Why Congress created the Business Development Company ("BDC") for you?
Business Development Company History
Congress enacted the Small
Business Investment Incentive Act in 1980 which created the structure
for Business Development Companies (“BDC”) from the initial
provisions of the Investment Company Act of 1940.
The BDC may retain from 10% to 50% of the shares acquired from a portfolio companies as part of its stock portfolio. Multiple investments by the BDC in different portfolio companies will provide diversification for the investors.
The amount of ownership acquired in any portfolio company by the BDC can vary from a minority interest of 10% to total acquisition of 100% of the portfolio company. However, it is expected that a minority interest will be more typical.
Bridge loan capital advances will be provided on a staged basis to match the need and the ability of the portfolio Company to manage new investment.
The BDC will continue to mentor the portfolio company throughout the investment period and assist in the achievement of both business and financial goals
“Going Public” by “Spinning off” a Private Portfolio Company
The BDC is a superior alternative strategy for a private portfolio company to use to become a public stock company Our BDC will acquire an portfolio ownership interest in a private company that “should” be public as demonstrated by their business model, management, success and other key factors that will drive exceptional growth.
Once involved in an ownership position, our BDC will mentor the portfolio company on the necessary activities that portfolio must take to be prepared and be attractive for the public stock market. These activities include but are not complete for complying with regulations such as Sarbanes Oxley, adjusting the company’s capital structure of selected debt and equity, distribution of shares to the BDC shareholder base to create shareholders for the portfolio company, file the necessary SEC documents such as SB-2 and then arrange for listing on a market with the NASD.
The BDC process allows the private portfolio company to avoid the cost, delays, and negative image along with new Government regulations for “reverse mergers. Also, the BDC process allows for a reduction of the investment banking cost of a traditional Initial Public Offering if an IPO is at all possible for a smaller company in the current financial market.
Support from Private Equity Firm Partners
Since raising capital is one of the main goals of the portfolio company, BDC investments in a portfolio company will also be supported by our Private Equity Firm partners. Both affiliated funds such as the Morris Capital Fund I and non-affiliated funds may participate in funding the portfolio growth through the mentoring and spin-out process.
Following the spin-out, the
portfolio company will probably require a larger amount of capital investment
to continue and accelerate growth. With the status of current financial
markets, this will probably be done as a PIPE.