125. Small Business Investment Companies (SBICs)

One of the first steps toward a professionally-managed private equity and venture capital industry was the passage of the Small Business Investment Act of 1958. The 1958 Act officially allowed the SBA to license private "Small Business Investment Companies" (SBICs) to help the financing and management of the small entrepreneurial businesses in the United States.

Passage of the Act addressed concerns raised in a Federal Reserve Board report to Congress that concluded that a major gap existed in the capital markets for long-term funding for growth-oriented small businesses. Additionally, it was thought that fostering entrepreneurial companies would spur technological advances to compete against the Soviet Union.

Facilitating the flow of capital through the economy up to the pioneering small concerns in order to stimulate the U.S. economy was and still is the main goal of the SBIC program today. The passage of the Small Business Investment Act of 1958 by the federal government was an important incentive for would-be venture capital organizations. The act provided venture capital firms structured either as SBICs or Minority Enterprise

Small Business Investment Companies (MESBICs) access to federal funds which could be leveraged at a ratio of up to 4:1 against privately raised investment funds. The success of the Small Business Administrations efforts are viewed primarily in terms of the pool of professional private equity investors that the program developed. In 2005, the SBA significantly reduced its SBIC program and although SBICs continue to make private equity investments, the rigid regulatory limitations minimize the role of SBICs.