Case Detail

Case Summary

The End of the Beginning of Venture Capital

Case Number: 5-209-252, Year Published: 2009

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Authors: David Besanko; James Lee

Key Concepts

Venture Capital, Private Equity, Social Enterprise, SBA, Small Business Administration, SBIC, Small Business Investment Company, Equity Financing, Debt Financing, R&D, Research and Development, Commercialization, Technology, Federal Reserve, Financing Small Business, Government Regulation, 7(a) Loan Guarantee Program, Early Stage Investing, Limited Partnership

Abstract

In the 1950s, the United States government created the Small Business Administration to fill a gap in equity and debt financing available to small businesses. By 2004, the program designed to provide equity financing suffered from poor performance and irrelevance. A team of consultants engaged by the SBA will analyze the economic rationales that prompted the creation of the program and recommend appropriate action to maintain, terminate, or alter the program to match contemporary circumstances.

The case illustrates the effects of government intervention in equity and debt markets over several decades with varying economic conditions. Arguments for and against the creation of the programs are given, along with historical developments that affect the program’s merits. The case provides a narrative history of venture capital in the United States. The modern venture capital investing process is compared to the government equity finance program.

Learning Objectives

To teach students about the history of venture capital;
To discover the rationales behind the U.S. government programs that were created to finance small businesses;
And to individually or as a team come to a recommendation to maintain, terminate, or alter a complex program that affects a highly influential sector of the economy.

Number of Pages: 15

Extended Case Information

Teaching Areas: Economics, Non Profit

Geographic: United States

Industry: Government, Venture Capital

Organization Name: U.S. Small Business Administration

Organization Department: Office of Investment

Organization Size: Large

Year of Case: 2004