VIRGINIA SMALL BUSINESS FINANCING AUTHORITY

PRESENTATION TO THE HOUSE APPROPRIATIONS COMMITTEE

Virginia House of Delegates

January 24, 2011

Department of Business Assistance

Department ofBusiness

Assistance

Virginia Jobs Investment

Program

Virginia Small Business

Financing Authority

Business Information

Services

ROLE OF THE VIRGINIA SMALL BUSINESS FINANCING

AUTHORITY

Per § 2.2-2280, the VSBFA works in partnership with private sector lenders to provide financial assistance to small and other eligible businesses in support of the Commonwealth’s economic development efforts.

We fulfill this role by providing loan participation, loan guaranty, loan loss insurance, and conduit bond financing programs, as well as technical assistance, to businesses and localities.

We currently offer 9 financing programs, some of these are for other state agencies.

We address a fundamental need for business growth: Access to Capital.

ECONOMIC DEVELOPMENTLOAN PARTICIPATION PROGRAM

• Low interest “gap financing” direct loans to businesses and/or localities to fund economic development projects.

• Typically loans are subordinate to financial institution’s loan.• VSBFA staff underwrites the loan request, disburses loan proceeds if

approved, & collects monthly payments.• We fill the “gap” financing need not filled by commercial bank loans and

equity. We also lend to localities in support of economic development projects.

• Avg. loan size: $547K• No annual state appropriation. This is a revolving loan fund. Program

funded through federal grants (1977, 1989, 1995).• Some federal restrictions on usage apply. Cannot be used statewide.• Default rate: 5.2%• Avg. Leveraging (Private $ to Public $) per Project: $10:$1• Leveraging of Public $ on Portfolio basis: $52:$1

LOAN GUARANTY PROGRAM

• VSBFA provides a deficiency guaranty to a financial institution on a loan by loan basis to support business loans that don’t qualify conventionally.

• VSBFA staff underwrites the credit request, commits the guaranty to the financial institution if approved, & monitors the credit through the financial institution.

• Loans can be used for fixed asset purchases or working capital.• Avg. loan size: $203K• Evergreen program with periodic state capital infusions. ($900K in

1985 & $1 million in FY ‘11) & VSBFA bond fees. • This is a statewide program.• Default rate: 1.7%• Leveraging of Public $ (Private $ to Public $) : $21:$1

VIRGINIA CAPITAL ACCESS PROGRAM

• Financial institution makes the business loan and enrolls it in VCAP.• Financial institution charges a loan enrollment fee to the borrower which

is matched by the VSBFA.• Enrollment fee & VSBFA match build a loan loss reserve pool for the

financial institution.• Can be used for fixed asset purchase or working capital.• Avg. loan size: $60K• Program funded through periodic state capital infusions ($350K - 1998,

$250K – 1999, $250K – 2001, $300K – 2005, $500K - 2007) & VSBFA bond fees.

• This is a statewide program.• Default rate: 6.9%• Leveraging of Public $ (Private $ to Public $) : $41:$1

PRIVATE ACTIVITY BOND PROGRAM

VSBFA is a conduit issuer of tax- exempt or taxable private activity bonds.

Bonds can be used to assist small manufacturers or 501c(3) non-profit entities.

Bond funds can be used for the acquisition, construction or expansion of facilities and for equipment purchases.

Tax-exempt status provides for sub-prime pricing, long-term financing, and potential for 100% financing.

No financial obligation of the Commonwealth or the VSBFA.

PROGRAMS FOR OTHER STATE AGENCIES

Other State Agencies Leverage VSBFA Expertise:

Dept. of Social Services – Child Care Financing Program (Direct Loan Program)

Dept. of Environmental Quality – Environmental Compliance Fund (Direct Loan Program)

Dept. of Minority Business Enterprise – PACE Program (Capital Access Program and Loan Guaranty)

Tobacco Commission – TCAP (Capital Access Program) Virginia Tourism – Tourism Micro-Loan Program (proposed) (Loan

Participation & Loan Guaranty Program)

RESULTS

Since inception, we have made over 2,000 loans, which enabled over $800 million in private financing, & helped businesses create and retain over 24,000 jobs

Currently we have: Over $1 billion in bonds outstanding Over $16 million in loans outstanding Over $2 million in guaranties outstanding Over 500 current loans & bonds on the books Responded to 923 requests for technical assistance for the fiscal year and

made over 400 referrals to financial institutions and equity providers.

RESEARCH

PROOF OFCONCEPT ORINVENTION

EARLYSTAGE

DEVELOPMENT

PRODUCTDEVELOPMENT PRODUCTIONideation

Proposed 2012 programs

Research Tax credit($5M)

Existing 2011 programs

Eminentscholars

( $1.7M)

CRCF- research

- facilities loans- SBIR match($0M)

CIT GAPFund($1M)

CIT GAPFund($0M)

AngelInvestor Tax credit($5M)

Capital Gains taxExemption

VRTIP program

CIT GAPFund($3M)

CIT GAPFund($2M)

CRCF ( $12M)commercialization

CRCF ( $4M)emerging technology scholars

CRCF ($4M)research match

The Innovation Continuum

GAP OverviewHouse Appropriations

January, 2011

Peter Jobse

CIT GAP Funds

RESEARCHPROOF OFCONCEPT ORINVENTION

EARLYSTAGEDEVELOPMENT

PRODUCTDEVELOPMENT PRODUCTION

GAP BioLife Fund

GAP Tech Fund GAP Energy Fund

GAP Cyber Security Fund

CIT GAP Funds

Investment portfolio

- Fiscal year 2010 – four investments

- Fiscal year 2011 – targeting 9 new investments

- 40 investments made to date

- 35 companies active, 5 inactive

- drug discovery

- medical devices and medical testing

- bio fuels

- business application software

- mobile applications

- cyber security

- electrical components and materials

- Commonwealth potential - 35 new companies per year

GAP Funds – Lead Analysis

0

50

100

150

200

250

300

350

400

FY05 FY06 FY07 FY08 FY09 FY10

Top of the Funnel

Presented to the IAB

GAP Funds – University Spin-Outs

GAP Portfolio

George Mason University• Invincea

University of Virginia• Global Cell Solutions• Soft Tissue Regeneration • Tau Therapeutics

Virginia Tech• Airak• Miserware• NBE• Piedmont BioProducts

2011 Pipeline

University of Virginia• Diagnostic for infectious diseases• Ultrasound technology for spinal taps

George Mason University• Virtualization-based security solution

William and Mary• Therapeutic for PTSD and anxiety

disorders

Virginia Tech• Therapeutics for diabetes and

inflammation• Meniscus replacement technology

GAP Funds – Investment to Date

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

CIT Value (Q4 - $4.71M; Q1 - $4.74M)

CIT Investment (Q4 - $4.1M; Q1 - $4.1M)

GAP Funds – Leverage Value

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

Q3 FY05

Q1 FY06

Q3 FY06

Q1 FY07

Q3 FY07

Q1 FY08

Q3 FY08

Q1 FY09

Q3 FY09

Q1 FY10

Q3 FY10

Q1 FY11

CIT Investment: Q4 - $4.1; Q1 - $4.1

3rd-Party Investment: Q4 - $59.1; Q1 - $59.9

14.6x

GAP Funds – Enterprise Value

$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

$140,000,000

Q3 FY05

Q1 FY06

Q3 FY06

Q1 FY07

Q3 FY07

Q1 FY08

Q3 FY08

Q1 FY09

Q3 FY09

Q1 FY10

Q3 FY10

Q1 FY11

Enterprise Value: All Q4 - $117.0; Q1 - $117.9

GAP Funds – VA GSP Contribution

Revenue Forecast - 28 Active Portfolio Companies

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2009 2010 2011 2012 2013

(M)

Revised Forecast

100% Success Rate

75% Success Rate

50% Success Rate

25% Success Rate

Catalyzing Innovation in the Commonwealth of Virginia

May 5, 2010

Study undertaken on behalf of the Virginia Economic Development Partnership

Benchmarking Virginia’sInnovation Foundations

SummaryResults

Weakness Average Strength

FinancialResources

Human Resources

Innovation Resources

Innovation Economy Outcomes

VC investment ($) SBIR awards ($)

STTR awards ($)Small business loans ($)

Industrial R&D expenditures ($)

Academic R&D expenditures ($)

Federal R&D performance ($)Patents

Labor force growth

Real GSP growth

Advanced S&E degrees S&E degrees

NAEP Science & Math Scores

Exports ($)

Entrepreneurs

Business Start-Ups

R&D to GSP ($ ratio)

Tech Fast 500 companies

Academic R&D productivity

Summary Assessment

Global and national economic realities challenge forward-looking states to expand industries driven by technology and innovation.

Many of Virginia’s high-tech industries serve the Federal market. While important, this narrow focus limits the state’s diversity and overall ability to provide high value jobs.

Virginia possesses important assets and initiatives related to innovation, but the Commonwealth has not reached its potential.

An initiative to stimulate innovation and catalyze collaboration among industries, universities, laboratories, etc., can transform Virginia into a model innovation economy.

Enhancing Research Excellence at Universities

Enhancing Research Excellence at Universities

Engaging Private Sector Collaboration Across

Sectors And Disciplines

Engaging Private Sector Collaboration Across

Sectors And Disciplines

Nurturing Entrepreneurship and

Access to Capital

Nurturing Entrepreneurship and

Access to CapitalMaking Smart

Technology ChoicesMaking Smart

Technology Choices

Catalyzing InnovationCatalyzing Innovation

Strategic Focuses for Virginia

Virginia needs a long term initiative to sustain innovation and catalyze collaboration among the private sector, universities, federal laboratories, etc., to transform Virginia into a Model Innovation Economy and provide high value jobs.

“Must have” strategic elements include:Engaged and sustained private sector leadership and collaboration.Smart technology choices.Elevated research excellence at universities.Nurturing of entrepreneurship and enhanced access to capital.

Create the Virginia Innovation Alliance.Public/Private Partnership with greater research investment (focused and

accountable for results).Align existing state resources seamlessly.Must transcend any given Administration.

Lessons from the Research

VRTIP – Comprehensive Tool for Innovation Virginia

RESEARCH

PROOF OFCONCEPT ORINVENTION

EARLYSTAGE

DEVELOPMENT

PRODUCTDEVELOPMENT PRODUCTIONideation

CIT GAPFund($3M)

CIT GAPFund($2M)

CRCF ( $12M)commercialization

CRCF ( $4M)emerging technology scholars

CRCF ($4M)research match