Random Ramblings

Last month, Sen. John Kerry wrote a letter to the Small Business Administration about what he views as an unacceptably low number of SBIC licenses awarded to woman-owned and minority-owned VC firms. For example, he notes that the percentage of minority firm financings dropped from around 20% in 2000 to around 10% in 2004. This matters, he argues, because the woman-owned and minority-owned VC firms are more likely to invest in woman-owned and minority-owned companies than would be the typical (read: white male) VC firm, and the SBIC program is partially intended to fill in the overall VC funding gap for woman-owned and minority-owned companies. He then goes on to ask SBA Administrator Hector Barreto a variety of questions, including a statistical request for the breakdown of licenses granted to women and minorities between 1998 and today.

There are a number of critiques that could be made about the Kerry letter. For example, is it fair to use 2000 as a statistical starting point, given that it was such an anomaly? Blogger Paul Kedrosky says no, although I don’t actually have much problem with it. Kerry is trying, in part, to compare presidential administrations, so 2000 is an appropriate comparison year. Plus, the percentage of women-owned and minority-owned firms shouldn’t vary too much from boom years to bust years, just the actual number of licenses granted (and the value of said licenses). For context, the percentage of minority-owned firm licenses increased twice and declined twice between 2001 and 2004.

There also is Kerry’s contention that VCs are more likely to invest in folks that look like themselves. I don’t buy this from an intellectual standpoint (VCs will invest in any smart person’s good idea), but I do believe that VCs – like everybody – are more likely to socialize with people who look like themselves, and the new boy network is very important in places like Silicon Valley.

The context to Kerry’s letter, of course, is that the SBA is practicing discrimination. This is similar to what Atlanta-based Diamond Ventures has been alleging in court documents over the past couple of years. I have absolutely no idea if it’s true. My gut says no, given its pointlessness and the fact that SBA and the SBIC program have several minorities in very high positions.

The best way to find out, in my estimation, is to compare a number of SBIC license requests from woman-owned and minority-owned firms to the numbers of licenses granted. This is where we get into trouble. SBA has refused to provide similar information to Diamond Ventures, with the firm telling me that SBA is fighting a court order to do just that. My own request for the info is pending (answer expected by end of day). SBA also hasn’t responded to a single one of Sen. Kerry’s questions in that Feb. 16 letter, even though Kerry is the ranking Democrat on the Senate Committee on Small Business and Entrepreneurship.

If the SBA believes it is innocent of discrimination, simply release the information. Secrecy can only lead to additional speculation.

*** I may be coming around slowly on the VC blogging phenomenon, particularly in that it gives entrepreneurs an insight into how their prospective investors think. That said, I’m not quite sure about the current value of Mobius Venture Capital’s blogging efforts (Brad Feld, et all). A lot of their postings are great informative reads, but Mobius isn’t actually making new investments right now. Its sixth fund exited its new investment period as of January 1, and it is currently using any remaining capital to make follow-ons for existing portfolio companies (Mobius VI had called down around 94% of committed capital through Q3 2005, but also has some recycling provisions). Heidi Roizen says to expect some Mobius fund-raising by Q4, but that start date has already been pushed back a number of times.

*** Bain Capital isn’t yet ready to launch a China-focused fund. That was the word from Bain’s Steve Pagliuca during last week’s Buyouts Symposium East, where he said that recent China-based hires were mostly to give the firm a greater China competency for future deals. It is open to China deals, but they'd come out of Bain's North America-focused fund (the one currently targeting up to $10 billion). As an interesting side note, last week was the first time I’d seen Pagliuca speak since a conference in Arizona two years ago. At the time, he said Bain had no interest in the Asian market.

*** LBO firms still have a shot at certain Knight-Ridder assets. Auction winner McClatchy plans to put 12 papers up for bid, including the San Jose Mercury News and Philadelphia Inquirer.

*** Finally, we have well over 200 current participants in our March Madness contest. The sign-up period ends tomorrow.