Riverside looks to tap SBA for micro fund

The Riverside Co. hopes to raise more than half of the $250 million it’s targeting for its second micro-cap fund with the help of the U.S. Small Business Association’s Small Business Investment Co. program, according to a source with knowledge of the situation.

If successful, Riverside Micro-Cap Fund II will mark the firm’s first foray into investing alongside the SBIC program, which aims to boost liquidity for small businesses.

The firm has filed for a license with the SBA to establish an SBIC fund and is “far along” in the process, the source said. The goal is to raise $150 million in SBIC funding (the maximum allowed for a single vehicle) on top of the $100 million it intends to raise from limited partners, the source said.

The Riverside Co.’s first micro-cap fund, which closed in 2006, also raised $250 million, though it did so without matching funds from the SBA.

A regulatory filing with the Securities and Exchange Commission dated April 8 shows that the buyout shop had already raised $13.5 million from 16 investors toward a total offering amount of $90 million. An additional $10 million has been committed by the general partner, which will round out the non-government portion of the fund to an even $100 million if the full amount is raised, the source said.

No placement agent has been hired to assist with the effort.

Christine Croissant, managing director at Riverside responsible for marketing and investor relations, declined to comment for this story.

The firm earlier this month tapped into its new micro-cap fund for the first time to acquire the Mansell Group, an Atlanta-based software-as-a-service marketing platform. The purchase price of the deal was not disclosed, and it is unclear if any capital from the pending SBIC vehicle will be invested into the company, which counts AirTran Airways, the AARP and Payless Shoe Source among its customers.

Loren Schlachet, managing director, leads the micro-cap investment team, while Ron Sansom, also a managing director, heads up the strategy’s operating team.

When asked about the switch to the SBIC structure, the source said the firm saw it as a “cost effective avenue” to gain access to capital for companies that fall within the firm’s micro-cap sweet spot of $1 million to $5 million of EBITDA.

As a part of the Obama administration’s American Recovery and Reinvestment Act, SBA matching fund levels were increased to up to three times the total amount of private capital raised by an institution, with the maximum allowable amount for a single SBIC vehicle topping off at $150 million, up from a previous cap of $137.1 million.

As of April 7, the SBA, though its SBIC program, had investments in 311 private equity partnerships, according to its website. —Ari Nathanson