A Review of the SBIC Program (House Small Business subcommittee hearing, October 27, 2021)
Summary
The printed transcript of a hearing titled A Review of the SBIC Program, conducted October 27, 2021 before the Subcommittee on Economic Growth, Tax, and Capital Access of the House Committee on Small Business, 117th Congress (Small Business Committee Document Number 117–038). The subcommittee met in Room 2360 of the Rayburn House Office Building with Chairwoman Sharice Davids presiding, and opening statements are by Sharice Davids and Dan Meuser. The witnesses are Holly Huels of Holleway Capital Partners, LLC, St. Louis; Carmen Palafox of MiLA Capital, Chatsworth, CA; and John Mickelson of Midwest Growth Partners, West Des Moines. The transcript includes their prepared statements and additional material from the New America Alliance and from Carl Kopfinger of TD Bank.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Cite this document
“A Review of the SBIC Program (House Small Business subcommittee hearing, October 27, 2021).”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/a-review-of-the-sbic-program-house-small-business-subcommittee-hearing-82d73306b2/
, SHA-256 38e317ffa367e2add9f12b159e41548488f75a7aa259d9ca3dfe36a812922f35.Full text
A REVIEW OF THE SBIC PROGRAM
HEARING
BEFORE THE
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
HEARING HELD
OCTOBER 27, 2021
Small Business Committee Document Number 117–038
Available via the GPO Website: www.govinfo.gov
U.S. GOVERNMENT PUBLISHING OFFICE
45–938 WASHINGTON : 2022
SBD026 with DISTILLER
Congress.#13
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 F:\DOCS\45938.TXT DEBBIE
HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELÁZQUEZ, New York, Chairwoman
JARED GOLDEN, Maine
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
KWEISI MFUME, Maryland
DEAN PHILLIPS, Minnesota
MARIE NEWMAN, Illinois
CAROLYN BOURDEAUX, Georgia
TROY CARTER, Louisiana
JUDY CHU, California
DWIGHT EVANS, Pennsylvania
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANDY KIM, New Jersey
ANGIE CRAIG, Minnesota
BLAINE LUETKEMEYER, Missouri, Ranking Member
ROGER WILLIAMS, Texas
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
DAN MEUSER, Pennsylvania
CLAUDIA TENNEY, New York
ANDREW GARBARINO, New York
YOUNG KIM, California
BETH VAN DUYNE, Texas
BYRON DONALDS, Florida
MARIA SALAZAR, Florida
SCOTT FITZGERALD, Wisconsin
MELISSA JUNG, Majority Staff Director
ELLEN HARRINGTON, Majority Deputy Staff Director
DAVID PLANNING, Staff Director
(II)
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 F:\DOCS\45938.TXT DEBBIE
CONTENTS
OPENING STATEMENTS
Page
Hon. Sharice Davids ................................................................................................ 1
Hon. Dan Meuser ..................................................................................................... 2
WITNESSES
Ms. Holly Huels, Founder and Managing Partner, Holleway Capital Partners,
LLC, St. Louis, MO .............................................................................................. 5
Ms. Carmen Palafox, Partner, MiLA Capital, Chatsworth, CA ........................... 6
Mr. John Mickelson, Managing Partner, Midwest Growth Partners, West
Des Moines, IA ..................................................................................................... 8
APPENDIX
Prepared Statements:
Ms. Holly Huels, Founder and Managing Partner, Holleway Capital Part-
ners, LLC, St. Louis, MO ............................................................................. 22
Ms. Carmen Palafox, Partner, MiLA Capital, Chatsworth, CA ................... 27
Mr. John Mickelson, Managing Partner, Midwest Growth Partners, West
Des Moines, IA .............................................................................................. 31
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
New America Alliance ...................................................................................... 35
Mr. Carl Kopfinger, Senior Vice President, TD Bank, Philadelphia, PA .... 37
(III)
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 0486 F:\DOCS\45938.TXT DEBBIE
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 0486 F:\DOCS\45938.TXT DEBBIE
A REVIEW OF THE SBIC PROGRAM
WEDNESDAY, OCTOBER 27, 2021
HOUSE OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
SUBCOMMITTEE ON ECONOMIC GROWTH,
TAX, AND CAPITAL ACCESS,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:01 a.m., in Room
2360, Rayburn House Office Building, Hon. Sharice Davids [chair-
woman of the Subcommittee] presiding.
Present: Representatives Davids, Newman, Bourdeaux, Chu, Mr.
Kim of New Jersey, Meuser, Garbarino, and Van Duyne.
Chairwoman DAVIDS. All right. Good morning, everybody. I call
this hearing to order.
Without objection, the Chair is authorized to declare a recess at
any time.
I would like to begin by noting some important requirements. Let
me begin by saying that the standing House and Committee rules
and practice will continue to apply during hybrid proceedings. All
Members are reminded that they are expected to adhere to these
standing rules, including decorum.
House regulations require Members to be visible through a video
connection throughout the proceeding, so please keep your cameras
on. Also, please remember to remain muted until you are recog-
nized to minimize background noise. If you have to participate in
another proceeding, please exit this one and log back in later.
In the event a Member encounters technical issues that prevent
them from being recognized for their questioning, I will move to the
next available Member of the same party, and I will recognize that
Member at the next appropriate time slot, provided that they have
returned to the proceeding.
For those Members and staff physically present in the Com-
mittee room today, in accordance with the Attending Physician’s
most recent guidance, all Members and staff who attend this hy-
brid hearing in person will be required to wear masks in the hear-
ing room. With that said, Members will be allowed to briefly re-
move their masks if they have been recognized to speak.
I will now begin with my opening statement.
Small businesses are the backbone of the American economy.
They employ nearly half the private workforce and drive develop-
ment through groundbreaking innovations. However, to be success-
ful, they need capital.
Congress has long realized that funding on reasonable terms can
be hard to come by for small firms. So, in 1958, Congress created
(1)
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
2
the Small Business Investment Company program at SBA, or the
SBIC program. The goal was to bridge the gap between availability
of venture capital and the needs of high-growth small businesses.
Under the SBIC program, SBA partners with private institutions
to provide financing to small early-stage companies. Since its incep-
tion, the SBIC program has provided over $100 billion in capital
to entrepreneurs across the country. These funds have helped
transform small firms into powerhouse job-creators. Early-stage
small businesses that received SBIC investments include Apple,
Costco, FedEx, and Intel.
In fiscal year 2020, SBICs financed 1,063 small businesses, with
an average amount of just under $2 million. These funds helped
entrepreneurs acquire new companies, refinance debt, conduct
R&D, purchase equipment, and generally operate their enterprise.
This is progress from the delays and mismanagement that has
plagued the program in years past and our Committee has worked
to correct. In fact, last year, the SBA licensed 26 new SBICs, which
is up from 18. And, in 2021, they broke the record again, licensing
32 new SBICs.
Despite these successes, there are still issues with the program
that the Committee must continue to address. One such problem
is the lack of diversity both among investors and portfolio compa-
nies.
In 2007, the SBA acknowledged that women and minorities par-
ticipated in the program at low rates. Today, the diversity numbers
haven’t budged. For example, in 2020, SBICs only made up around
5 percent of their total financing to minority-owned small busi-
nesses. The numbers were even worse for businesses owned by
women and veterans.
After nearly 15 years of poor diversity metrics, we must get seri-
ous about increasing participation for women and minorities in the
program.
So, today, I am looking forward to discussing ways that this
Committee can further improve the SBIC program. I also look for-
ward to learning from our witnesses who have extensive experience
within this sector.
I would now like to yield to the Ranking Member, Mr. Meuser,
for his opening statement.
Mr. MEUSER. Thank you, Chair Davids.
And thank you to all of our witnesses here today.
Mr. Mickelson, we appreciate you making the trip in from Iowa.
Thank you very much.
So, Chairwoman Davids, thank you for calling this hearing to ex-
amine this important issue, the SBA’s Small Business Investment
Company program.
Before we delve too deeply into federal government investing pro-
grams, I want to touch on some of the realities on the ground that
are facing small businesses nationwide, certainly in my district and
throughout Pennsylvania.
Unfortunately, even with a high level of demand, it is a tough
time for small business. After the devastating blows of COVID-19,
particularly in certain States where arbitrary shutdowns were
forced of various small businesses on a relatively random basis, the
nation’s job-creators are facing rising costs, spiking inflation, trou-
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
3
ble with finding workers, difficulty with keeping their shelves
filled, for that matter.
With holidays approaching, these supply-chain issues are
bottlenecking and potentially jeopardizing what could be a light at
the end of the tunnel for many of these small businesses, which is
certainly their hope.
Through all of this, the Biden administration and much of the
Democrat leadership in the House do continue to threaten more
government spending on the demand side of the equation, paid for
by raising taxes on small businesses. This is a very, very self-de-
feating initiative.
In one of the latest regulations for small businesses, on Sep-
tember 9 of this year, the Biden administration announced a vac-
cine mandate for small businesses with 100 employees or more.
There are many businesses with less employees than that that
think, because the guidelines haven’t been issued, that they will be
affected as well. So it creates levels of uncertainty, which is the
last thing a business wants.
To say the least, this announcement has left small business with
numerous outstanding questions and concerns about retaining
their employees, especially during such a severe labor crisis.
There is no doubt these are difficult times for small businesses.
However, the nation’s smallest firms are some of the most resilient.
We don’t have to look very far to find a small business that re-
ceived a direct hit from COVID-19 but got back on their feet be-
cause of their perseverance and, yes, some government programs,
such as the PPP. Many of these businesses did, in fact, reinvent
themselves, while others simply were able to meet the demand
where it was to be found.
We all, on this Committee, salute these businesses as they con-
tinue to work through the recovery. And they are what the recov-
ery is all about.
In addition to the economic firestorms that small businesses are
facing, they also struggle continuously with access to capital and
financing opportunities to grow and expand their businesses. That
is why the SBIC program has been an important resource in the
Small Business Administration toolbox.
With the goal of injecting private equity into the small-business
ecosystem, the SBIC program and other federal programs have the
ability to reach down to businesses that might be geographically
overlooked, including in my district in Pennsylvania.
Ensuring small businesses across our nation have access to these
tools is important. Unfortunately, much of the investing is cur-
rently dedicated or siloed in certain areas of the country. Small
businesses in rural areas often struggle with gaining access to cap-
ital. I am hoping that through this hearing we can develop prag-
matic solutions to encourage more investment opportunities in wor-
thy companies located particularly in rural America.
This Committee should work together through regular order,
meaning examining an issue at a Committee hearing level, crafting
legislation together and voting on it at the Committee level, and,
if successful, moving it to the full House of Representatives. Unfor-
tunately, that process was bypassed by my Democrat colleagues
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
4
when they drafted and took up the most recent budget reconcili-
ation bill without Republican input.
I do look forward to discussing all of these issues this morning
with our witnesses, as well as ensuring this program does reach its
full potential. This program really should be studied and examined
comprehensively. As Members of Congress and as Members of this
Committee, it is important for us to exercise our oversight duty to
explore how these programs are operating year-in and year-out.
The SBIC program has many layers, and it is worth examining
thoroughly. I look forward to this conversation beyond this hearing.
Again, I want to thank our witnesses for joining, and I yield back.
Chairwoman DAVIDS. Thank you, Mr. Meuser.
The gentleman yields back.
I would like to take a moment to explain how the hearing will
proceed. Each witness will have 5 minutes to provide a statement,
and each Committee Member will have 5 minutes for questions.
Please ensure that your microphone is on when you begin speaking
and that you return to mute when you are finished.
With that, I would like to introduce—I will go through and intro-
duce each of our witnesses, and then we will get started.
Our first witness is Ms. Holly Huels. Ms. Huels is the founder
and managing partner of Holleway Capital Partners, which is an
SBIC-licensed small-business investment company with offices in
the district I represent, targeting small manufacturers in the great-
er Midwest and Southern U.S. Her insights will be critical for us
to learn how SBA’s SBIC program can play a role in helping fi-
nance the future of our domestic manufacturing base. She pre-
viously testified before the Committee in October of 2009.
So we are pleased to be able to hear from you again regarding
SBIC program. Thank you for joining us today, Ms. Huels.
Our second witness is Ms. Carmen Palafox, a partner with MiLA
Capital, a pre-seed and seed-stage investment fund based in Los
Angeles. Thirty-two percent of MiLA Capital’s portfolio companies
are led by women CEOs, 58 percent are led by immigrants, and 42
percent address United Nations sustainable development goals. As
a non-SBIC investment fund, she represents the type of investor
who would be well-served by the Committee’s recent efforts to ex-
pand licensing options within the SBIC program.
Ms. Palafox is also a founding board member of LatinxVC, a
group of experienced investors working to engage and foster the
Latinx venture capital ecosystem.
Thank you for joining us today, Ms. Palafox.
The Ranking Member, Mr. Meuser, is now going to introduce our
third and final witness.
Mr. MEUSER. Thank you, Madam Chairwoman.
Our next witness is John Mickelson. Mr. Mickelson is a co-found-
er and managing partner of Midwest Growth Partners in West Des
Moines, Iowa. Midwest Growth Partners is a private equity fund
management firm that specializes in assisting and investing in un-
derserved rural markets, including businesses in the food and agri-
culture, manufacturing, and distribution and logistics industries.
Mr. Mickelson has an extensive background in investing and fi-
nance and has an undergraduate degree, law degree, and MBA
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
5
from the University of Iowa and was also a Member of the school’s
Division I football team.
I don’t know how they did that week, but maybe we will—or that
year, but maybe we will get into it, while you were there.
Additionally, Mr. Mickelson is a former city councilman in West
Des Moines, Iowa. I am looking to learning more about the stra-
tegic rural investing that Mr. Mickelson brings to his rural commu-
nity.
I want to thank again all the witnesses for joining us today, for
taking the time away from your busy schedules.
And I yield back.
Chairwoman DAVIDS. Thank you, Mr. Meuser.
And I appreciate all of you being here today.
And, with that, I will turn it over—Ms. Huels, you are recognized
for 5 minutes for your testimony.
STATEMENTS OF HOLLY HUELS, FOUNDER AND MANAGING
PARTNER, HOLLEWAY CAPITAL PARTNERS, LLC, ST. LOUIS,
MO; CARMEN PALAFOX, PARTNER, MILA CAPITAL,
CHATSWORTH, CA; AND JOHN MICKELSON, MANAGING
PARTNER, MIDWEST GROWTH PARTNERS, WEST DES
MOINES, IA
STATEMENT OF HOLLY HUELS
Ms. HUELS. Thank you, Subcommittee Chair Davids, Ranking
Member Meuser, and Members of the Subcommittee.
My name is Holly Huels, founder and managing partner of
Holleway Capital Partners. We are a small-business investment
company headquartered in St. Louis, Missouri, with an office in
Kansas City, Kansas. I am also a former Chairwoman of the Small
Business Investor Alliance, a national organization that represents
small-business funds and their investors in the lower-middle mar-
ket.
Holleway Capital focuses on investing in small manufacturers
and distributors throughout the Midwest, High Plains, Rocky
Mountains, and Southern regions of the United States. Our invest-
ment strategy targets small businesses with annual sales between
$10 million and $75 million.
Holleway specializes in working with small-business owners who
want to sell, most commonly because they want to retire. We help
these sellers align with buyer management teams to tailor an own-
ership transition and investment structure to each company’s
needs, market position, and future opportunity.
With Holleway as a partner, the business has the capital and
management to update technology, purchase capital equipment,
and expand into new markets. Without our capital, many of these
businesses would simply shut down or have their operations con-
solidated into another company.
We are proud that we help these businesses remain independent,
modernize, grow, and build a brighter future for their employees
and communities. I have highlighted the success of two of our re-
cent SBIC portfolio company investments in my written statement.
I am happy to report that the SBIC program is fulfilling its mis-
sion. As this Subcommittee knows, the program had several years
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
6
of suboptimal management, but, thanks in part to bipartisan con-
gressional oversight, this SBIC program is helping more small
businesses than ever before. On behalf of the SBICs across the na-
tion, thank you for your critical and ongoing oversight role.
The SBIC program, administered by the U.S. Small Business Ad-
ministration, is largely working well. But I would like to point out,
as with any federal program, targeted improvements can help
strengthen the program’s ability to expand the benefits of free en-
terprise to more people and places.
First, SBA’s SBIC information technology needs an investment
upgrade. This is a $34 billion program essentially running on
Microsoft Office software. SBA’s limited IT technology cripples pro-
ductivity and creates unnecessary taxpayer risk. SBA has an in-
credible amount of data but cannot convert it into useful informa-
tion to make informed decisions or to educate Congress.
Second, SBIC’s primary regulators are called Operations Ana-
lysts, who are supposed to carry 10 to 12 SBIC funds per analyst.
Staffing shortages currently have individual Analysts juggling as
many as 50 SBICs. Regulated entities do not normally ask for more
regulators, but we are. SBA needs the resources, both human and
technological, to ensure SBA can run this successful program, pro-
vide necessary oversight, and remain responsive.
Last, small businesses need access to more equity capital because
it is the most patient form of capital. It is also a critical resource
for domestic small businesses to keep U.S. businesses competitive
and to strengthen supply chains. If the SBA had the tools to allow
SBIC equity investment, this would be an incredible advantage to
small businesses experiencing high growth or surviving the bumps
that they face.
I would also like to add that, since I last testified before this
Committee in 2009, there has been a meaningful increase in
women SBIC fund managers. Our trade association has 11 women
on the board. And, while I was the first to Chair the board, several
women have also served as Chair behind me, and several more are
in line to serve as Chair in the years to come. Thanks to Congress,
the SBIC program is serving as a great program for women fund
managers to thrive.
Thank you for the opportunity to testify on the state of the SBIC
program and offer recommendations to help maintain the pro-
gram’s critical role to provide much-needed capital to domestic
small businesses.
I am happy to answer any questions you may have.
Chairwoman DAVIDS. Thank you, Ms. Huels.
And the Chair now recognizes Ms. Palafox for 5 minutes.
STATEMENT OF CARMEN PALAFOX
Ms. PALAFOX. I appreciate the opportunity to testify before you
today.
I dedicate a lot of time and effort to expanding economic growth
and capital access. I founded 2045 Ventures in 2020 to fill per-
sistent gaps in the market for underrepresented founders and in-
vest in sectors that will drive our future, including climate tech,
fintech, and health tech.
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
7
I serve on the National Venture Capital Association Board of Di-
rectors, and I am a founding board Member of LatinxVC. As a
founding board Member at LatinxVC, I focus on creating opportuni-
ties for emerging fund managers like me.
I was born and raised in San Diego, California, and moved to Los
Angeles to study economics at the University of Southern Cali-
fornia. I spent 15 years at Dimensional Fund Advisors, a global
asset management firm, and gained deep appreciation for capital
markets.
I left Dimensional in 2011 to pursue an executive MBA at Berke-
ley Haas. There, I was immersed in venture capital and startups
and recognized the industry’s increasing importance to our econ-
omy.
After graduating from Berkeley Haas in 2014, I wanted to launch
a fund to invest in underrepresented founders, but I was too early.
The ecosystem supporting women and underrepresented founders
and emerging managers wasn’t as robust as it is today.
So, instead, I joined two business partners and launched a ven-
ture capital fund, an accelerator, and innovation lab to invest in
hardware technology startups. Our firm reached entrepreneurs in
70 countries and 33 States. We invested in 22 startups across sec-
tors including ed tech, digital therapeutics, climate tech, and space
tech. And some of our startups were beneficiaries of government
grants and R&D scale-up manufacturing.
In October 2020, I launched 2045 Capital to fill gaps in the mar-
ket. 2045’s thesis is that diverse teams outperform, a view sup-
ported by data. The data shows that startups with ethnically di-
verse teams return 30 percent more capital to investors and
startups with at least one female founder outperform all-male
teams by 63 percent. And a quarter of all our U.S. science and
technology firms are founded by immigrants. So 2045’s objective is
to invest in startups where at least one founder is a woman, an im-
migrant, or a founder of color.
So, in terms of the state of venture capital, it continues to be a
powerful industry. The most recent third-quarter 2021 PitchBook
and NVCA Venture Monitor reports that venture-capital-backed
startups are at the top of the public markets. VC-backed IPOs ac-
counted for more than two-thirds of the total U.S. listings year to
date. In addition, 2021 is on a track record for another breaking
year for venture investment, exit activity, and fundraising, with a
total of $238.7 billion.
The VC ecosystem is thriving for most, but not for women and
minorities. This inequity is unsustainable when you consider the
changing demographics of our nation. The Census predicts that by
2045 there won’t be a racial majority in the United States, which
is the case in five States today. Already, there isn’t a racial major-
ity for youth under 18, and 25 percent of Gen Z are Latinx.
In L.A., where I reside, 45 percent of the population is Latinx,
but only 2 percent of VC capital investment goes to Black female
founders and 3 percent to Latina founders. Furthermore, there is
only less than 1 percent of female check-writers like myself in Los
Angeles.
So programs such as SBIC can help women and underrep-
resented fund managers grow their presence, activate more invest-
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
8
ment into startups, and generate other benefits to society. Women
and underrepresented managers are more than two times as likely
to invest in female and underrepresented fund entrepreneurs——
Chairwoman DAVIDS. Thank you. Thank you, Ms. Palafox. We
will return to you for questions after we yield to Mr. Mickelson for
5 minutes.
STATEMENT OF JOHN MICKELSON
Mr. MICKELSON. Thank you, Chairwoman and Ranking Mem-
ber, and thank you, distinguished Members of the Subcommittee.
My name is John Mickelson, and I am the co-founder and man-
aging partner of Midwest Growth Partners, located in West Des
Moines, Iowa, with an additional office in Omaha, Nebraska. Mid-
west Growth Partners is a USDA-licensed Rural Business Invest-
ment Company, or an RBIC, and we raise dollars from the private
sector to make succession planning and growth investments in food
and agricultural, manufacturing, and distribution businesses in
rural communities across the U.S.
Like the SBIC program, RBICs make investments in small busi-
nesses where institutional capital is scarce, particularly in non-
coastal communities. Our investors include Members of the Farm
Credit System, rural electric co-ops, ag trade organizations such as
the Iowa Corn Growers, and commercial banks.
Starting with 7 after our first acquisition in 2014, Midwest
Growth Partners’ portfolio companies have over 2,600 employees
today, employed in and often living in rural communities. These
jobs all pay above the living wage, provide benefits, and generated
more than $7 million in federal, local, and state withholding taxes
in 2020.
While we are proud of the impact these portfolio company jobs
provide, we are just as proud knowing that many of the jobs pro-
vide off-farm income, allowing one spouse to remain farming while
the other spouse secures benefits for the family.
Since inception, Midwest Growth Partners has grown the em-
ployment at its portfolio companies by 25 percent, on average, from
the date of its original investment by making 19 investments in
rural areas totaling more than $100 million of much-needed private
capital.
A real-life example of Midwest Growth Partners’ capital at work
is our investment in Fast Ag Solutions, located in Windom, Min-
nesota, population 4,400. Fast Ag manufacturers sprayers and liq-
uid fertilizer applicators. Midwest Growth Partners partnered with
the Fast Ag management team to purchase the company in the fall
of 2020, and we have grown full-time employment from 52 to 73
since then.
This type of economic development in rural areas would not be
possible without programs like the RBIC, but more can be done.
Examples include: providing support for the Rural Capital Access
Act, which would enable RBICs to utilize leftovers funds from the
SBIC program; the creation of a Micro-SBIC license, which will cre-
ate a more inclusive pool of talented entrepreneurs to invest in un-
derserved communities; the creation of an SBIC working group to
increase the number of SBIC applicants, specifically those located
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
9
in underserved communities and underlicensed States; and, finally,
the creation of an SBA Office of Rural Affairs.
Unfortunately, all the success that has been made and the prom-
ise of the critical programs mentioned above could be muted be-
cause of current issues facing small businesses. PPP was a critical
lifeline during the COVID-19 pandemic in 2020, but now busi-
nesses are facing a new set of challenges in 2021.
Our portfolio companies are facing 30- to 40-percent price in-
creases in raw materials used to make goods, and that is if they
can even secure the materials at all. Supply-chain constraints are
having a direct impact on sales and profit margins, which constrict
the ability to reinvest in our business and hire more employees.
The prospect of higher taxes of all forms is delaying business de-
cisions necessary for long-term business planning. Midwest Growth
Partners has experienced these challenges daily in the work we do
in rural communities with small businesses.
On the passthrough income tax side, these proposals aren’t im-
pacting only billionaires but small-business owners, who, when
faced with the prospect of a tax increase, will forego the hiring of
additional workers, even one or two, or an investment in capital
goods, such as something as simple as a forklift.
Possible increases of capital gains rates or to the 1202 Code have
already created unnatural business outcomes, as owners and inves-
tors accelerate or indefinitely delay decisions related to their per-
sonal succession planning and growth investment strategy. Possible
changes to the carried-interest model will disincentivize fund man-
agers from making investments in all areas, including rural and
other underserved communities.
Businesses in rural areas, and small businesses generally, al-
ready face a scarcity of capital access, negatively impacting the
lives of millions of Americans. As we near the hopeful end of the
COVID-19 pandemic, these businesses are optimistic to grow and
create prosperity for their employees and communities.
Small and rural business owners and investors are used to facing
headwinds. No day is ever easy. But adding additional regulatory
and cost burdens is not in their best interest and definitely not in
the best interest of the communities they operate in and the mil-
lions of employees who provide goods and services which make our
country the land of opportunity.
Thank you, and I would welcome any questions that you have.
Chairwoman DAVIDS. Thank you, Mr. Mickelson.
I will now recognize myself for 5 minutes for my first question.
Ms. Huels, your fund invests primarily in manufacturing compa-
nies throughout the Midwest, including from one of your offices in
Overland Park, Kansas, which is in the Third District.
This Committee passed a section of the Build Back—I can take
my mask off. This Committee passed a section of the Build Back
Better Act which included funds for the SBIC program to provide
capital for underserved markets and small manufacturers.
Can you speak to the challenges that small manufacturers face
in accessing capital and what more the SBIC program could be
doing for these small businesses? I know you made a few rec-
ommendations related to information technology, the number of op-
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
10
erations analysts and equity investments, and I would be curious
if you want to go into any more detail about that.
Ms. HUELS. Well, we invest primarily, as you said, in manufac-
turers and distributors in the middle part of the country, and we
really see two broad trends.
Companies are coming back from COVID, and they are in need
of growth capital to respond to the marketplace. And, as Mr.
Mickelson said, there are challenges with regard to that with em-
ployees and supply chain.
But then there is also this acceleration of baby boomers who are
late in their career and they are looking for what they are going
to do with their business in order to retire.
So we are managing the portfolio companies that we have, as
well as the substantial amount of need for capital, which is—you
know, there is a very strong demand for capital in the market for
both growth and for transition as people are trying to get in front
of any kind of capital gains tax change that may happen in the fu-
ture.
I hope that answers your question.
Chairwoman DAVIDS. Yeah.
And then I am curious—just a quick followup, and then I will
move on to the next question—about the ways that—because the
pandemic has exacerbated various issues, when we are thinking
about some of the considerations, whether it is the capital gains,
this sort of thing, how has the pandemic, like, either highlighted
or maybe brought to the forefront the way that folks are thinking
about that?
Ms. HUELS. Well, the pandemic—I agree with Mr. Mickelson,
the PPP was an incredible resource to keep our companies and
many, many companies viable through the pandemic. Now that
they have survived that, the next big issue is the supply chain and
lack of talent in the market, lack of employees in the marketplace.
So I would say probably the biggest struggle of most of our com-
panies at this point—and we have companies in places like Wich-
ita, Kansas, and Montgomery, Alabama. These are small-market-
type businesses that are really struggling to, you know, fix supply-
chain issues and find talent, employees.
Chairwoman DAVIDS. Okay. I appreciate that.
And then I guess my next question really has to do with—you
know, we held a hearing in the last Congress to review the man-
agement of the SBIC program and had heard a lot of concerns
about delayed processing and inefficiency. And I am curious if you
have seen in the last 2 years any improvements or what your expe-
rience and what you have seen with that program.
Ms. HUELS. Yes, candidly, as you are aware, the program was
struggling for several years. And I can say that the program is
back. The management is excellent. The career folks at the SBA
are excellent and do a fantastic job. And the management of SBA
is doing—or the management of the OII and the SBIC program are
in a great place now. Really happy with the improvements. So
thank you.
Chairwoman DAVIDS. I am glad to hear that, and just would
also encourage you and other folks who are participating in the
SBIC program to, you know, keep the lines of communication open.
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
11
Let us know if you continue to see issues with the program, be-
cause we want to make sure it is running well.
And, with that, I will yield and recognize the Ranking Member,
Mr. Meuser, for 5 minutes.
Mr. MEUSER. Thank you again, Chair Davids.
Thanks again to our witnesses.
So what I would like to try to get through in my 5 minutes here
is, what can we do for you? And then let’s talk about what you can
do for us, as far as legislation or strengthening the SBA, the SBIC,
the RBIC as well, overall.
So, Mr. Mickelson, I will start with you. You stated that there
are various businesses that are underserved by institutional cap-
ital. You initially thought there would be 100 opportunities, and
turned out there were many more that you are evaluating, 230 or
so, and you might have the capacity that there may be far more
than that.
So let’s just talk about what—and Ms. Huels mentioned about
the IT systems, which I know usually government agencies could
use some real upgrades there.
So give me a little bit more on what you would need from the
SBIC or, Mr. Mickelson, in your case, the RBIC that would be help-
ful to you—and, Ms. Huels, I am going to follow up with you, as
well, on the same question—for the rural communities.
Mr. MICKELSON. Yeah, thank you, Ranking Member.
As you mentioned, when we got started in 2013, we told our in-
vestors that we hoped to see 100 opportunities a year, because they
were concerned in rural areas there wouldn’t be enough investment
opportunities. In the first full year of operation, we saw over 230.
And, for this year, 2021, we will evaluate over 800 investment op-
portunities.
And so there are a ton of wonderful businesses out in the rural
areas. And because capital is concentrated in places other than
those rural areas, it is a tremendous opportunity for us and other
participants in the RBIC program. And I think there should be
more funds. When we went through our licensing process for the
RBIC in 2018, we were the fourth fund to fully go through the
process, and now I believe there are 10, but there could be several
more.
So one of the things that I think would be helpful for RBICs
would be additional support. Similar to what we have heard on the
SBA side, the USDA has wonderful people that are working there
and overseeing the program. However, there are not many of them.
And as I think there is more need for capital in these rural areas,
I think there will need to be more oversight and funding for that
program.
I mentioned in my remarks the Rural Capital Access Act. Right
now, the RBIC program does not have access to leverage, like the
SBIC program does. And if a fund like us had that tool, we could
deploy additional capital into rural markets. And, as I have stated
earlier, there is definitely a need for it, and there are not a lot of
institutional capital providers like us that are focused on that area.
Mr. MEUSER. You mentioned to me earlier it is successful, it is
working out well, your returns are pretty good—or very—you know,
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
12
what you anticipated, because you are a smart investor. And the
SBIC——
Mr. MICKELSON. Thank you.
Mr. MEUSER. Well, yeah. The RBIC—you are as good as your
last deal, as it says, right? The RBIC is a good partner for you. Do
you focus on startups? I mean, the risk factor would be a little bit
more there, but give me 20 seconds on how you relate with
startups.
Mr. MICKELSON. Yeah, yeah, we don’t. We focus on food and
agriculture, manufacturing, and distribution. Part of that is our
collective background as a management team, and then part of it
is just the part of the country that we are in. And so, in these rural
markets, you don’t see a lot of startup tech funds like you would
see on the coasts.
Mr. MEUSER. Okay.
Mr. MICKELSON. And so we are well-suited, uniquely qualified
to chase the market that we chase. We would not be as well-suited
to go after the technology companies.
Mr. MEUSER. Okay.
Ms. Huels, same question, and maybe you could answer some-
thing related to startups. We are looking at how we can expand,
right, in a market-oriented, relatively risk-free manner that your
organizations seek, right? So, please, Ms. Huels, if you would re-
spond.
Ms. HUELS. Yeah, I think the SBA does a pretty good job with
dispersion of SBICs and diversity, but it is always something that
needs focus, needs improvement, as more fund managers gain ex-
perience within a fund or in some other job experience and to be
able to bring that into a fund management.
I think there needs to be continued focused from the SBA to find
small fund managers in geographies that are less served than the
large markets. And I know it is definitely part of their criteria that
they look at, as new fund managers are coming into the market.
But supporting emerging fund managers, you know, is definitely—
you know, there is a risk and a reward to that, and the SBA can
manage that risk by allowing smaller, diverse management teams
into the program and metering out the amount of leverage that
they give those fund managers as they create a track record within
the SBIC program.
You know, they have to be able to raise private capital, but to
be able to supplement that with SBA debentures is a very powerful
way to get capital to small markets, especially if the investor is in
that small market. They have a tendency, as we do as well, to——
Mr. MEUSER. Excuse me. Thank you, Ms. Huels. We ran out of
time, but we will——
Ms. HUELS. Okay. Sorry.
Mr. MEUSER.—cover this, perhaps, later.
Thank you, Madam Chair. I yield back.
Chairwoman DAVIDS. Thank you.
The gentleman yields back.
The Chair will now recognize Ms. Newman.
Ms. NEWMAN. Thank you, Madam Chair, and thank you, Rank-
ing Member, for putting this on today.
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
13
So I would like to ask a couple questions. One is to Ms. Palafox
and then to Ms. Huels.
So, Ms. Palafox, thank you so much for your data in your testi-
mony. I would like to share one of your pieces of testimony, be-
cause it is very concerning to me, and I also experienced it.
I will raise the analysis from reports that 64 percent of VC firms
in the U.S. with more than $25 million in assets under manage-
ment have zero—I will quote again—zero female check-writers and,
of the women that became investors in 2020, only one self-reporting
as African American and zero as Latinx.
So, quick aside: I twice have been involved in startups where, in
fact, there was—on the folks that were assessing our businesses,
there was not one female and not one person of color. And I pitched
my business to over 75 VCs, PE, and early-stage investors and an-
gels. So I can attest to that personally.
So my question for you is, what can Congress do to change that
horrifying statistic?
Ms. PALAFOX. Thank you for that question. I represent 0.1 per-
cent of the whole market as a Latina investor, and so I do recog-
nize the issue. It is a big problem. And 2020, as you mentioned,
was a backslide for many of us, as a lot of institutional investors
fled to traditional names.
I do invest in startups. I invest early. I invest pre-revenue, pre-
product. I am willing to take those risks. And I don’t do so just geo-
graphically in California; I do that across the United States.
One of my recommendations for the program is that you focus on
outcomes. So, if you want to move the needle in terms of having
more representation of women and minorities, then you have to
focus there and be intentional about it.
I would say that you also have to just take out a lot of the re-
quirements that prevent, for example, solo managers for accessing
these capital—for SBIC. There are many female solo managers.
SheVC has done a great job of highlighting managers, female man-
agers, that start their own funds independently. Often, these man-
agers raise $5 million to $25 million in private capital. They have
diverse backgrounds, coming from investment banking or, like me,
asset management, and they invest with intention.
Ms. NEWMAN. That is fantastic.
Do you have any other ideas about how we can bring more not
just female and people-of-color investors into the fold but how we
can make that known to them?
So things like raising the cap on some of the funds, I think, helps
a lot, but what do you think are some ways that we can work with
this community to make sure that they have equal representation
in the investment community and through the SBIC?
Ms. PALAFOX. Right. So, since 2015, there are many organiza-
tions that support female and underrepresented managers. I have
named and listed many of them in my written testimony. These in-
clude All Raise, which is focused on female founders and funders;
Women in VC, which was established in 2015; Transact, which is
a group of female general partners established in 2018; LatinxVC;
BLCK VC; and Venture Forward, which is a part of the NVCA.
Ms. NEWMAN. Outstanding. Thank you for your very helpful
answer.
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
14
And then I will turn my attention to Ms. Huels.
A similar question to you, but I will focus it on your organization.
So, understanding you work directly with SBIC and can cer-
tainly—we know some of the things that we have to do, but what
could your organization do to make sure that not only there are
more investors that are women and people of color in your pro-
grams but also that women and people of color are recipients of
your investments?
Ms. HUELS. Well, I have been active in the SBIC program for
over 25 years, and when I first joined the SBIC program, I was
with a different fund, and I am proud to say that I gained a lot
of experience during my time with that fund. But I used that expe-
rience and relationships, and a former partner and I broke away
to be able to form a women-owned SBIC, but we had to get that
experience to get into the program. It is a long track—you know,
it took a long time to get a track record.
So I think one thing that could be done is to have the SBA con-
sider investors like myself but maybe with a slightly shorter track
record to get more entrants into the program, people of color and
women.
And I would say, what my fund specifically is doing——
Ms. NEWMAN. Thank you, Ms. Huels. I am so sorry.
Ms. HUELS. Okay, that is fine.
Ms. NEWMAN. I yield back.
Sorry, but thank you very much for your answer, Ms. Huels.
Ms. HUELS. No problem.
Chairwoman DAVIDS. Thank you.
The gentlelady yields back.
And the Chair now recognizes Rep. Garbarino from New York for
5 minutes.
Mr. GARBARINO. Thank you, Chairwoman, and thank you,
Ranking Member, for hosting this hearing.
Thank you to the witnesses for being here.
My first question is for Ms. Huels.
I was reading through your testimony, and you state that your
firm specializes in working with small-business owners that are in-
terested in selling. Can you expand on this?
Ms. HUELS. Sure. Businesses go through a continuum. They
start with Carmen and early-stage investing and getting a com-
pany started. And then, you know, we are focused on manufac-
turing and distribution companies; they go through a lifecycle of
growth and meeting market demands. But, ultimately, an owner or
founder or a couple of founders have to decide what they are going
to do with that business at the end of their career, and that is real-
ly where we can step in.
That owner has a couple of choices. They can liquidate that in-
vestment and turn their life’s work into cash by selling the assets.
They could sell it to a corporate buyer, who may or may not leave
the company in their current location; it may get absorbed into an-
other facility. Or they can work with their management team to
create a transition to keep the company in its current location,
keep the employees, and find new markets to grow that business.
And that is really when Holleway steps in, to partner with those
management teams to give the capital to the retiring owner and
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
15
allow, you know, growth in the business, purchase of capital equip-
ment, and growth into new markets where they might not have
been able to go with their former owner.
So there are needs for capital across the continuum. We, because
of our background and experience, serve the later-stage-type busi-
nesses that are going through that kind of transition.
Mr. GARBARINO. That is fascinating. I appreciate your answer
there.
And just turning to something else, you said you have been with
SBIC or you have been part of the program for over 25 years now.
How do you think it is running now compared to—you know, there
have been some hiccups along the way, but, I mean, is it working
well? What could we do better, if we are not doing something bet-
ter?
Ms. HUELS. Well, I will just take the time to say that the career
staff is excellent. They do a fantastic job working with the fund
managers, licensing new funds. You know, the career staff does
great.
There have been periods of time where leadership of the office
has been fantastic, and then there have been times where it has
been suboptimal, as I said. And, thankfully, right now we are in
a period where the program is really running strong, I am happy
to say.
Mr. GARBARINO. So is this something that we should just leave
alone, since it is running well now, and just let it take its course?
Ms. HUELS. Well, new licensing is running well. There is defi-
nitely room for—a need for new or additional operations analysts.
I think they are swamped. The number of new fund managers and
just the staffing is short-staffed. I definitely think that is some-
thing that could be fixed.
As I said, the technology element is definitely something that
needs some focus and investment. You know, the SBA has a lot of
portfolio companies under their domain, and I think being able to
gather data would, frankly, give folks like yourself more informa-
tion about how many companies and how successful the program
is. It is hard for them to gather that data using their current sys-
tems.
Mr. GARBARINO. I appreciate that.
I can testify, myself, to the staffing level. I had a breakfast—I
think it is just short everywhere. I had a breakfast this morning
with a bunch of equipment salesmen, and they were just saying,
between the supply chain and staffing, you know, it is just very
hard for them to grow. And they said, even if supply-chain prob-
lems didn’t exist, they wouldn’t have the staff to take care of it.
Are you hearing that from your small businesses? You discussed
staffing, supply-chain issues, and, I guess, costs as well. And if
those are problems, you know, would we want to add new taxes
onto that now? I know there are discussions about possible new
taxes coming on businesses. You know, would that add to part of
the problem that we are seeing right now with some of the growth
of small businesses?
Ms. HUELS. Certainly raising taxes discourages investment into
long-term, illiquid investments, which is what we do—long-term, il-
liquid investments. And capital gains rates increasing could deter,
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
16
will deter, investors from investing in long-term asset classes like
ours for sure.
Mr. GARBARINO. Yeah.
Ms. HUELS. And in terms of the employees, employees and sup-
ply chain are the two things we hear from our portfolio companies
every day.
Mr. GARBARINO. I appreciate your answers.
And I only have 10 seconds left, so I yield back, Madam Chair.
Chairwoman DAVIDS. Thank you.
The gentleman yields back.
The Chair will now recognize Ms. Chu from California for 5 min-
utes.
Ms. CHU. Ms. Huels, thank you so much for mentioning my bi-
partisan legislation, the Investing in Main Street Act, which has
been favorably reported by this Committee for the past three Con-
gresses and has actually passed out of the House in past Con-
gresses.
And what it does is increasing the amount of capital that could
be invested in the SBICs, particularly from banks. Under current
law, the Small Business Investment Act of 1958 prohibits SBICs
from taking investments from banks that have over 5 percent of
their capital invested in SBICs already.
But bank regulations already permit the exact same institutions
to invest up to 15 percent of their capital and surplus into SBICs.
So this bill would simply align the outdated small-business invest-
ing law with current banking law and unlock up to three times as
much investment capital for SBICs at no additional cost.
So what impact would this policy change have on the SBIC pro-
gram and institutions such as yours?
Ms. HUELS. Representative Chu, I agree with you, there is a
regulatory mismatch between the banking regulations and the
SBIC regulations. I think bringing them into parity would be sup-
ported and would definitely bring more capital into the market—
it would provide clarity to investors of how much they can invest
into SBIC funds, which would allow more capital to flow to fund
managers, which would ultimately allow more capital to go to small
business.
I think it is definitely a regulatory mismatch that should be
fixed. Thank you for supporting it.
Ms. CHU. Thank you so much.
Ms. Palafox, your story is so impressive. And as a Representative
of the Los Angeles area myself, I am so glad that you came before
the Committee today to tell your story.
As you know, the SBIC program has historically struggled to
reach underserved businesses and to license funds operated by
women and people of color. CRS research finds that SBICs provide
about 5 percent of their total funding to minority-owned busi-
nesses, about 3 percent to women-owned businesses, and less than
1 percent to veteran-owned small businesses.
These low numbers led SBA to have the Library of Congress re-
search this issue, and they found that racially diverse SBICs make
more investments in minority-led and minority-owned portfolio
companies, as well as in women-led and women-owned businesses,
than non-racially-diverse SBICs.
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
17
So, to address the lagging diversity in the SBIC program, the
House Small Business Committee’s section of the Build Back Bet-
ter Act includes almost $10 billion in investments in the SBIC pro-
gram, largely to ensure that it reaches more underserved busi-
nesses.
It would establish a new Venture SBIC program to provide cap-
ital to underserved markets and small manufacturers, create an
Emerging Managers Program to help less experienced fund man-
agers get an SBA license, and implement a new MicroCap SBIC li-
cense subprogram to increase SBIC diversity.
So can you talk about the challenges that somebody from an un-
derserved group would have to get this venture capital and how
these particular kinds of programs in the Build Back Better Act
could address this?
Ms. PALAFOX. Thank you for that question.
You know, Los Angeles is the third-largest tech ecosystem in the
United States, but, as I mentioned, it is not working for women
and underrepresented minorities, and that is because there is this
funder-founder gap. We don’t have enough women check-writers.
We don’t have enough minority check-writers.
And so we do need to act quickly. We need to issue licenses
quickly, and we need to allocate the billions of dollars that you talk
about. As I mentioned in my statement, $238 billion was invested
in venture capital year to date. That is just year to date.
So, in order to have meaningful progress, we need to move quick-
ly. We need to work with organizations that are supporting women
and emerging managers. There are so many out there now, today,
that can be helpful in this process to reach these communities.
I, myself, am considered a first-time manager, but I have in-
vested in over 25 startups at day one. These companies have gone
on to raise over $210 million and are doing meaningful work for
our country.
Ms. CHU. Thank you.
I yield back.
Chairwoman DAVIDS. Thank you.
The gentlelady yields back.
The Chair will now recognize Rep. Van Duyne, the Ranking
Member of the Subcommittee on Oversight, Investigations, and
Regulations, for 5 minutes.
Ms. VAN DUYNE. Thank you very much. I really appreciate you
having this hearing today.
I do have a question for Mr. John Mickelson.
First of all, I want to thank you for your work as a city council
Member. I, too, served on city council for 6 years. I think you will
agree it is one of the hardest jobs that we have had but also one
of the most personal and meaningful. As a result, I am sure you
had opportunities to talk to business owners and employees in your
city to figure out what their needs are and can tell about that first-
hand.
One of the SBIC program goals is to improve and stimulate the
national economy and the small-business segment in particular. I
would be remiss if, while discussing how to stimulate our economy,
we didn’t touch on the current economic situation for small busi-
nesses.
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
18
Record inflation and hiring shortages are severely impacting our
small businesses. NFIB reports that 51 percent of small businesses
have employment openings that they can’t fill and 90 percent of
small businesses are experiencing supply-chain troubles.
And this doesn’t make light of the fact that small businesses are
also awaiting potential tax hikes and increased regulatory burdens
that this administration is pushing. So, when considering the suc-
cess of small businesses, do you find that this current business en-
vironment, primarily due to an overactive administration, is more
challenging than it needs to be?
Mr. MICKELSON. Thank you, Congresswoman, for the question.
And thank you for your comments on the city council. It was a
good, wonderful time in my life.
Yeah, there is no question that the current challenges facing
small businesses—as I mentioned in my remarks, inflation, a hir-
ing shortage, the potential for a vaccine mandate which will impact
companies with more than 100 employees, and then uncertainty
around tax, both for passthrough businesses but then also on the
capital gains side—is really just creating uncertainty. And uncer-
tainty is bad when planning a business.
So, this time of year, all of our businesses are going through a
budget process to plan for 2022 and what kind of investments they
can make in people and in capital goods. And because so many of
these things are sort of in flux, it is very hard to plan. And that
makes it very inefficient to run and operate a business.
Ms. VAN DUYNE. Okay. I appreciate that.
I have spoken to businesses of all sizes, and a common concern
that they have shared with me is the upcoming vaccine mandates
that are being imposed by the Biden administration.
While we are experiencing, as I just mentioned the numbers, a
significant labor crisis, how do you think that the vaccine mandate
will affect small businesses’ ability to be able to manage their cur-
rent staff, to hire, and to grow?
Mr. MICKELSON. Yeah. Thank you for the question.
You know, in rural communities and predominantly blue-collar
environments, there is a lot of hesitancy as it relates to getting the
vaccine. And, whether that is right or wrong, that is just the facts
that we are dealing with today.
And I know several business owners, including our portfolio com-
panies, that are concerned, should this pass—I think it was an-
nounced on September 9, and we haven’t been given a lot of guid-
ance since then—but, should this become law, they will have up to
50 percent of their workforce leave and go find jobs elsewhere.
And so the business owners are concerned that the obligations
that they have made to fulfill contracts for things that they have
agreed to build or to do in their business for customers they won’t
be able to do, because they just simply won’t have the people there
to do that.
So, at a minimum, providing some further information, some
guidance for businesses, would be extremely helpful for small busi-
nesses.
Ms. VAN DUYNE. In representing a rural district, I have had a
lot of opportunities to speak with folks who actually are in the
shipping area. And I am assuming a lot of your small businesses
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
19
are relying on that. Part of this vaccine mandate is going to defi-
nitely affect pilots of shipping for supplies.
So, given the fact that we already have such a supply-chain
shortage now and issues with that, do you see the vaccine mandate
being able to hurt small businesses, specifically in the rural areas,
because of the hiccup in transportation?
Mr. MICKELSON. Yes. The definition of ‘‘social distancing’’
would be being by yourself in a semi truck, hauling goods and serv-
ices—or hauling goods for customers.
And so I know that many of these trucking companies have more
than 100 drivers and they have a chronic shortage of drivers. And
so, to the extent that they lose, you know, up to half of those driv-
ers overnight, it will have catastrophic impacts on getting raw ma-
terials to manufacturers, like the ones that we are invested in, to
go and build further products.
Ms. VAN DUYNE. I appreciate that. And, actually, I think it was
UPS, as well, that said they were going to have a dramatic impact
on the commerce in the United States if this mandate were to go
through as well.
I appreciate your time.
And I yield back.
Chairwoman DAVIDS. Thank you.
The Chair now recognizes Rep. Bourdeaux for 5 minutes.
Ms. BOURDEAUX. Thank you, Chairwoman Davids and Rank-
ing Member Meuser.
In this committee, we frequently hear from small-business own-
ers and advocates dealing with issues of accessing capital. Access
to capital is very much at the top of the list in terms of issues that
I hear about when I talk to small businesses in my community.
And the SBIC program really does offer a vital source of capital for
these folks. In Georgia alone, SBICs have invested more than $1.7
billion in 332 small businesses since 2011.
Just a couple of questions.
Ms. Huels, I noticed that you got cut off when you were answer-
ing Congresswoman Newman’s questions about getting more
women involved in the SBIC program, and would love to take a
minute, just if you could flesh out some of your ideas there about
how to do that.
Ms. HUELS. Thank you for circling back. I appreciate that.
What I was really just going to say is, we, as a fund, have taken
the challenge of getting more women into the program very person-
ally. My partner and I have been—or, we have two analysts—we
are a firm of five people, and myself and our associate and senior
associate are all women. We are trying to, you know, use our little
corner of the world to try to support more women coming into the
program and getting experience.
As a check-writer, as Carmen has said, as a check-writer in the
program and becoming a qualified investor, you need to get experi-
ence hopefully early in your career. So we have done that by using
the two positions that we have, and both of them are women, and
we are really happy about that.
Ms. BOURDEAUX. Okay.
You mentioned something about, you know, should we think
about adjusting the standards; we want to make sure that women
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
20
are in there, that they are qualified, though, when they do it; and,
you know, shortening the time where, you know, women are, you
know, learning the ropes, as it were.
Is there anything like that that we should just think about?
Ms. HUELS. Well, there are qualified women out there who may
not have exact SBIC experience, and I think and I am hopeful that
the SBA takes that other experience into account as they are look-
ing at these emerging managers.
So to give someone a license either with no leverage or limited
leverage as they learn the program, make investments, and build
a track record, I think, is definitely something the SBA could look
at or look at further, if they are not already, to be able to manage
taxpayer risk by metering leverage, the amount of leverage, to the
smaller or emerging fund managers who may not have quite as
much experience.
Ms. BOURDEAUX. Okay. Thank you so much on that.
And then one other issue really of interest to me is around man-
ufacturers——
[Audio interruption.]
Sorry about that. We have all sorts of internet problems. I think
I froze there for a second.
Interested in the manufacturers. And you said about a third of
all program funds are invest in small manufacturers.
What makes the SBIC program well-suited to investing in manu-
facturing firms? And what can we do to make it more attractive to
continue and build those investments in the small manufacturers?
Ms. HUELS. Did you direct that question toward me? I am sorry.
Ms. BOURDEAUX. That was—yes, yes.
Ms. HUELS. Oh, okay.
Ms. BOURDEAUX. Sorry. It might have gotten lost in the gap.
Ms. HUELS. No, that is okay.
Yep, manufacturing companies are the heart of what we—our en-
tire investment thesis and strategy is around manufacturers and
distributors, in the middle part of the country specifically. We are,
as I mentioned, going to places like Wichita and Montgomery, Ala-
bama, and other, sort of, off-market places, and there are a lot of
really great manufacturing firms that are in this transition phase
that I have mentioned a couple of times.
And the way to support them with growth and capital is to allow
them to transition away from a retiring owner, give that person the
value of the business, but backing the management team to con-
tinue to operate in the locality that they are and grow with addi-
tional capital to support the additional markets. It is a really im-
portant source of capital that many SBIC fund managers——
But the definition of—we are a debenture fund, so we need inter-
est income, so these need to be cash-flowing, typically later-stage
business that have cash flow available to pay interest so that we
can pay the SBA debentures. So a more equity-oriented investment
needs a different kind of a tool than what the SBA structure is cur-
rently—debenture program is currently structured to support.
Ms. BOURDEAUX. And what would be a more equity-oriented-
type program? What would that look like?
Ms. HUELS. There are several equity-oriented programs on the,
you know, docket that are being looked at that would use the SBIC
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
21
infrastructure to make longer-term investments in companies that
may not yet have the cash flow available to serve this interest but
take a more equity-oriented longer term to give companies time to
create cash flow.
Ms. BOURDEAUX. Okay. Got it. Thank you so much.
And I yield back.
Chairwoman DAVIDS. Thank you.
The gentlewoman yields back.
Well, first of all, I want to say thank you to all of our witnesses
again for being here today. Your testimony is certainly critical as
our committee takes steps to enhance not just the SBIC program
but other areas where we can increase access to capital, particu-
larly in rural areas, as we heard today, and then, of course, build
on years of success that the SBIC program has seen.
This program is essential. It is providing billions of dollars to
small businesses seeking investment capital, facilitating economic
growth, and helping to create jobs in that process. And it is why
we have to address the program’s shortcomings and ensure that it
is operating as efficiently as possible as well.
You know, by making critical reforms, we can expand licensing
options to investors funding the 21st-century entrepreneurs, facili-
tating more small-business growth. And I am definitely looking for-
ward to collaborating with Committee Members to reach this goal.
And, with that said, I would ask unanimous consent that Mem-
bers have 5 legislative days to submit statements and supporting
materials for the record.
Without objection, so ordered.
And if there is no further business to come before the committee,
we are adjourned. Thank you.
[Whereupon, at 11:08 a.m., the Subcommittee was adjourned.]
SBD026 with DISTILLER
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 F:\DOCS\45938.TXT DEBBIE
22
APPENDIX
SBD026 with DISTILLER Insert offset folio 22 here 45938.001
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00026 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
23
SBD026 with DISTILLER Insert offset folio 23 here 45938.002
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00027 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
24
SBD026 with DISTILLER Insert offset folio 24 here 45938.003
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00028 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
25
SBD026 with DISTILLER Insert offset folio 25 here 45938.004
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00029 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
26
SBD026 with DISTILLER Insert offset folio 26 here 45938.005
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00030 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
27
SBD026 with DISTILLER Insert offset folio 31 here 45938.010
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00031 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
28
SBD026 with DISTILLER Insert offset folio 32 here 45938.011
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00032 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
29
SBD026 with DISTILLER Insert offset folio 33 here 45938.012
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00033 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
30
SBD026 with DISTILLER Insert offset folio 34 here 45938.013
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00034 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
31
SBD026 with DISTILLER Insert offset folio 35 here 45938.014
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00035 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
32
SBD026 with DISTILLER Insert offset folio 36 here 45938.015
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00036 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
33
SBD026 with DISTILLER Insert offset folio 37 here 45938.016
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00037 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
34
SBD026 with DISTILLER Insert offset folio 38 here 45938.017
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00038 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
35
SBD026 with DISTILLER Insert offset folio 39 here 45938.018
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00039 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
36
SBD026 with DISTILLER Insert offset folio 40 here 45938.019
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00040 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
37
SBD026 with DISTILLER Insert offset folio 41 here 45938.006
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00041 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
38
SBD026 with DISTILLER Insert offset folio 42 here 45938.007
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00042 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
39
SBD026 with DISTILLER Insert offset folio 43 here 45938.008
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00043 Fmt 6602 Sfmt 6602 F:\DOCS\45938.TXT DEBBIE
40
Æ
SBD026 with DISTILLER Insert offset folio 44 here 45938.009
VerDate Mar 15 2010 15:02 Feb 09, 2022 Jkt 000000 PO 00000 Frm 00044 Fmt 6602 Sfmt 6011 F:\DOCS\45938.TXT DEBBIE
File and source
- File
- CHRG-117hhrg45938.pdf
- Size
- 18,446,520 bytes
- SHA-256
- 38e317ffa367e2add9f12b159e41548488f75a7aa259d9ca3dfe36a812922f35
- Our copy
- CHRG-117hhrg45938.pdf
- Original
- www.govinfo.gov