Stacking the Deck Against Small Business—Again!

You have to wonder what goes through the minds of our congressional elite when they are cloistered in their committees working out their next brainstorm, chuckling about how this bill will keep them (the legislators) in business by screwing things up just enough for people to want them to fix the problems of their own making, but not enough for people to start looking for rope and suitable tree limbs. Our current economic crisis would be a fine case in point except for the growing desire among the electorate for rolling congressional heads.

No, a much better example of this legislative perversity can be found in a bill that has been floating around the halls of Congress for the better part of a year. It is the SBIR/STTR Reauthorization Act of 2008. The House version, HR 5819, was sent to the Senate back in April, where it is currently in committee. It is a fairly routine piece of legislation that funds the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs of the Small Business Administration. It doesn't have the flash of an AIG purchase or the price tag of a Wall Street bailout, but according to some, it does have the ability to close thousands of small businesses across the country. Ronald Reagan was right, the most terrifying words in the English Language are “I'm from the government and I'm here to help.”

Now, the legislation would do some good things, like increase individual small business award levels from $100,000 to $300,000, for participation at a Phase One level; and $750,000 to $2.2 million, for participation at a Phase Two level. It would also allow participating federal agencies to exceed those award levels if they notify, and provide annual reports concerning the increase, to congressional small business committees. Can't complain about that, but here is the thing small business groups like the American Small Business League (ASBL) are complaining about (from the CRS Summary):

Title II: Venture Capital Investment Standards - (Sec. 201) Provides that, effective only for the SBIR and STTR programs: (1) a business concern that has more than 500 employees shall not qualify as a small business concern; (2) in determining whether a small business concern is independently owned and operated, the SBA Administrator shall not consider a business concern to be affiliated with a venture capital operating company if the venture capital operating company (VCOC) does not own 50% or more of the business concern and employees of the VCOC do not constitute a majority of the board of directors of the business concern; and (3) a business concern shall be deemed to be independently owned and operated if it is owned in majority part by one or more natural persons or VCOCs, there is no single VCOC that owns 50% or more of the business concern, and there is no single VCOC the employees of which constitute a majority of the board of directors of the business concern. States that, if a VCOC controlled by a business with more than 500 employees has an ownership interest in a small business owned in majority by VCOCs, that small business is eligible to receive an SBIR or STTR award only if: (1) not more than two of such VCOCs have an ownership interest in the small business; (2) such VCOCs do not collectively own more than 20% of the small business; and (3) such VCOCs do not collaborate to exercise more control over the small business than they could exercise individually.

In English, that means small businesses will be going head-to-head with firms owned by wealthy venture capitalists. Kind of like a small but plucky aircraft design firm competing head-to-head for a defense contract against Boeing. Not exactly an even playing field. This is why Federal law requires that 23% of all federal contracts and subcontracts, about $135 billion a year, be awarded to small businesses. The big players—Boeing, General Dynamics, billionaire venture capitalists—have the remaining 77% to fight over. It seems to me that the VCs might be having some problems competing with the really big players. Personally, I wonder if, after getting trumped more often than they'd like to admit, they are coming around to our side of the pond to look for easier pickings.

Why do I think this? Because of the shrill, demanding voice, and the huge amounts of money, of the National Venture Capital Association (NVCA). After “donating” millions of dollars to everyone in the Congress, House and Senate alike, who might have some voice in pushing this bill through, including the Chair of the House Committee on Small Business, Nydia Velázquez (D-NY) and House Speaker Nancy Pelosi (D-CA), who moved this through the House so quickly that numerous Members of Congress didn't even have a chance to read it, their lobbyists only wanted one little thing: A piece of that $135 billion small business pie.

The American Small Business League (ASBL) projects that thousands of middle class firms across the country will be forced to close their doors if the NVCA is successful. Larger states like Texas, Florida, New York, Illinois and California could lose billions of dollars in federal contract dollars and thousands of jobs. Smaller states that have been hit the hardest by the current economic downturn will no doubt feel the impact of this legislation, which will pull hundreds of millions of dollars out of the middle class economy in those states.

It is all about tilting the playing field against small businesses and in favor of the venture capitalists, and the concerns voiced by the ASBL are very real. They see this as allowing big business to invade the business reserved for small business, and as the bill moves through the Senate, the picture doesn't seem to be getting any better. Small business owners and advocates were shocked and disappointed when Senate Small Business Committee Chair John Kerry (D-MA) passed the Senate version of H.R. 5819, S. 3362 through his committee shortly before the summer recess. According to ASBL president Lloyd Chapman, "Senator Kerry has been complaining for years about loopholes and Bush Administration policies that allow Fortune 500 firms to receive federal small business contracts. Yet, he has done nothing to stop that problem. Now he is backing federal legislation to give small business contracts to venture capital firms and billionaires. I couldn't be more disappointed in this Congress and it's leaders."

Frankly Mr. Chapman, neither can I. This legislation has sailed out of Kerry's committee, but it hasn't been brought to a vote yet, even though the law it was supposed to reauthorize expired on September 30th of this year. That means there is a chance. Contact your senators at and let them know that Title II of this legislation has to go. It is only through the concerted voices of small business owners across the country that their needs will ever be heard over the siren-song of the lobbyist, and it's the only real way their power will ever be felt.

You have power. Use it.