NMVC

New Markets Venture Capital (NMVC) Program Overview


Low-Income (LI) Areas in the United States face multiple and varied barriers to sustainable growth. A common obstacle for virtually all such communities is that they are unable to attract sufficient equity capital and technical assistance for starting and expanding businesses. Federal Reserve Board Chairman Alan Greenspan has observed that equity capital is crucial to the existence of an innovative and productive business community, especially in lower-income areas. Yet such communities do not have access to private equity-type capital.
In December 2000, to address the unmet equity needs of low-income communities, Congress passed and President Clinton signed into law legislation creating the New Markets Venture Capital (NMVC) Program. Congress also appropriated FY2001 funding for $150 million of debenture guaranty authority and $30 million in for Operational Assistance (OA) grants to supplement the private capital that is raised by NMVC companies and Specialized Small Business Investment Companies (SSBICs).


By August 8, 2003, SBA entered into agreements with six New Markets Venture Capital Companies (NMVCCs). These NMVCCs were newly formed, for-profit investment funds with private management. Their objective is to promote economic development and the creation of wealth and job opportunities in their self-designated Low-Income (LI) geographic Areas. NMVCCs pursue this objective by making equity-type investments in smaller enterprises located in LI Areas, and by providing Operational Assistance (OA) through OA grants to such enterprises


Obtaining New Markets Venture Capital Designation

At this time, SBA is not soliciting applications for the NMVC program. However, if you are interested in forming a venture capital fund, please look into SBA’s Small Business Investment Company (SBIC) program., upon which the NMVC program was modeled.

 

New Markets Venture Capital Company Investments

At least 80 percent of the businesses receiving a NMVCC’s investments must be Smaller Enterprises located in Low-Income Geographic Areas, and must have received Equity Capital Investments. In addition, 80 percent of the investments a NMVC company makes (in total dollars) must be Equity Capital Investments in Smaller Enterprises located in Low-Income Geographic Areas.

Smaller Enterprises are defined by SBA regulations as companies with net annual after-tax profits not exceeding $2 million for the previous 2 years, and net worth not exceeding $6 million. Investments in larger companies are permitted if they qualify as Smaller Enterprises based upon employment or revenue criteria for their industry.
Low-Income Geographic Areas are defined by any of the following criteria:

  • Any census tract or equivalent county division as defined by the Bureau of the Census of the U.S. Department of Commerce in which the poverty rate is 20 percent or more. Any census tract or equivalent county division defined by the Bureau of the Census that is located within a metropolitan area and in which 50 percent or more of the households in that tract or division have an income below 60 percent of the area median gross income (These locations correspond to those of the Low Income Housing Tax Credit)
  • Any census tract or equivalent county division as defined by the Bureau of the Census that is not located in a metropolitan area and in which the median household income does not exceed 80 percent of the statewide median household income.
  • Any area located within a HUBZone.
  • Any area located within an Urban Empowerment Zone or Urban Enterprise Community.
  • Any area located within a Rural Empowerment Zone or Rural Enterprise Community.

Equity Capital Investments are common or preferred stock, or a similar instrument.
They may include subordinated debt with equity features provided that the debt is not amortized and provides for interest payments contingent upon and limited to the extent of earnings


SBA’s Role

A NMVCC’s management makes all investment decisions, within the constraints of NMVC statute, SBA regulations, and the terms of the NMVCC’s participation agreement and OA Grant award. SBA’s role is essentially the same as with the SBIC program. The Agency selects participants for the NMVC program, provides funding for their investments and operational assistance activities, and regulates their operations to ensure that public policy objectives are being met. SBA requires NMVCCs to provide regular performance reports and have annual financial examinations by SBA.

 

(As of 4/04)