I recently attended the National Summit for Middle Market Funds with a few of our Risk Advisors. This summit is hosted by the Small Business Investor Alliance (SBIA) which is the voice for small business and private equity alignment.
I love the energy in this conference and the vibe of the people. Private equity, where Funds are formed using institutional or high net worth investors, come in different forms and sizes. SBIA members often form Small Business Investment Companies (SBICs) that must pass Small Business Administration (SBA) due diligence to raise a Fund, typically up to $300 million, using subsidized debt at the Fund level. This is basically taxpayers subsidizing the Funds with conditions upon the type and size of entity they can invest in.
The SBIA members, (SBICs) are seeking to invest via debt or equity in small to mid-market private business which is great for our economy and business ecosystem. We all know small to mid-market private business needs to be healthy for our economy to work well, grow, and employ in the future. The challenges these private companies have involve internal succession, rising investment needed in technology (Bots and AI), and replacing the massive intellectual property leaving the employment market in the next decade, all which require some form of proper capital planning.
SBIA members (SBICs) are a nice supply of capital, whether in the forms of debt financing or equity financing to fund the future of small and mid-size business. SBICs often have longer time horizons, understand the differences in investing in closely held, often founder centric, and potential family dynamics that play into small/mid-size businesses. SBICs have a proven track record for working with these closely held businesses to achieve a win/win dynamic. They can bring valuable resources in professionalizing the disciplines within a company that is ready for growth and obtain operational leverage to scale.
SBICs are sensitive to risk in the dynamics of founder based, often closely held concentrated key people business. SBICs are skilled at investing and allocating capital in building in operational scaling which is an art of investing in this space. SBICs have decades of doing this successfully and return some of the best returns to investors in the Private Equity arena while helping small to mid-size business invest for the future and perpetuate the next generation of leaders – a true win for taxpayers, investors, and business leaders.
As a growth company ourselves – Smith Brothers 20 year plus CAGR is close to 14% – we have shared our learnings with clients and prospects on how to grow as a private small business. Our topics have spanned from culture, personal holistic wellbeing for entrepreneurs, operational leverage, marketing, M&A and funding sources. Our panelists have included external funding sources with SBICs and SBIA members who shared the various sources of capital and term designs that may make sense for our client base as they seek succession, growth, and the next chapter in their businesses.
I am happy to share how we approach the risk and opportunities of succession within your business, and how we can help your company meet the challenges of its next chapter.
Be Sure
Joe