The U.S. Small Business Administration (SBA) is auctioning off venture stakes on the secondary market. The portfolio is comprised of defunct and troubled small VC firms that have defaulted on SBA-backed loans and their portfolio companies.
The total value of the portfolio companies the SBA is selling may be as much as $1 billion, according to a source familiar with the offer.
The SBA will sell either the entire portfolio or its stakes in the portfolio, whichever yields the greater offer, says Tom Morris, director of the SBA’s office of liquidations. Morris declined to comment on the value of the assets, saying that it could potentially limit offers that the SBA receives from secondary buyers.
Morris says that the decision to sell comes after the SBA’s Small Business Investment Corporation (SBIC) venture program found itself with a large number of debtor firms that defaulted on their loans. Morris says that the assets for sale date to the vintage years of the late 90s tech and dot-com bubble.
“You have good periods and less than good time periods,” he says. “The SBIC is very much a product of its vintage years.”
The agency is marketing the holdings in two fund groupings being offered through the placement agents Camelot Group of New York and Probitas Partners of San Francisco. The placement firms declined to comment on the sale.
Morris says that the timing of the transactions will largely be left to the two advisory firms but that he expects to have the assets sold by the end of the year.
Faced with heavy losses of almost $2 billion, the SBA’s Participating Securities program ran out of time to restructure last year. As a result, the SBA stopped licensing new SBIC venture firms. Representative Don Manzullo, an Illinois Republican and chairman of the House Small Business Committee, in July introduced the SBIC Participating Debenture Act, which would create a new program to replace the SBIC Participating Securities program. The proposed legislation is still in hearing mode.
About one-fifth of the venture firms in the United States are backed by the SBIC, based on data gathered by Thomson Venture Economics (publisher of PE Week), the National Venture Capital Association and the National Association of Small Business Investment Companies (NASBIC).
NASBIC also reports that there are about 206 SBICs with about $15.4 billion under management.