nationally, it
is important to SBICs, it is important to our national
security, it is important to our economy.
Our manufacturing base has to constantly be reinvented. We
have new manufacturers who need to be created, but we also need
to take the manufacturing base that we have and take it to the
next level with new technologies, new efficiencies, new
markets.
And that is done commonly through SBICs. SBICs invest in
old metal-benders and reinvent them and take them to the next
level. SBIC investments fail very rarely. They overwhelmingly
succeed. And that manufacturing is a key part of that.
The Department of Defense partnership with the SBA is a
really good idea. It is long overdue. I am surprised we didn't
come up with this 30 years ago. But they are working--the DOD
is collaborating very closely with the SBA to make sure that
the small businesses that are doing these industries that are
important to our manufacturing and to our global
competitiveness, not just from a government contracting
perspective but just industries we want here and not in China,
for example, that they can access that capital. And that is
what the SBICs are doing, with DOD.
Chairman WILLIAMS. Thank you.
And I want to follow up on that. Your SBICs have been
engaging with the Department of Defense Office of Strategic
Capital to track private investment into technologies critical
to national security. So can you tell us a little bit about how
SBIC investments help boost America's national security?
Mr. PALMER. Sure.
You know, just like in sports, the best defense is a good
offense. You know, just keep putting points on the board. You
know, we have to constantly be putting points on the board,
economically, to our country, being a dynamic economy that is
not rigid, that is constantly reinventing itself.
And that is what the SBICs are doing. And they are doing it
in areas that are related to the computer industry, related to
the manufacturing of metals that get used in defense
industries, that get used in avionics for satellites and
communications. It is all integrated. And it is also all used
by civilians too. We have to have both; they are not a
separated economy. And that is what the SBICs are connecting.
Chairman WILLIAMS. One more quick followup. What steps can
Congress take to enhance SBICs' ability to invest in America's
small businesses?
Mr. PALMER. Well, I think the Investing in All of America
Act by Congressmen Meuser and Scholten is really critical,
because it creates an incentive, not a financial incentive but
an investment incentive, to invest in areas that have sometimes
been forgotten or passed over, and particularly for industries
like manufacturing. That has a piece in there.
So I think that would be the best thing this Committee
could do.
Chairman WILLIAMS. Okay.
Mr. Baumel, in the time I have remaining, in just over 2
months, the Trump administration has already helped push $2
trillion into private investment in the United States, and
these investments are important to help businesses grow as we
enter the golden age of America.
So, last Congress, we heard from small businesses about the
barriers they face when looking to attract investors,
particularly in rural communities, again.
So, Mr. Baumel, you chose to create your investment fund in
Ohio rather than California, and how has that decision helped
to find investment opportunities that may have been overlooked?
And what can be done to better connect the types of businesses
you invest in with the investors throughout America?
Mr. BAUMEL. Sure. There is just as much talent in Ohio,
Pennsylvania, all the different States in the Midwest as there
is in Massachusetts, Boston, or in Silicon Valley. The main
thing is empowering, enabling them and bringing the expertise,
and that is what Ohio Innovation Fund brings.
And so we have done that, particularly in rural areas. I
mentioned Stirling Ultracold before. That is an advanced
manufacturing company. Advanced manufacturing--manufacturing
was kind of a necessary thing to do in the past, a lot of times
outsourced. Manufacturing is now a strategic advantage.
And, you know, to Ranking Member Velazquez's comment, that
also, by doing that in rural areas, we actually partner with
community colleges, we partner with local universities, and
train the next generation of advanced manufacturing personnel,
you know, to go in those areas.
But the opportunities, whether that be in biotech,
cybersecurity, data science, and all of the different areas,
are just as strong in Ohio as anywhere else. Money and
expertise.
Chairman WILLIAMS. My time is up. And I would say, don't
forget Texas.
Mr. BAUMEL. Sorry about that, sir.
Chairman WILLIAMS. Okay. Thank you.
I now recognize the Ranking Member for 5 minutes of
questions.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Mr. Cimino, can you explain why the SBIC program remains an
important source of investment financing for so many small
businesses and startups? And can you explain how this program
fulfills the statutory mission of SBA?
Mr. CIMINO. Yeah. Thank you for the question.
When we look at most entrepreneurs, in many cases they
couldn't even access traditional financing. So, unless they
were independently wealthy, many of them would only be able to
build those ideas at incumbent companies. So private capital
itself is so critical to unlocking more people to become
entrepreneurs and build small businesses, ultimately driving
much of this economic growth.
So the first part is the availability of that loan. The
next piece is working with these fund managers in ways that can
get customizable arrangements, whether that is equity or debt,
that more aligns with the business and then becoming strategic
partners.
Where SBICs come in is, in many cases, broadening that
reach. Because, as I mentioned, 50 percent of the capital went
to California, on the venture side. When you look at the SBIC
program, only 10 percent of the capital went to California.
That means 90 percent of that is going into the areas of the
country that the traditional funders weren't.
And this is exactly what SBIC is doing. It is taking that
professional manager and giving more access to capital for more
entrepreneurs.
Ms. VELAZQUEZ. Thank you.
Mr. Palmer, I heard you mentioning the investments that
have been made through the SBICs in places like Kentucky,
Michigan, Pennsylvania, Minnesota. I didn't hear even New York
or Brooklyn.
Mr. PALMER. As a New Yorker----
Ms. VELAZQUEZ. Was that a slip?
Mr. PALMER. No, no. As a native New Yorker, I apologize----
Ms. VELAZQUEZ. Okay.
Mr. PALMER.--to my New York brethren. No, New York is a
huge area for SBICs, and there is--it is all over the place.
I was mentioning that just because, when people think of
investment, they think of New York----
Ms. VELAZQUEZ. Yes.
Mr. PALMER.--they think of Chicago, they think of San
Francisco. They don't necessarily think of Maryland or
Minnesota. And so I was trying to just----
Ms. VELAZQUEZ. I was just testing you.
Mr. PALMER.--but I apologize.
Ms. VELAZQUEZ. Mr. Palmer, Reinvestor SBICs are an often-
overlooked SBIC type that is based on a fund-of-funds model
that uses accrual, debenture, and 2x tiers of leverage to reach
more underserved communities.
Can you explain how the Reinvestor SBIC works and why it
can help investment capital reach more rural and underserved
communities?
Mr. PALMER. Sure. No, actually, I think it is great
question, because I don't get asked it very much, and I think
people should know about it.
The reinvestor model is basically a development league for
new venture capital and new private equity funds to serve
underserved industries like manufacturing, underserved markets
like rural or low-income, or other underserved in different
varieties, whatever you want to make it.
Basically, it takes a SBIC--and it is a fund-of-funds,
which is not a common term outside of finance. But the SBIC
then invests in non-levered SBIC funds around the country that
are investing in different types of businesses.
So it uses the portfolio effect to distribute risk, but
develops a whole next generation of investors, whether it be
venture, private equity, growth equity, around the country. And
it is a really market-driven development league.
Ms. VELAZQUEZ. Thank you.
Mr. Palmer, let me start with you on this question. With
the announced plan by the SBA to cut more than 40 percent of
the workforce, what consequences do you foresee happening to
the SBIC program without the proper personnel in place to
manage it, especially when the SBIC requires technical
understanding about market strategy, time horizons, deal flaws,
and the utilization of leverage to properly manage and oversee?
Mr. PALMER. Sure.
The SBIC program is about $50 billion, and it is managed on
about $11 million of salary. That is about 100 times more
efficient than generally the private sector runs on when they
are managing private equity funds.
It is a really specialized skill set that is needed. It is
a taxpayer protection, particularly on the licensing side to
know what you are getting into.
But, so far, we haven't seen any negative impacts on the
SBIC side of the house yet. Again, it is early days.
Ms. VELAZQUEZ. Well----
Mr. PALMER. But it is important to maintain that skill set.
And one of the things we would like to see is the fees that the
SBICs pay stay inside the SBIC program so we can maintain the
staff that we have and you can bring in other expertise.
Ms. VELAZQUEZ. Mr. Cimino, would you care to comment?
Mr. CIMINO. Yeah. I think it is really critical that we
double-down on the programs that are working. This is a public-
private partnership that is driving capital to more
entrepreneurs, and it is doing so while protecting taxpayers.
That staffing to make sure that these funds are operating
correctly gets at that point.
Ms. VELAZQUEZ. So that means that a chainsaw is not the
proper tool to deal with reorganization.
Mr. CIMINO. I----
Ms. VELAZQUEZ. Thank you.
Mr. CIMINO. We recommend this program maintain its support.
Ms. VELAZQUEZ. Okay.
I yield back.
Chairman WILLIAMS. The gentlelady yields back.
I now recognize Congressman Stauber from the great State of
Minnesota for 5 minutes.
Mr. STAUBER. Thank you very much.
You know, public-private partnerships like the SBIC program
pair government-backed support with private-sector investment.
These programs not only strengthen small businesses but they
also help secure supply chains and advance national security.
Mr. Palmer, I, for one, don't mind that you mentioned
Minnesota before you do New York. I appreciate that. It is the
Midwest.
A couple of things. I will tell you that--you had mentioned
something about the success rate when SBICs get involved. Can
you kind of give me a percentage of the success rate or maybe
the limited failure rate?
Mr. PALMER. Well, the SBIC program went to zero subsidy--
the SBIC debenture program has run zero subsidy for 27 years.
That is a good, long run. In the last 2 years, they haven't had
to write off a dime of debentures there. It has been running at
a surplus. We hope it continues that way.
Even in the event that--look, not every--sometimes
businesses--things don't work out.
Mr. STAUBER. Yep.
Mr. PALMER. In the unlikely event that happens, everything
is covered by fees paid by the SBIC fund to protect the
taxpayer.
So the SBICs, again, on average, add about 150 new jobs for
a debt----
Mr. STAUBER. Yep.
Mr. PALMER.--offering private credit and about 350 for
equity. Those are really big numbers for small businesses.
Mr. STAUBER. Yeah.
Mr. PALMER. It is very unusual to have a strikeout in the
SBIC world.
Mr. STAUBER. And so, can you explain a little bit more--the
SBICs, they have been used to support manufacturers in
underserved or rural communities like the one I represent. And
what more can we do to the outreach?
I love when you talk about 90 percent of the venture
capitalists go to the coastal elites. But what about in the
heartland, the SBICs coming to the heartland? Are we doing a
good job of that? And what can we do even better?
Mr. PALMER. Well, Minnesota has a very large number of
SBICs. And, actually, the Chairwoman of my board in I think 3
years will be from Minnesota. And you actually--and excuse me
if I butcher the name. Is it ``Baudette''?
Mr. STAUBER. ``Baudette,'' yes.
Mr. PALMER. You have a pharmaceutical manufacturer that is
backed by an SBIC up there.
I think the key is, you have to have--you know, geographic
diversity matters, because proximity matters, and also sizes.
You have to allow for small SBICs as well as big SBICs,
because, you know, you just have different check sizes that are
needed for different places.
And so the program has grown from, when I started in 2008,
from about $2 billion in capital, between private capital and
SBA leverage, to nearly $50 billion today. And it is done at a
zero subsidy.
That is continuing. I think there is massive room for more
growth in that. And I think the licensing is helpful. They just
licensed their first fund in North Dakota. They have just given
their first green light to a fund in Mississippi. They are
forming funds in Kentucky. We have a number of them in Texas.
Sorry I left out Texas earlier, Mr. Chairman.
But, you know, we can and should have more.
Mr. STAUBER. Again, you can take Minnesota over Texas. You
can say that first. I am okay with that.
Is that okay, Mr. Chair?
Chairman WILLIAMS. Whatever you say.
Mr. STAUBER. So this is really good news. So this is--as
the Small Business Committee, this is where we need to invest
more of. As the gentleman Mr. Cimino said, we need to invest
more where things are working and reduce the investment where
the return on the investment isn't there.
Mr. PALMER. Yeah. This is working.
Mr. STAUBER. Mr. Baumel, what advantages have you seen in
investing in businesses outside the traditional coastal hubs?
And what more can be done to connect investors with small
businesses in regions like your central Ohio or my northern
Minnesota?
Mr. BAUMEL. Yeah. As I mentioned, my first investment was
in Bemidji, Minnesota, Optical Solutions (ph).
Mr. STAUBER. Yeah.
Mr. BAUMEL. Since then, both coasts, I said, and Ohio.
In terms of, you know, the Midwest, the work ethic is
absolutely strong. The passion is very----
Mr. STAUBER. Could you repeat that?
Mr. BAUMEL. The work ethic is very, very strong. There is a
Midwestern----
Mr. STAUBER. Thank you. I agree with you.
Mr. BAUMEL.--work ethic and a Texas work ethic----
Mr. STAUBER. Good one.
He covered you, Mr. Chair.
Mr. BAUMEL.--and there is a passion. Our founders are not
thinking about, oh, in data science, what might be an
interesting algorithm to write? They are running into real-
world problems.
We have a person and a case, MDPCA (ph) program, that says,
these binders of clinical studies are crazy, and trying to find
them and where they are, and compliance sign-offs--someone
forgot--and doing multi-trial sites. Well, let's automate all
this and have a nice workflow.
So the entrepreneurs are very passionate, and they really
believe in what they do.
And the people don't switch--the grass isn't always
greener. The people who join Midwestern startups stay and see
it through. They have fortitude. They make it happen. I am sure
it is the same way in Texas. They make it happen. They are not
looking for, oh, this could be better, or this is a little bit
more attractive, my options here, my options there.
I will tell you, to your previous question, we do get some
people that are SBIC-backed that co-invest with us, but not
enough. In terms of doing that, though, if the regulation and
compliance is reasonable, I think that will be key. Because I
can't hire--I mean, I am operating under hundreds of thousands
of dollars in fees, which isn't much to cover a staff of six
and everything else. I can't hire a whole compliance
department, and I can't go through a whole ton of regulation.
It has to be reasonable.
Mr. STAUBER. I like that, reasonable regulations.
And, Mr. Chair, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. McGarvey from the great State of
Kentucky for 5 minutes.
Mr. MCGARVEY. Thank you, Mr. Chairman.
I appreciate everybody being here today.
You know, I think we are at the fork in the road right now
in our country, and we have a choice to make between tearing
down or completely tearing apart these federal programs that
have supported entrepreneurs and innovation for the last half-
century or continuing to invest in these partnerships that have
made the U.S. a leader in innovation because we want to stay a
leader in innovation.
Just this morning, there is an interesting, if angering,
and thought-provoking piece by Thomas Friedman in The New York
Times about, what is the future of American innovation? So I
think it is really important we are talking about this today.
And I think we can look at some of the successes we have
had. You know, with the Defense Advanced Research Projects
Agency, commonly known as DARPA, housed under the Department of
Defense, not only do we gain a technological advantage on the
battlefield, it enabled us to have things like GPS. It enabled
us to have great technologies. The internet came out of DARPA
that not only do we use for defense but have applications in
all of our lives, private and in the business community.
The SBIC program, the Small Business Investment Company,
this has been really successful. This has helped us bring
Samsung, Apple, Intel, Whole Foods, so many more American
success stories, driving business, driving innovation right
here in this country.
I think the question we have to ask ourselves is not
whether we can afford to invest in and support programs like
the SBIC; it is, can we afford not to?
And, Mr. Baumel, I appreciate what you said about startups
and that they are not just for the coastal elites. Now, you
guys neglected to mention a Kentucky work ethic when you talked
about these things. But you also went to Ohio State and
Michigan, so I don't know if you can be completely trusted.
But I think you are 100 percent correct that we must
remember the heartland and not just Silicon Valley and Wall
Street when looking for the next investment opportunity to
invest in that next unicorn, to invest in that next business
which is going to do incredible and great things in our
country.
So I will start with you, Mr. Baumel. What growth
opportunities does the middle part of the country present? And
how can we encourage more investors to follow your path and to
invest in small businesses and startups outside of Silicon
Valley?
Mr. BAUMEL. Going back to Silicon Valley, everything
started with Fairchild Semiconductor. And from there, Intel
spun out, Kleiner Perkins spun out, all these things spun out.
Very early on in the Midwest, in Ohio, Kentucky, and other
areas, there is a huge risk for entrepreneurs to start a
business if there isn't reasonable access to capital. There is
a huge risk for someone to leave Procter & Gamble or Nationwide
Insurance and join a startup if that startup, you know, 80
percent of the time, might not work out. Where do I go next? Do
I try and reapply to Nationwide?
So, you know, programs that allow additional funding to
come in and maybe incent people like myself--they call us
``boomerangs,'' that, you know, I was out in Silicon Valley, I
have been in Boston, I have come back to do this in the
heartland. We need to incent more, you know, seasoned venture
capitalists who are willing to set up shop and willing to
mentor and willing to train and willing to hire.
And I know, you know, in Cincinnati, we have a number of
companies--Enable Injections, that, you know, is likely a
company--that likely will be a unicorn-type exit, providing,
you know, kind of, on-body drug delivery, you know, at home
versus an IV in a clinic.
Northern Kentucky, I know that a lady just set up a, kind
of, biotech area there, and there is a lot of biotech activity
happening right across, you know, the Ohio River. You know, but
we need that capital. We need--I mean, there is myself and a
few other people in Ohio. There is not much. And as far as
experience, there is not much.
So we need, you know, this type of program to say, okay, we
want to incent, we want to enable, we want to be somewhat user-
friendly, you know, with the people that we are trying to
incent and give capital to through the SBA programs to come and
set up the venture fund and work with all them, not make it a
headache.
Mr. MCGARVEY. Yeah. I appreciate that.
And Mr. Cimino? Sure.
Mr. CIMINO. Just on that--and I agree with everything--and
we have talked about this: That first check, distance really
matters. Capital is mobile, but proximity matters. And there is
actually a very significant body of research about how much
distance matters.
But it is also about building that flywheel, which I think
you have done. Because what we have also seen is that a startup
with the same positioning in a generic town versus that in
S.F., S.F. has a 277 percent chance more likelihood that that
startup grows and has an exit. And the reason that is is
because of talent.
And so you not only need that first check, you need those
SBICs and those investors continuing to build that
infrastructure around it. Otherwise, as soon as that startup or
small business starts growing, they are encouraged to move back
to where those infrastructures exist.
So it is a comprehensive problem that needs to be solved.
That first check is so critical, but then it is, to your point,
how do we keep more investment going there.
Mr. MCGARVEY. Thank you so much.
And I think this partnership is so important to innovation,
to growth in American business. And if we are not doing it,
other places are.
Mr. Chairman, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. Meuser from the great State of
Pennsylvania for 5 minutes.
Mr. MEUSER. Thank you very much, Mr. Chairman.
And thanks to our witnesses.
I am certainly a big fan of the SBIC, as we really all
should be.
We are very happy SBA Administrator Kelly Loeffler and the
Trump administration are going to be focused like a laser beam
on fueling small business, because small business has not had a
good 4 years. That needs to change. In some cases their sales
are up, but their net income is way down. And that shows in the
type of tax revenue that is coming in, because tax revenue
comes from profitability, and small-business tax revenue is way
down. You can't argue with those numbers. But we are going to
work on changing that.
So the SBIC plays a big role here. And it has been very,
very successful. The fact is that--no subsidies and cost to
taxpayers. Over $130 billion is being invested in public-
private partnerships, basically, so there is a lot of private-
sector skin in the game. And this has created great
opportunities. It is a great government program, which is hard
to say, right? But it is.
You know, and we are talking, kind of joking about
Minnesota versus New York and California and Texas, where
things are booming, but the fact is that 75 to 80 percent of
the SBIC current investments go towards urban areas.
And that is primarily why--Mr. Palmer, you are well-aware,
and I think all of you are--that I am introducing the Investing
in All of America Act to expand beyond the cap level of $175
billion, to increase it by about $125 billion, strictly
towards--or $175 million--strictly towards--$125 billion
wouldn't be bad either--towards rural investments--that is
where it is designated, so it is on top of what is currently
allocated--focused on manufacturing and critical technology
sectors.
So, Mr. Palmer, what do you think of that? How have the
SBIC programs been successful in their current operation? And
how will the Investing in All of America Act help enhance
investments in Pennsylvania and in some of the more rural areas
of our great nation?
Mr. PALMER. I think, if we get this legislation through and
it becomes law, I think you will see every SBIC, or nearly
every SBIC, dedicate their business development teams to
finding small businesses in those areas. Because it is a
meaningful cap that they have now and that they will continue
to have, but it is--if you invest in manufacturing or if you
invest in a rural area--and, frankly, most new manufacturing is
going to be in rural areas because of taxes, regulations, just
where can you afford to by the land to build a really big, you
know, building to put this stuff in.
I think you will see a meaningful pivot for a lot of those
business development folks to get out of where they normally
are and spread their deal-sourcing and small-business
opportunity-seeking to those areas, both industry-wise as well
as geographically.
Mr. MEUSER. Great.
Mr. Baumel, do you agree? Do you think we need to expand
this great lending service where there is a two-to-one match
from the SBA to the private lenders, SBIC, regulated lenders?
Mr. BAUMEL. Anything that brings more capital to partner
with the expertise and incents the expertise to be in the
heartland, the better. That--you know, that is----
Mr. MEUSER. Yeah.
Mr. BAUMEL.--about what I have to say on that.
Mr. MEUSER. All right. Well, that sums it up. I like that.
Do you agree, Mr. Cimino?
Mr. CIMINO. I do. We support the bill.
And I would just say, coupling that with some of the recent
refinements we have seen from the SBIC, like the fund-of-fund
structures, it is going to, I think, do an even better job of
finding additional avenues to drive investment into rural areas
and broaden this ecosystem.
Mr. MEUSER. Great. Would you encourage everyone on this
Committee, perhaps throughout Congress, to be supportive of
this all-important bill?
Mr. CIMINO. I think that is great idea.
Mr. MEUSER. All right. Great. Thank you.
Hey, Mr. Baumel, the SEC has estimates that going public
these days costs $12 million for a business. So maybe elaborate
a little bit on why these private markets are so important and
such an important alternative for small businesses to raise
capital.
Mr. BAUMEL. Yeah. When I started in venture capital, even
with the internet, some companies with $10 million, $20 million
went public. Now, companies need to have hundreds of millions
and, in some cases, billions of dollars to go public. So
accessing, you know, the public market is difficult.
And the regulatory burden there is also very difficult. So
growing these companies to the public market--because that
point is a longer process, not a few years but a decade. And,
therefore, that relationship is needed and the capital is
needed and expertise is needed to get them there.
Mr. MEUSER. Thank you all very much, and please keep up the
great work.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. Cisneros of the great State of
California for 5 minutes.
Mr. CISNEROS. Thank you, Mr. Chairman.
And, look, no offense to our witnesses here today--thank
you for being here; thank you for taking time out of your
schedules to be here today--but we really need to have somebody
from the SBA, whether the Administrator or other staff, here to
be here to answer these questions, to talk about what the theme
of this hearing is, fueling America's future. We should have
people from the SBA here answering those questions.
And I call on the Chairman and the Committee to bring in
the SBA Administrator, bring in SBA staff, to start answering
these questions.
And if the SBA Administrator were here today, I would have
the following questions for her: You know, what is the extent
of DOGE's access to SBA headquarters and systems? And what has
been done at the SBA to ensure that systems are not abused or
accessed by individuals without clearance?
What specific offices or departments within the SBA are
affected by the announced 43-percent reduction of the
workforce? And how is that going to affect SBICs? Where is the
SBA relocating the six regional offices, and will any others be
closed in the future? And how is that going to affect SBICs?
You know, how are appropriated funds being used or not
used, with the SBA undergoing such drastic changes that
Congress has not authorized? And what is the SBA's plan to
handle a $1.7 trillion student-loan portfolio with less staff
and staff not trained to work with such a complex student-loan
system?
So, again, I call on this Committee to bring in the SBA
Administrator, to bring in SBA staff, and let them answer the
questions about what their job is going to do and how they are
going to handle that job as far as dealing with small
businesses across America.
And, with that, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. Finstad from the great State of
Minnesota for 5 minutes.
Mr. FINSTAD. Thank you, Chairman Williams.
And thank you to our witnesses for being here today.
Since the start of President Trump's administration,
optimism among our nation's small-business owners has soared.
President Trump has put small-business owners first by cutting
regulations and red tape for main street.
Southern Minnesota is home to some of the most innovative
companies that do cutting-edge manufacturing to provide
critical products for our nation. We are the home of great ag
companies. We have counties that have more pigs than people. We
are the home of Hormel. If you like Spam, you like southern
Minnesota. We are the home of the Mayo Clinic and all of the
great healthcare and med-tech innovations that come out of our
district. We are really proud of that. And we also have a lot
of small businesses that are working with our Department of
Defense.
Small businesses are the backbone of our economy in
Minnesota, and we have the opportunity to craft meaningful
policies to encourage investments in these businesses that
produce critical goods for our nation's security while
providing stable, high-paying jobs in our communities.
So, with that being said, I want to talk to Mr. Baumel.
Throughout your career working in numerous States,
including Minnesota--I am happy to hear you spent some time in
Bemidji--I am sure you have worked with numerous companies that
touch rural America. And as I travel around my district and
around the country, specifically in rural America, you hear a
lot of the same themes of, you know, access to capital, the
lack thereof. Venture capital looks at rural America as a
flyover area.
And so I want to talk to you a little bit about that. So,
with your fund, are you more likely to engage with
entrepreneurs in rural communities located in middle America
rather than companies located on the coasts? And why is that?
Mr. BAUMEL. You know, our fund does not invest on the
coasts to any degree, less than probably 5 percent of capital.
So we are all within, you know, the heartland, I will call it.
Within the heartland, probably about 25 to 30 percent of our
investments are in rural America, such as Stirling Ultracold in
Athens, Ohio, and those sorts of things.
And as I mentioned previously, what we have found is, the
entrepreneurs in those areas run into real problems, and they
want to solve those. And so they create companies to do that,
but they have no idea how to scale that up--the hiring, the
product roadmap, the strategic partnerships, the marketing, the
sales, the go-to-market, the fundraising, how to navigate SBIC,
how to navigate, you know, eventually, as you become larger and
profitable, bank lending, additional venture rounds.
But these entrepreneurs are also very--so hardworking and
fortitude, but they are also very reasonable. So, you know, we
have reasonable terms--we form a true partnership where
everyone has equity. We have equity, they have equity, we all
work together. And we are just taking a pie and trying to make
it as big as possible for everyone.
And what I have found is, when you do that, whether that is
in Bemidji within Minnesota, whether that is in Athens, Ohio,
as I mentioned earlier, when there is that initial success,
they catch the startup bug too. It is not just the founders;
the people that work there, the people in engineering, the
people in marketing, the people everywhere catch that startup
bug, and they want to continue to that. And so then they form
more startups. And then, you know, the people that made a nice
return then invest as angel investors in startups. It is kind
of, you know, a cycle like that.
And so I have found it a very great place for innovation.
It is also less competitive and less crazy. You know, keeping
people focused is a lot easier in Athens, in Columbus, in
Bemidji, Minnesota, than it is in Silicon Valley, keeping them
focused on the mission, making it happen, getting successful
returns.
I mean, we are--you know, like, Stirling Ultracold, we sold
the company for, let's say, anywhere from $200 million to $400
million--because it was for stock--on a $10 million investment.
And like I said, now there are 40 angel investors out there in
Athens investing some of those proceeds in the next startup
that wants to, you know, succeed and such.
Mr. FINSTAD. I appreciate those comments.
And what I hear there is, the investments and the
partnerships with innovation and entrepreneurs in our rural
communities really are a great opportunity not only to create
jobs and wealth and security for our rural communities but also
future opportunities of investments and catching that
entrepreneurial bug that you talked about. That is great to
hear.
So our colleagues across the aisle, you know, have called
for, you know, demanding the SBA and government to come in
front of us and talk to us about more government. I am so happy
that the Chairman has chose to bring real people that are doing
real things for our communities to come in front of us today.
And so, with that being said, lastly, I just want to know,
Mr. Baumel, in your view and the experiences that you have on
Main Street America, what can we do in Congress and on this
Committee to drive economic growth in rural America?
Mr. BAUMEL. I think, you know, as I said earlier, capital
and less regulatory, you know, tape around it and less barriers
to that. And then partnering with the expertise, the venture
capitalists, the people with experience in those areas, to then
deploy that and help these companies grow and keep that cycle
going.
Mr. FINSTAD. I appreciate those comments.
I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. Olszewski from the great State of
Maryland for 5 minutes.
Mr. OLSZEWSKI. Thank you very much, Mr. Chairman.
And thank you to all of our witnesses for your time today.
I am going to actually pick up--I was not planning on doing
this--picking up on my colleague's comments as we talk about
the importance about the private sector but also government.
And I will just open with a question for all of you.
I mean, there is value in partnership. I mean, we certainly
believe in the private sector, but there certainly is power and
promise in having the government, done right, partner with the
private sector.
Is that something we can all agree to?
Mr. PALMER. Yes.
Mr. OLSZEWSKI. Okay. Very good.
So, Mr. Chairman, I just want to say, you know, we
certainly are grateful for the ways in which you are bringing
in folks who are real people leading the work out there, but I
actually think that these conversations would be even more
robust if we also had the leadership of SBA alongside these
leaders doing the work.
So, gentlemen, thank you for being here, for the work you
are leading. But I will just reinforce the point of my
colleague, that I think this is done best when we actually have
those conversations together and collaboratively.
You know, I wanted to pick up a little bit on, Mr. Cimino,
some of the comments you were talking about and this ``access
to capital'' idea.
I was struck by a recent statistic that says that private
credit firms that are at least 50 percent women or minority-
owned hold a combined total of less than 2 percent of $1.6
trillion of private credit assets under management.
Now, those numbers are slightly higher in private equity,
at just over 3 percent, and 6 percent in venture capital.
I am just curious what you think those statistics say about
the state of these industries or the small businesses in which
they are investing.
Mr. CIMINO. Well, I think it is pretty clear that we have
not done enough to drive more capital into the hands of these
entrepreneurs. And I think that is what this Committee is
focused on, on broadening access into not only the overlooked
communities but, I would say, untapped. There is a huge amount
of ingenuity and talent in these communities and among these
segments.
And so how do we actually get capital in their hands and
help them build? We think about doing that through lowering
barriers to entry and supporting more and more emerging
managers that can be in these regions and these communities
helping not only drive capital but partnering to broaden it and
help them grow.
Mr. OLSZEWSKI. That is great. I appreciate that.
I mean, yeah, according to recent data from Morgan Stanley,
we could be missing out on more than $4 trillion in value by
not investing in more underserved entrepreneurs.
And so, just for the panel, I just wanted to open it up:
Just, sort of, ideas on how we can get more capital to more
places so that we can access this untapped potential.
Mr. PALMER. Well, one thing I would add--you touched on
women. Like, my executive board is two-thirds women. I mean, in
the SBIC world, women are normal. You know, that is not
necessarily true in the rest of the finance and banking world
and the venture world. The SBIC world has been far more opening
and welcoming in that regard, and supportive. Maybe that is
because it is small versus big; I don't know. But we want to
continue that.
But, ultimately, you know, the economics will drive it. But
I think, as we see more women fund managers, as we see more
minority fund managers, as we have more fund managers, like
Bill mentioned, you know, that are boomerangs, that are leaving
the big money centers and coming back to middle America--I
think we just have to make sure that we are open to everybody
and being inclusive, as far as, like, making sure that the
meritocracy rises to the top, and then the good people will
rise, and we are going to see good things from them.
Mr. OLSZEWSKI. Bill?
Mr. BAUMEL. I would like to add, you know, for example, the
National Venture Capital Association has something called, kind
of, the Forward program, which is looking at, you know, those
that typically haven't been represented as much in venture
capital and entrepreneurship. And, actually, myself and one of
my colleagues, Faith Voinovich, were one of the initial mentors
of that program.
So there are programs like that being done within the
venture capital community to--because it is more of a craft.
So, you know, mentor, teach and all that, and open up that
access, which can cut across demographics, as you mentioned,
but also, you know, geographics, in the Midwest.
Mr. OLSZEWSKI. Yeah. Well, we certainly welcome the chance
to work with you to bring more investment to Maryland as well.
Again, thank you all for your time and your feedback today.
And, Mr. Chairman, with that, I will yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. Downing from the great State of Montana
for 5 minutes.
Mr. DOWNING. Mr. Chairman, thank you.
And thank you to our witnesses for providing these
testimonies.
I represent Montana's Second Congressional District. It is
one of the least populated areas of the country, about 7.6
people per square mile. And another fun status: We have more
than twice as many cows as people. You get a lot of windshield
time driving around my district.
But the issues are, a lot of these population centers are
far apart and isolated from a lot of these communities. And so
it is hard, you know, having access to economic hubs, having
access to capital. It can be difficult for small businesses and
for farms and ranches.
I believe we need to pay more attention to these rural
capital-access challenges. That is why I introduced the
Expanding Access to Capital for Rural Job Creators Act earlier
this year. This legislation requires the Securities and
Exchange Commission's Office of the Advocate for Small Business
Capital Formation to report on capital-access issues faced by
rural small businesses.
So I am going to start, Mr. Palmer, with, do you believe
the federal government, particularly under the Biden
administration, has paid adequate attention to the difficulties
that rural small businesses face in securing capital?
Mr. PALMER. I don't think anyone has provided adequate
attention to rural America. Part of it is because there are
fewer people and it just doesn't get media coverage.
I mean, I remember, I was in New Orleans after Hurricane
Katrina, and New Orleans got all the coverage, and people
skipped over just what happened in Mississippi, which was just
as bad or worse----
Mr. DOWNING. Right.
Mr. PALMER.--because you just--when you--you can't see
people crying.
And I think rural America has suffered from that for a long
period of time. I think this hearing has been fantastic in
helping highlight that.
But I do think the SEC looking at that, and the Small
Business Advocate, makes a lot of sense. I want to take a look
at your legislation. I think the Meuser bill helps in that
regard.
But there are definitely unique challenges that rural
America has, whether it be broadband, whether it be
infrastructure for manufacturing as far as rail lines and
highway lines, employee base. You know, there are unique
challenges, but I think this is where informed public policy
can help develop that.
But, you know, I think we really have to be deliberate in
helping rural America. It is not just going to happen
magically.
Mr. DOWNING. Can you provide any insight into what role
SBICs can play in supporting small businesses in, you know,
less populated, less dense areas?
Mr. PALMER. Sure.
I think one of the things that States like--because Montana
and Wyoming and Alaska have had very few--Hawaii is another--
have had very few SBIC investments. They have had a handful but
not nearly enough.
I think part of that is--and this is something Bill touched
on--is, the cost of forming an SBIC can run north of $500,000
to form one. And if you are--you need smaller funds in smaller
markets.
You know, I mean, sure, it would be great if someone had a
multi-billion-dollar platform in Bozeman, you know, and liked
to hike in the Bob Marshall Wilderness, one of my favorite
places in the world. But, you know, you need smaller funds for
these smaller markets that can write smaller checks for these
transactions these small businesses need.
And I think not losing sight of the smaller funds is
important, because they can serve places like Nevada and
Wyoming, and that is what we need. We need more smaller funds,
not just big.
Mr. DOWNING. And so how do you see--or what specific
advantages do you think SBICs have to provide for rural small
businesses than traditional bank lending and government-issued
loans?
Mr. PALMER. Well, I think they do two things.
One, they are a capital amplifier. So the private sector
leads. It is not the government saying, ``You shall invest this
way,'' because it is generally not going to work. You know, the
private sector sees the opportunity, they put their money where
their mouth is, themselves first, and then the SBA amplifies it
with the SBIC. I think that is really helpful.
I think having more of these SBICs in smaller markets will
be helpful, but to do that, they need to allow more smaller
funds to get formed. Because for a long time they wouldn't
license anyone who hadn't raised at least $25 million or $30
million in a two-to-one that is a $90 million fund.
Look, every small business would love, you know, a $10
million check. Some of them need a $1 million check or a
$500,000 check. And so we have to make sure the program scales
down to these smaller markets to make sure that they can be
developed markets too.
Mr. DOWNING. So, in my district, we don't have any
registered SBICs. What are some ways that we can expand
participation and access to these programs?
Mr. PALMER. I think, for Montana--and Wyoming, too, which
is one of your neighbors who faces a similar challenge--I think
bringing the banks together is the first start.
Because the banks--up until Gramm-Leach-Bliley, most banks
actually had an SBIC internally, because banks aren't allowed
to take equity positions in small businesses. They weren't
allowed to under Glass-Steagall; that changed with Gramm-Leach-
Bliley. But SBICs used to have an internal one so they could
take some of their capital and do equity investments, the likes
of which banks can't normally do. But banks weren't allowed to
invest in SBICs.
And so, if we get the regional banks and the--and also
RBICs, Rural Business Investment Companies, which are done by
USDA, which are our members. I think if we get them together,
you know--I would be happy to talk to you offline. I hear the
tapping of the gavel.
Mr. DOWNING. Yeah. I have run out of time. Thank you very
much.
Mr. PALMER. I would be happy to talk to you more.
Mr. DOWNING. Mr. Chair, I yield.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Mr. Tran from the great State of California
for 5 minutes.
Mr. TRAN. Thank you, Mr. Chairman.
Mr. Palmer, in December of 2022, the Biden administration
launched the Small Business Investment Company Critical
Technology Initiative. This is a joint initiative between the
SBA and Defense Department that utilizes the SBIC program to
strengthen U.S. national security by attracting and scaling
public-private investment into the DOD critical technology
areas.
First, are you supportive of the initiative?
Mr. PALMER. Very.
Mr. TRAN. And if so, can you explain why SBICs are
appropriately positioned to further this initiative?
Mr. PALMER. Well, a couple reasons.
One, SBICs are market-driven. And so it is not, you know,
just a subsidy and pumping things up. It is looking for genuine
opportunities that can sustain themselves.
They are geographically dispersed, where not everything
else is.
And they are regulated in a way that can limit foreign
investors, as DOD, I think, sometimes needs. Because one of the
things that does happen is--you know, one of the ways you can
do industrial spycraft if you are a hostile foreign power is,
you have your folks invest in venture funds or private equity
funds and you see what technologies are working and which ones
aren't. And so I think, you know, knowing who you are doing
government contracts with, or things that are adjacent to
government contracts, to make sure that they are aligned with
Americans' national-security interest just makes a lot of
sense.
Mr. TRAN. Yeah.
And on that same note, you know, and from a more
macroeconomic perspective, can you explain the importance of
continuing to utilize the SBIC program to invest in critical
technologies in order to compete on the global stage against
foreign adversaries, including the CCP?
Mr. PALMER. Yeah. And I think we need to compete with
everyone but particularly--these other countries are actively
supporting their companies with subsidies, with industrial
espionage, with all sorts of other things. We don't need to do
the underhanded stuff; we just need to do the smart stuff.
And the smart stuff is making sure we are putting our money
where our mouth is, making sure we are supporting investing in
American manufacturing, in industries that we want here that
may not be manufacturing.
And these aren't all government contractors. There are
certain industries, like AI, that we need here. And I think,
you know, Bill touched on, like, supercooling. Like, these
computers, you have to keep them cold, you know, for a high-
speed, you know, transaction in certain cases.
And so some of that technology and some of that research
that has been done by the Department of Defense that the U.S.
taxpayers already paid for, let's make sure that technology is
being used for American companies to do those things. Because,
you know, it is already there. Let's get it in the right hands
of the right Americans to make use of it.
Mr. TRAN. Thank you.
And, Mr. Cimino, similar question: Are you supportive of
this initiative? And how do you recommend we engage further and
scale up investments in critical technology, both in terms of
the SBIC program and more broadly?
Mr. CIMINO. Yes, we do support the program and the
expansion of it. To, I think, your last point, this is how we
actually win as a country, is continuing to double-down on what
works.
And, specifically, the private capital model is what allows
this type of scale and growth. Not only does it provide that
long-term, patient capital, where it is going to be
challenging, hard problems, but putting the capital and
investment behind it to tackle it, but then it is going to be
strategic partners that have the same vision in mind to
ultimately build that.
When you couple that with the SBIC's process on everything
from licensing to oversight, it does ensure that those visions
are aligned for a very not only good technological outcome but
one that benefits the country.
Mr. TRAN. Thank you.
And, you know, I proudly represent California's 45th
Congressional District, which is a majority-minority community,
where minority-owned businesses are a significant part of
Orange County's local economy. But minority entrepreneurs still
face numerous barriers to success, such as having a difficult
time obtaining capital from external investors or lenders.
According to recent data published by Morgan Stanley,
venture capital investors could be missing out on more than $4
trillion in value by not investing in more underserved
communities and entrepreneurs.
Mr. Cimino, wouldn't you agree that focusing more on
underserved entrepreneurs and small-business owners could help
investors increase their returns?
Mr. CIMINO. A hundred percent. It would not only lead to
economic activity and benefit for the specific entrepreneur and
the people they employ and the community, but it would lead to
a huge amount of untapped economic opportunity for those
investors. And we need to do more to support that.
And when we think about that, it goes down to emerging
managers, which--when you look at the study, minority emerging
managers are 40 percent more likely than their counterparts to
invest in underserved communities. And so really empowering
them and making it easier for them to form funds and deploy
capital starts to address some of that problem. Ultimately,
that leads to wealth creation, attracting even more capital and
supporting that ecosystem.
Mr. TRAN. Thank you so much.
And thank you, all the witnesses, being here.
Mr. Chairman, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Ms. King-Hinds from the Northern Mariana
Islands for 5 minutes.
Ms. KING-HINDS. So everybody is giving a shout-out to their
States. I don't know if you have heard of the Northern
Marianas, but I represent the Northern Marianas.
And so, you know, there is underserved and rural, and then
there is the Northern Mariana Islands. We are just
geographically isolated. Shipping costs are insane. And right
now our economy is tanking, as we speak. We have one primary
economic engine, which is tourism. It hasn't recovered to pre-
pandemic levels.
And so, you know, I am here looking for opportunities for
my community. Every single business in the Northern Marianas is
practically a small business. And I thank you for offering your
time and your ideas, because what I want to hear are your
thoughts on how we can--you know, what can the SBA do to get
SBIC-backed investments working in the Marianas?
Mr. CIMINO. I am not going to pretend to be an expert on
some of these problems, and I do think we need to deliberately
think about it.
But I think this goes back to what was discussed a little
bit earlier, is, how do we help more fund mangers, smaller fund
managers with smaller checks be identifying and supporting
these areas?
I know we talked a little bit about what SEC can do on that
front, but I think, from a SBA and SBIC perspective, I am
optimistic--and I don't think this will happen by itself, but--
that we can use things like their recent expansion into that
Fund-of-Fund or Reinvestor program where you have fund managers
that might be sitting in Ohio or in San Francisco but recognize
that there are opportunities elsewhere, and what they would
know is that they don't have the expertise but they can start
tapping into and helping smaller fund managers form, grow, and
ultimately deploy that capital into these communities.
It will not happen overnight, but I think the SBIC is
already moving in that direction through the fund-of-fund
strategy. Hopefully we can be a little bit more deliberate, not
only to solve some of your problems, but to other rural areas
that we have already talked about as well.
Mr. PALMER. We have trouble getting investments in Hawaii
because it is difficult. It is not a concentrated area. The
Northern Marianas and other, you know, American territories are
tough, really tough.
Now, I will say, again, I was not--I don't have an easy
answer for you on that, or a quick answer. But one of the
things that has been kicked around both with the last
administration--the Biden administration proposed a sovereign
wealth fund; President Trump has proposed a sovereign wealth
fund.
If they do a sovereign wealth fund--and I think they are
serious about doing it, but it is an ``if''; I don't know. But
if they do one, I would encourage this Committee to have a
separate one for small business and not have it wrapped up in
the giant fund. Because it is very easy for small business to
get sort of get crammed down and sort of forgotten about. But
if you had a sovereign wealth fund, you could equitize and sort
of anchor-invest, you know, funds for specific purposes to
specific local needs that are unique. Because I think the CNMI
have unique issues.
But I think, you know, as that idea percolates and
develops, that might be something to pay attention to, but I
don't know of any easy answers to that in the short term. But I
would be happy to talk to you when we are not under a 5-minute
clock.
Ms. KING-HINDS. Yeah. For sure. Thank you.
Did you want to chime in?
Mr. BAUMEL. I guess, you know, I don't have--like he was
saying, I don't have any easy answers. I will just tell you,
when I have been going into emergent communities, one of the
things that has to be done is really understanding, kind of,
the core and history of that community.
For example, in Ohio, there is a ton of healthcare--
Nationwide Children's, Wexner Medical Center, Cincinnati
Children's, Cleveland Clinic. How do we leverage that, you
know, to create new companies?
Enable Injections, the on-body drug delivery, the needle--
is in Cincinnati Children's. We have two biotech companies that
spun out, partnered with NIH and BARDA and CARB-X in
biotherapeutics and such.
So I don't know enough about, you know, your community, but
really looking at a community and saying, is there some history
or area that we can be innovative in, you know, within tourism
or whatever it is, you know, for software opportunities or
marketplace opportunities or what have you?
So each region has its unique history and base to leverage
in its own unique way. That is all I can really offer.
Ms. KING-HINDS. Thank you.
Thank you for sharing your thoughts, and thank you for your
time.
I yield my time.
Chairman WILLIAMS. The gentlelady yields back.
And I now recognize Mr. Latimer from the great State of New
York for 5 minutes.
Mr. LATIMER. Thank you, Mr. Chairman.
And thank you to our guests for being here today.
I represent the ``coastal elites'' of the North Bronx, of
the cities of Yonkers and Mount Vernon. And, while we are on
the East Coast, we have our challenges as well.
And I do just want to say in general--and I take some of
the comments, you know, with a grain of humor, but--America, to
me, is one nation, indivisible. And the rural parts of this
nation are important, even though I don't represent them, as
the urban areas are important that I do represent, and the
suburban areas.
I have lived in the State of Pennsylvania. I have lived in
the State of Ohio. I worked for a corporation in my corporate
years for 11 years that was headquartered in Texas, and I had
to return to Texas monthly to interact with people. So I see
all of that together in one broad context.
I must say, I have not been to the Northern Mariana
Islands. I don't know if my seat on Foreign Affairs will allow
that, but time will tell.
More specifically, though, we have talked a lot about the
needs in the rural areas, which I respect, but the urban areas,
too, represent an area not only of need but of potential
growth.
And when I talk to the people in my district--this morning,
I was on a chamber of commerce call for one of the cities that
I represent; I went to one of them when I was in the district
last week--I hear other issues that rise.
I hear the issues about the unsurety of what this tariff
imposition will be and what it is going to mean to them in
terms of the products that they sell. I hear about the unsurety
of workforce issues with the immigration policies that we have,
and will they find themselves unable to properly staff up to
provide the services due to things they need to do in back-of-
the-house situations.
So there are other issues aside from access to capital.
Access to capital is very high on that list.
And just very simply, one question, which I would
appreciate each of you commenting on: How do you see the
challenges of--and the strategies necessary to incentivize
small businesses in urban settings?
Now, we know that there are large businesses. I have them
in my home county. I was county executive for 7 years. Well
aware of those businesses and the equivalent ones that exist in
Silicon Valley and so forth. But there is still an urban energy
and entrepreneurship that we have to figure out, how do we
incentivize that? It might fall into the category of women or
minority, but it may or may not, but they are in an urban
environment.
And so I would appreciate your thinking on it. I will start
with Mr. Cimino, and I appreciate each of you commenting.
Mr. CIMINO. First, I really commend you on your comments
of--I know we were all joking around, but, yes, it is very much
a united front here.
I think to drive more capital is key, as we have discussed.
But I think the other component of capital--and I completely
understand your point of, like, it is not just about capital.
But when we see investment come in through private sources,
they often turn into partners.
And so the SEC has recently talked about: Businesses that
accept investment from either venture or P are 12 percent less
likely to fail. And that is because they become strategic
partners and help them think through everything from how might
a government regulation need to be adhered to or navigated, to
how they might help with connecting them to partners,
customers, the right technologies. And so we treat this very
much as, there is skin in the game for these businesses.
I think the other component there that we have to look to
is, how do we think about empowering more of the employee base
to have ownership in these types of companies? Because,
ultimately, that not only, as I said earlier in my statement,
improves performance of the company itself by creating a more
talented and aligned workforce, but then helps them have a
stake in an economic benefit that comes out of that company and
makes them even more part of that community, where they are
able to tap into more and more of that network.
Mr. BAUMEL. Quickly, what we learned in some of the urban
communities--downtown Cleveland, downtown Columbus, and
downtown Cincinnati--is create a space for that that looks
innovative, that is open, that allows collaboration and all
those sorts of things.
So you need some sort--it is tough walking down the street
to say, I am just going to start a startup in downtown Columbus
or in Brooklyn or such. But if you have an area, you know, that
is meant for these startups to get started, to work together,
to collaborate, to share stories and all that, that epicenter
can really be helpful in allowing, you know, entrepreneurs to
come together, you know, and grow.
Mr. PALMER. Congressman, I would say that a lot of the
reason why the discussion is about rural is because that is
where it is missing. A huge amount of the investment by SBICs
and private equity and venture is in urban. There is just a lot
more economic activity and opportunity in urban areas. You have
more people, you have more money around, you have more
connectivity of universities and other things. So there is a
lot there.
And, actually, as it relates to the SBICs, we have a lot of
them--forgive me for being a Long Islander, of, everything
north of Harlem is ``upstate''--but it is a--there is a--the
bulk of the SBICs in New York are in upstate New York, in
Buffalo, Albany, places not that far from you. But they are
investing in places like your backyard.
But I think the key thing is just making sure--for urban
areas, making sure that it is a vibrant, safe place. You have a
lot of banks, a lot of financial institutions. Keeping those
chambers of commerce together to connect with the private
capital markets. And there are huge advantages they have over
everyone else.
Chairman WILLIAMS. The gentleman's time is up.
Mr. LATIMER. Thank you, Mr. Chairman.
Chairman WILLIAMS. He yields back.
I now recognize Mr. Wied from the great State of Wisconsin
for 5 minutes.
Mr. WIED. Well, thank you, Mr. Chairman, for holding this
hearing.
And thank you to the witnesses who have come here today to
share their experiences.
Small Business Investment Companies, SBICs, with the
support of the Small Business Administration, provide important
capital investment to small businesses across our nation.
In my district, manufacturers are a significant portion of
our economy. We have over 1,000 manufacturing firms, employing
almost one-quarter of our working population, with 89 percent
of those manufacturing firms in my district classified as small
businesses.
SBICs provide needed capital investment for manufacturers
like Vehicle Security Innovators in Green Bay, which hired six
new employees after SBIC investment.
However, gaps in manufacturers' access to capital continue
to exist. To help fill those important gaps, I am proud to
cosponsor the Investing in All of America Act, which will
incentivize SBICs to invest further in manufacturers in rural
America--what I call ``real America,'' main street--which is
our district, with no new spending mandates or subsidies.
So, Mr. Palmer, under Administrator Loeffler, the SBA has
made revitalizing American manufacturing a top priority. So how
will increasing manufacturers' access to SBIC investment help
American manufacturers?
Mr. PALMER. I think you have--first of all, thank you very
much for sponsoring the bill.
And, yes, we have some SBIC investments in manufacturers in
Appleton. Quaker Bakery Brands and others do some really
interesting stuff, and you have some--Century Tool--companies
in Green Bay and other areas.
But the more we can amplify capital, not on our--we have a
lot of capital that is being raised from--let me take it back a
step further.
The private market sees the opportunity in small business;
they don't always know how to access it. And one of the things
about the SBICs is they know how to access it, and they are
leading with that private capital. And, a lot of times, because
of the limits of where they are now, that capital can't be
amplified because it hits the caps that SBA will do.
What your legislation would do is say, hey, if you invest
in a manufacturer, that cap doesn't apply to that investment.
You still have to have the same amount of private capital,
which is the taxpayer protection, in front of the SBA capital,
but we are not going to put an artificial break on anything
that is in a rural area or a low-income area, whether that is a
rural or urban low-income area, and particularly for
manufacturing and these national defense sectors.
So it just lets the private capital lead without restraint.
So I think it would be very helpful. And thank you for your
support.
Mr. WIED. And, Mr. Baumel, my district is several hours
away from large cities like Madison and Milwaukee. What can
this Committee do to ensure small businesses have access to the
capital they need to grow and innovate?
Mr. BAUMEL. I mean, we have the same situation, you know,
in Ohio, where Athens is about an hour-and-a-half drive, Dayton
is about an hour drive. So I don't know specifics other than,
you know, experienced fund managers who are willing to go out
there with SBIC and other type money and make that drive and
such. And most people that are in these communities, like in
Wisconsin, Ohio, do have that passion, you know, to follow up.
And the other thing I will say is, there are a lot of
macroeconomic things that can be done as well. I know there is
a new Developing and Empowering Our Aspiring Leaders Act coming
up, as well, that will allow fund managers who have very
limited fees--the average, you know, early-stage fund is about
$20 million--about, you know, $200,000 to $400,000 annual fees
to cover every expense--all the employees, the rent and
everything else. You know, getting the regulatory burden down
with filings with the SEC; allowing these small businesses to,
you know, expense R&D more quickly; and those sorts of things.
So there are both macroeconomic and microeconomic
solutions.
Mr. WIED. Great.
Thank you for all the work you do.
And, with that, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Ms. Simon from the great State of
California for 5 minutes.
Ms. SIMON. Thank you, Chair Williams.
I appreciate you all being here today.
And I would agree--before I go into my comments--I am very
interested, this quarter, in this Committee having an
opportunity to meet with and have a conversation in a hearing
form with the leadership of SBA. I think we would all learn so
much, particularly to understand, you know, what the next 4
years will look like under the new SBA brass. I am very excited
about that opportunity, and I hope we get it.
You know, I am from the great State of California, from
Oakland, California, surrounding Berkeley and Emeryville and
Alameda. And I have to tell you that California's 12th District
is the hub. And, actually, I wanted to thank many of you all
for your investments in my district. Particularly, you all know
that the AI revolution, the biotech revolution, it is happening
right across the street from my office. And I am proud to be in
that district.
You know, there are a couple of amazing small businesses
that have benefited so deeply from the private sector, from
venture, that haven't had the opportunity to seek support from
SBA. Or even the thought of obtaining NIH funding in this
moment is also really, really difficult for some of these
companies. I want to talk about a couple of them.
There is a group called Science Corp., which is in Alameda.
And Science Corp., which is a small business led by brilliant
engineers and physicians and data scientists--and we believe in
the next 10 years this group will cure retinal pigmentosa and
macular degeneration. The brilliant folks at Science Corp. are
going day-in and day-out, coming early and leaving late, to
innovate to make sure that folks like myself with visual
impairments have hope.
There is another group that I visited that requires a ton
of research and support for what they are doing to ensure that
mothers actually live past a terminal diagnosis of breast
cancer. Exelixis is right in Alameda County.
Institutions like these have created opportunity, not only
employment opportunities, but really deep hope for folks who
are struggling with ailments and disabilities.
Between 2020 and 2023, $5.8 billion was invested in Oakland
entrepreneurs, and this is double what Oakland businesses
received in the 3 years before the pandemic. My district sees
tremendous venture capital investment, and so, again, I am so
thankful.
But what about our underserved communities? I understand
that the administration doesn't want to talk about inclusion,
but I do. In this conversation, you know, I think it is
important that we continue to lift up a whole America.
According to Crunchbase, venture capital funding to Black-
owned businesses in the Bay Area fell 88 percent since 2001.
Again, venture capital funding to Black-owned businesses in the
Bay Area fell 88 percent since 2001.
In fact, less than 1 percent of venture capital funds go to
Black businesses nationwide. I will read that again: Less than
1 percent of venture capital funds go to Black-led businesses
nationwide.
You know, I have a question just quickly for Mr. Cimino.
According to the data published by Morgan Stanley, venture
capital investors could be missing out on more than $4 trillion
in value by not investing in more underrepresented
entrepreneurs. So the big question is, well, why? Why and how
are we getting this so wrong in our economy?
And wouldn't you agree that focusing more on underserved
communities, like the ones that I have mentioned, and focusing
and supporting those entrepreneurs in small businesses could
help investors increase their own returns?
Mr. CIMINO. Absolutely.
And I think that you said it very well. This isn't about
taking things away from your district; it is about bolstering
that. But it is also about broadening it to more folks within
your district but also more places around the country.
One of the ways we see that opportunity is by making it
easier and empowering more fund managers, especially those with
diverse backgrounds. Because the data shows that a diverse fund
manager is up to 40 percent more likely to invest in a diverse
founder. And so, to your point, that is likely to get more
capital into these communities.
And, frankly, these are untapped talent, where they are
going to outperform, they are going to show that that value is
not only for them and their business but for the investors. And
I think as you start to see more and more of that data, you
will start to see more of the investment community look to
resource those communities.
Ms. SIMON. Thank you.
We are leaving genius on the table.
I yield back.
Chairman WILLIAMS. The gentlelady yields back.
I now recognize Mr. Jack from the great State of Georgia
for 5 minutes.
Mr. JACK. Thank you, Mr. Chairman. And thank you for your
continued leadership in this space.
And thank you to our witnesses for testifying today.
Just to personalize this, my congressional district, based
on some data that our team pulled together, we have over 7,000
private-equity-backed companies who provide roughly 418,000
jobs within my district, which represents about a $730 million
investment within my district alone.
So I am grateful for each and every one of your testimonies
today, because it impacts the people that I serve here in
Congress.
But if I could start--and I also want to thank Mr. Palmer.
I think your testimony was incredibly insightful.
And I would love to walk through, if I could, and give you
an opportunity--within those policy recommendations, you have
spoken to a couple of my colleagues today on it, but
specifically I would like to highlight the bill that Mr. Meuser
and Ms. Scholten introduced. Could you walk me through why SBIA
so strongly supports passage of this bill?
Mr. PALMER. Well, the program works. And that is number
one. If we are not actually getting the outcomes of helping
small businesses, we want to stop it. It protects the taxpayer.
We don't want the taxpayer exposed to anything. That is good.
There is more opportunity for more small businesses to get
capital, for more businesses to innovate, and we are capped.
Inflation has chewed up the leverage caps that were put in
place in about 2010, 2012, that time period. And so there is
more private-market interest in small business, but it can't be
levered. And so it is sort of capped and we are cutting
ourselves off, even though we know the model works.
Also, we know there are parts of America that have been
forgotten for a long time and have been overlooked, and they
need to be looked at. That covers manufacturing. That covers
rural America. That also covers, you know, inner-city low-
income areas.
And so what it does is it uses a market-driven mechanism--
not government mandate, but opportunity--for private equity
funds and venture capital funds to look at those areas and then
invest in them and be able to access the SBIC leverage.
So it is a market-driven incentive to get more to all of
America, and, thus, the title of the bill. It just works. And
so we are excited about it.
Mr. JACK. And would you mind elaborating on--one of the
third policy recommendations you provided to the Committee was
talking about some of the fees collected as it relates to SBIC.
Could you walk me through or, rather, expound upon that?
Mr. PALMER. Sure.
So there are a number of fees that are collected by the SBA
on the SBICs, and some of those are effectively an insurance
policy to make sure that there is no taxpayer exposure. And
that has worked for 27 years. And that is good, and those
should be maintained.
And the other thing they charge, they charge for licensing
fees. And that is so--when you apply for a license, you pay, I
think, $25,000 or so. And, you know, folks that are coming
through the process pay that fee. And then there are
examination fees. But some of those funds then get diverted to
other parts of the SBA instead of staying inside the SBIC
program.
And the SBIC program is about $11 million in total salary
for $50 billion of management. I mean, normally, when you are
managing in the venture world, private equity world, it is 1-1/
2 to 2 percent of the assets is what you charge for a fee to
run it. The government is being about 100 percent more
effective and more efficient than that.
Now, that is good to a point, but you do need to make sure
you have the resources in hand to make sure that you have
someone overlooking the SBICs to make sure there are no bad
actors, there is no fraud.
And so we want to make sure that those fees stay inside the
program to make sure that we have the cops on the beat to make
sure we are serving those small businesses and protecting the
taxpayers simultaneously.
Mr. JACK. Thank you very much.
And, Mr. Cimino, you mentioned in your testimony that
private capital is highly concentrated in certain areas. You
know, California, the Northeast, I think, were the two regions
you specifically referenced. And while it is plentiful, it is,
you know, clearly, at times, unevenly distributed.
So I am just curious, recommendations that you have to this
Committee as to how we can attract more capital to, say, my
home district, Georgia's Third Congressional District, just
southwest of Atlanta.
Mr. CIMINO. Yeah. It is definitely the charge that we have
before us.
One, I think what the SBA's SBIC program is already doing
is working. When we look at the data, about 50 percent of
venture goes to California, but when you look at the SBIC's
allocation, only 10 percent goes to California. And so it is
already broadening capital out there.
And especially enhancements that not only include the fund-
of-fund piece but accrual that fits the venture model better
are helpful. And then investing in all of America, which you
are obviously expert on, will, I think, add to that.
I think even beyond this Committee, though, there are
opportunities, as you think through tax, around how you drive
capital and talent to the ecosystem, things like qualified
small-business stock, but there are also some SEC-related
regulations, all of which get at, how do we support the
investment community?
Because if you can support the investment community, they
are more likely to invest early, locally, and diversely. That
then identifies those entrepreneurs that can build companies,
those companies hire the talent, and it just starts turning
that flywheel of an ecosystem and building out those
infrastructures.
Mr. JACK. Very well put.
Thank you to all of our witnesses for their testimony.
And, Mr. Chairman, I yield back.
Chairman WILLIAMS. The gentleman yields back.
I now recognize Ms. Goodlander from the great State of New
Hampshire for 5 minutes.
Ms. GOODLANDER. Thank you, Mr. Chairman.
And thanks to our witnesses for being here today.
Mr. Palmer, I wanted to--your--thank you for your
testimony. You point out that over--or, I guess, around 2,400--
in the lifetime of the SBIC program, SBI has--SBA has
licensed--many acronyms in this hearing ----
Mr. PALMER. It is a mouthful.
Ms. GOODLANDER.--has licensed 2,400 SBICs, Small Business
Investment Companies.
Mr. PALMER. Uh-huh.
Ms. GOODLANDER. New Hampshire is not home to an SBIC
currently.
Mr. PALMER. It has one. Seacoast Capital.
Ms. GOODLANDER. All right. We have one.
What is your advice to those of us who are representing
mostly rural districts? And what difference have you seen--what
is the difference that is made by having more SBICs actually in
our community?
Mr. PALMER. It helps. I mean, proximity matters, and, you
know, if you are around people that are investing in
businesses, you are more likely to be able to connect them.
Because this is not, like, you know, the publicly traded
markets, where you go online and say, ``I am going to go to my
Schwab account, and I am going to find small business X and put
money into them.'' It is a relationship business, and you have
to understand, you know, what you are getting into. So having
more locally is very helpful.
And given the proximity to Boston, I would like to see more
funds formed in New Hampshire. And back in the 1990s, there
were several SBIC funds in New Hampshire and Vermont. When they
pivoted away from equity investing, it concentrated the venture
world in only a couple markets, and it also--they sort of
disappeared from a lot of these smaller markets that were doing
these small-dollar venture funds and private equity checks. As
the SBA has pivoted back to allowing more equity investing, I
think you are going to see more of those develop.
I think the key is--and this goes to Congressman Jack's
point--is, you have to make sure the barriers to entry aren't,
you know, overly--aren't too big for smaller funds to form.
Because bigger funds forming, they have the resources, they
have the lawyers, they have the compliance people. But you have
to have smaller funds that can get into and access these SBA
products to be able to serve these smaller businesses in these
smaller markets.
And then they may not be small after a while. They may grow
and grow everything around them. So it is an ecosystem matter.
Ms. GOODLANDER. Thank you for that.
You also mentioned in your testimony the SBIC Critical
Technologies Initiative.
Mr. PALMER. Uh-huh.
Ms. GOODLANDER. I serve on the House Armed Services
Committee. And, you know, being on both of these Committees is,
I think, really important, because as I look at the U.S.
economy, I see consolidation everywhere, especially when it
comes to our defense industrial base.
Mr. PALMER. Uh-huh.
Ms. GOODLANDER. What changes can be made and, especially,
what more could DOD be doing to leverage this program and to
really grow this incredibly important sector of our economy?
Mr. PALMER. I think they are on the right track. I mean, I
think the partnership between the SBA and DOD was the right
move. The creation of these critical technology SBICs and this
joint-licensure-type model they have, where the DOD doesn't
license them but they are involved in who gets the licenses to
make sure we have the right people in our national-security
places, you know, makes a lot of sense.
You know, I think establishing the ones that are forming
now as successes and sort of setting the market model that,
hey, this works, this isn't--you know, because when things are
new, they are scary, and, you know, it requires training, and,
``Hey, why am I going to build a business around this new
concept? Let me see if the concept works.'' We have got this
concept started, anchored. I think it is going to be a
significant success. And as that success takes off, I think we
can get more of these critical technology funds in more parts
of the country, and I think it is a real opportunity.
So I think it is a--it is not a pilot. It is a real,
established entity. But I think, with a little bit of time,
once those critical technology SBICs really latch into the
market, I think you are going to see a lot more funds forming
as them.
Ms. GOODLANDER. Well, I would welcome any recommendations
you have or other witnesses here today have for how we could
improve upon this program and get DOD's involvement.
Mr. BAUMEL. Okay. I have--going back to your original
comment, I am actually surprised there is only one SBIC in New
Hampshire. Because I remember I did, early on, a lot of
investing in Boston. I actually think I flew out of--flew
Southwest back out of New Hampshire.
So what we have done in Ohio----
Ms. GOODLANDER. Manchester-Boston Regional Airport.
Mr. BAUMEL. Exactly.
Ms. GOODLANDER. Excellent airport.
Mr. BAUMEL. Yeah, excellent airport.
I mean, one of the things we have done in Ohio is talked
about the quality of life versus other areas--and we have
actually attracted a lot of people from Boston--where, you
know, it is a little bit more simple, the house is a little bit
more affordable, it is a little different quality of life.
I think, you know, as a State, I think you can do that in
terms of attracting both venture capital professionals up there
as well as companies to form there, particularly if they could
have some SBICs around there. So I actually think your problem
is very solvable.
Mr. CIMINO. And if I could just maybe add really quickly to
kind of combine a little bit of the two things that were added:
One, if you can grow more funds--and even on the Carta
platform, there are actually 11 or 12 funds in New Hampshire.
You obviously have the proximity to Boston. Hopefully the
SBIC's fund-of-fund structure can help.
But it is interesting, on the DOD point, to your point,
people don't like to do unproven things. We have actually had
funds come to us and say, is this SBIC program itself, not even
the DOD part, for real? And these are pretty prominent funds.
Ms. GOODLANDER. Uh-huh.
Mr. CIMINO. I think the more education around this, the
more funds will be interested in realizing this is actually
working, it is an additive process for us. And all of a sudden,
they will start thinking about how to leverage it more. And so
the more education we can do about it, the better.
Ms. GOODLANDER. Well, I thank you all.
And I yield back, Mr. Chairman.
Chairman WILLIAMS. The gentlelady yields back.
And I would like to thank our witnesses today for being
here for your testimony and for appearing before us.
Now, without objection, Members have 5 legislative days to
submit additional materials and written questions for the
witnesses to the Chair, which will be forwarded to the
witnesses.
I ask the witnesses to please respond promptly if that
happens.
If there is no further business, without objection, the
Committee is adjourned. Thank you.
[Whereupon, at 11:50 a.m., the Committee was adjourned.]
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