O. to Create Loopholes for Venture Capitalists

by Chris Sturr | December 23, 2008

From our friends at the American Small Business League. We posted an earlier press release from them about Obama’s appointment of Karen Gordon Mills as head of the Small Business Administration. The worry was that this would signal that the incoming administration would continue the practice of past administrations of channeling contracts set aside for small businesses to larger firms. This proposed change in federal contracting law indicates that those worries were justified.

Obama To Create Loopholes for Venture Capitalists

Petaluma, Calif. – President-elect Barack Obama is preparing to create
significant changes in federal contracting law that will allow some of
the nation’s wealthiest investors to receive federal contracts
earmarked for small businesses. Under the banner of “increasing access
to capital” for small businesses, the policies will allow firms
controlled by individual venture capitalist and even large venture
capital firms to participate in federal small business contracting
programs.

The Obama Administration’s new pro-venture capital policy could
virtually repeal the Small Business Act for legitimate American small
businesses by modifying the longstanding federal definition of a small
business as “independently owned.”

Under the proposed Obama Administration policy, “independently owned”
will be changed to include firms that are not independently owned, but
are actually controlled by wealthy investors and possibly some of the
nation’s largest venture capital firms.

Opponents of the new policy say it appears to be designed more to
increase wealthy venture capitalist access to billions of dollars in
federal small business contracts as opposed to “increasing access to
capital” for legitimate small businesses.

If the policy is successfully implemented it could force the average
American small business to compete head-to-head with firms controlled
by wealthy investors for even the smallest government orders for goods
and services. Thousands of middle class jobs could be lost as billions
of dollars in federal small business contracts are diverted to a small
number of venture capitalist controlled firms.

The plan will likely include a provision that would exempt the venture
capitalist owned firms from capital gains taxes. The Obama-Biden
Transition Team website, www.change.gov mentions such a proposal.

The appointment of multi-millionaire venture capitalist Karen Mills to
head the Small Business Administration (SBA) is the latest indication
that President-elect Obama is moving forward with his plans to divert
government small business contracts to venture capital controlled
firms.

The National Venture Capital Association (NVCA) and its members have
been lobbying for the new loophole in federal contracting law for more
than two years. The NVCA and its members have contributed millions of
dollars to Obama and key Democratic leaders in Congress such as Nancy
Pelosi, John Kerry, Joe Lieberman and Hillary Clinton.

“The easiest and quickest way to stimulate our nation’s failing
economy is for the government to spend infrastructure funds with
America’s 27 million small businesses that create all the new jobs and
employ most Americans,” American Small Business League President Lloyd
Chapman said. “This new Obama policy will do just the opposite and
will push our economy closer to a depression by diverting billions of
dollars in federal funds away from middle class America and into the
hands of small number of wealthy investors that backed Obama.”

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