[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
SBA-CREATED INITIATIVES: NECESSARY OR REDUNDANT SPENDING?
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
APRIL 30, 2014
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-066
Available via the GPO Website: www.fdsys.gov
______
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMEYER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Mr. Rhett Jeppson, Associate Administrator, Office of Veterans
Business Development, Small Business Administration,
Washington, DC................................................. 3
Mr. Javier Saade, Associate Administrator, Office of Investment
and Innovation, Small Business Administration, Washington, DC.. 5
Ms. Tameka Montgomery, Associate Administrator, Office of
Entrepreneurial Development, Small Business Administration,
Washington, DC................................................. 6
APPENDIX
Prepared Statements:
Mr. Rhett Jeppson, Associate Administrator, Office of
Veterans Business Development, Small Business
Administration, Washington, DC............................. 22
Mr. Javier Saade, Associate Administrator, Office of
Investment and Innovation, Small Business Administration,
Washington, DC............................................. 26
Ms. Tameka Montgomery, Associate Administrator, Office of
Entrepreneurial Development, Small Business Administration,
Washington, DC............................................. 30
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
America's SBDC Statement of C.E. ``Tee'' Rowe, President/CEO,
America's SBDC............................................. 33
SBIA - Small Business Investor Alliance Letter Submitted by
Brett Palmer, President.................................... 50
SBA-CREATED INITIATIVES: NECESSARY OR REDUNDANT SPENDING?
----------
WEDNESDAY, APRIL 30, 2014
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves [chairman
of the Committee] presiding.
Present: Representatives Graves, Chabot, Luetkemeyer,
Tipton, Huelskamp, Collins, Velazquez, Schrader, Chu, Meng, and
Schneider.
Chairman GRAVES. Good afternoon. We will call the hearing
to order.
In recent years, the Committee has witnessed an alarming
trend in the SBA's budget regarding entrepreneurial development
programs. Despite reports that the federal government is
riddled with redundant programs for entrepreneurs, the SBA has
increasingly spawned its own entrepreneurial development
initiatives. In doing so, the SBA has repeatedly requested
increased funding for its own initiatives while allowing
funding for statutorily authorized programs, such as SBDCs to
remain static.
The Committee, on a bipartisan basis, has expressed
concerns regarding the SBA's diversion of funds. Earlier this
year, Ranking Member Velazquez and I sought clarification from
the SBA on how they intend to utilize funds allocated to these
initiatives. Together we sought to ensure that scarce taxpayer
dollars would be properly utilized on truly necessary and job-
creating programs with adequate performance metrics. The SBA's
response did not allay these concerns, and I continue to
question the necessity of these initiatives given the potential
overlap with both private and public sector efforts already in
existence. Additionally, as previous reports have uncovered
inadequate funding metrics, and a lack of agency collaboration
in the federal entrepreneurial development arena, I am
concerned that the SBA lacks the ability to measure the success
or failure of the programs it initiatives.
The majority of the funding goes to four of its
initiatives: the Entrepreneurial Education Program; the Growth
Accelerators Program; the Boots to Business Program; and the
Regional Innovation Clusters Program. Our witnesses are going
to be sharing with us their insights into these initiatives,
and I thank all of you for taking time out of your busy
schedules to be here. It does mean a lot.
On this Committee, we seek to promote entrepreneurship as a
vital part of reviving the economy. Plus, owning your own
business is an integral part of the American dream. If changes
to existing federal entrepreneurial development programs are
necessary, I am certainly open to hearing those proposals.
However, the SBA's current manner of picking and choosing how
to use taxpayers' money while bypassing Congress's role is one
thing that concerns me quite a little bit.
And with that I will turn to Ranking Member Velazquez for
her opening statement.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
For more than 50 years, the SBA has been assisting
America's entrepreneurs and small business owners. By providing
loans, training, and contracting opportunities, the agency has
helped create new businesses and the jobs that come with them
throughout the nation. Last year, it channeled more than $25
billion in loans to small firms, provided counseling and
training to over one million entrepreneurs, and helped small
businesses secure nearly $100 billion in federal contracts.
To accomplish this, the SBA relies on a broad network of
programs, most of which have been established in law for
decades. These initiatives are overseen by the GAO and the
agency's own inspector general and have codified regulations
and performance benchmarks. As a result, many of these efforts
have been able to deliver services to small businesses in a
manner that is efficient for the taxpayers.
Unfortunately, the SBA has repeatedly diverged from this
path and created numerous unauthorized pilot programs aimed at
assisting businesses in underserved markets. Since 2003, the
SBA has created not less than six entrepreneurial development
pilots and 16 access to capital pilots. Unfortunately,
independent evaluations of these pilots have shown SBA
typically fails to properly set goals, conduct timely program
evaluation or provide adequate oversight. This has led to
increased costs for taxpayers, and in many circumstances
limited agency resources going to waste.
For Fiscal Year 2015, the SBA has proposed continuing this
practice. The agency has requested $15 million for
entrepreneurship education, $6 million for regional innovation
clusters, $7 million for goods to business, and $5 million for
Growth Accelerators. In addition, the SBA has undertaken
similar efforts in its Small Loan Advantage program, the
Community Advantage Program, the Impact Investing Fund, the
Early Stage Innovation Fund, as well as the Business USA
website. The cost of this program for the next fiscal year will
be $39 million and together constitute nearly 20 percent of the
SBA's noncredit program's budget.
Some of these pilots may deliver limited benefits, and
today the SBA is sure to provide the Committee with anecdotes,
and maybe even some hard data of their success. The real
question is why spend money on initiatives that lack the proven
track record and safeguards that the other SBA programs have.
This makes no sense.
Initiatives like the Small Business Development Centers
have recognized delivery mechanism for nearly every
entrepreneurial development pilot program the agency has
created. Why not use it? Programs on the books, like the New
Markets Venture Capital Program duplicate the SBA's new SBIC
initiatives but have wasted away due to a lack of funding. Why
not fund it?
By choosing not to do so, the agency has continuously
diverted taxpayers' dollars to programs that lack clear goals,
programmatic guidelines, and performance metrics.
Today, we will examine these initiatives while trying to
better understand the agency's spending rationale. With the
recent sequester, setting appropriate budget priorities is more
important than ever. Doing so is critical for both the small
businesses who depends on SBA programs and taxpayers who foot
the agency's bill.
The SBA remains an important institution for America's
small businesses. It must continue to evolve and change with
the growth of the economy, but it must do so in a manner that
is well thought out and prudent. In this regard, I look forward
to working with the agency to ensure that it can continue to
progress and meet the needs of tomorrow's entrepreneur.
With that, Mr. Chairman, I yield back.
Chairman GRAVES. We obviously have a series of votes that
came a little earlier than we were expecting. So I think what
we will do is just--instead of breaking up your testimony we
will just recess right now and come back and we will start with
you, Mr. Jeppson. So we will be back, well, right after this
one, I guess. So that makes that easy. So we will be right
back.
The Committee is in recess.
[Recess]
Chairman GRAVES. We will call the hearing back to order.
Our first witness is Rhett Jeppson, the Associate
Administrator for the Office of Veterans Business Development
within the Small Business Administration. Mr. Jeppson oversees
the Boots to Business Program, and additionally is currently a
lieutenant colonel in the United States Marine Corps Reserve.
I would like to thank you for your service. Go ahead and
start.
STATEMENTS OF RHETT JEPPSON, ASSOCIATE ADMINISTRATOR, OFFICE OF
VETERANS BUSINESS DEVELOPMENT, UNITED STATES SMALL BUSINESS
ADMINISTRATION; JAVIER SAADE, ASSOCIATE ADMINISTRATOR, OFFICE
OF INVESTMENT AND INNOVATION, UNITED STATES SMALL BUSINESS
ADMINISTRATION; TAMEKA MONTGOMERY, ASSOCIATE ADMINISTRATOR,
OFFICE OF ENTREPRENEURIAL DEVELOPMENT, UNITED STATES SMALL
BUSINESS ADMINISTRATION
STATEMENT OF RHETT JEPPSON
Mr. JEPPSON. Sir, good afternoon. Thank you, Chairman
Graves, Ranking Member Velazquez, and distinguished members of
the Committee. Thank you for inviting me to testify today.
Veterans are a cornerstone of small business ownership.
They have the skills to adapt to the many challenges as well as
the leadership and discipline required to own and operate small
businesses.
Research demonstrates that veterans over index in
entrepreneurship. In the private sector workforce, veterans are
45 percent more likely than those with no active military
service to be self-employed.
As small business owners, veterans continue to serve our
country and create jobs in our communities. According to the
most recent U.S. Census data, nearly one in 10 small businesses
is owned by a veteran. These businesses generate over $1.2
trillion in receipts annually and employ nearly 5.8 million
Americans.
As a way to continue to help our veterans pursue
entrepreneurship, SBA has created the Boots to Business. Boots
to Business is the entrepreneurship track of the newly
implemented Department of Defense Transition Assistance
Program, commonly referred to as TAP, which was developed at
the interagency level by the Department of Labor, VA, DOE, and
SBA.
The goal of TAP is to help successfully transition our
service members from military to civilian life. Through TAP,
service members receives core education and post-service
veterans' benefits. In addition, veterans choose from one of
three optional tracks for training--higher education, Vo-Tech
training, or entrepreneurship. SBA was directed to provide
training to veterans and oversee participation by its resource
partners in delivering this training to transitioning service
members who opt in. In response, SBA created Boots to Business.
If a service member chooses to take advantage of the
program, he or she attends a two-day course at their military
installation. SBA Resource Partners collaboratively deliver
face-to-face introductory entrepreneurship training. The
instructors introduce transitioning veterans to the essentials
of entrepreneurship, including a feasibility analysis,
discussion of business financials, and a review of available
SBA resources.
The final phase of the program is an eight-week,
interactive course taught online by a professor. The course
walks participants through the fundamentals of developing a
business plan, as well as other techniques and tips for
starting a business. The relationship that the participant
establishes with the instructor helps reinforce the importance
of the SBA resource partner network. The program not only
teaches participants core business fundamentals, but it also
introduces them to SBA's network that consists of VBOCs, WBCs,
SBDCs, and SCORE counselors.
With the funding provided in the Fiscal Year 2014 budget,
SBA plans to expand Boots to Business to more military
installations within the United States and launch the program
at overseas installations. Without any appropriated funding,
more than 6,000 service members were trained in the first year
of the program. We project that we will train an additional
12,000 to 15,000 participants through B2B in Fiscal Year 2014.
Participation in Boots to Business is as dynamic as the
services themselves. In 2013, 21 percent of the participants
were African American, 10 percent were Hispanic, five percent
were Asian-Pacific Islander, and two percent were American
Indian/Alaskan native. Women, especially, are over-indexing in
the program. Though women make up 14 percent of the Armed
Services, they make up more than 25 percent of our Boots to
Business participants. Spouses of transitioning service members
are also taking advantage of this course as a way to provide
stability for their families.
Investing in our veterans is investing in America's future.
We know that our nation's veterans helped reshape America's
economy following World War II. They helped to build one of the
longest periods of economic growth in our country, and we know
that they can do it again.
The SBA is committed to ensuring that these amazing men and
women have the training, access, and opportunity they need to
fulfill their potential as entrepreneurs and small business
owners. There is no one who deserves to live the American dream
more than those who have worn the uniform and fought to defend
it.
Thank you for your time and allowing me to appear before
this Committee.
Chairman GRAVES. Our next witness is Javier Saade, the
Associate Administrator for the Office of Investment and
Innovation at the Small Business Administration.
In addition to overseeing the SBIC, the SBIR, and the STTR
programs, Mr. Saade is responsible for overseeing the Growth
Accelerator Program.
Thank you for being with us, and I appreciate you coming
out.
STATEMENT OF JAVIER SAADE
Mr. SAADE. Thank you, Chairman Graves, Ranking Member
Velazquez, distinguished members of the Committee. Thank you
for giving me the opportunity to testify here today.
SBA's Office of Investment and Innovation leads programs
that provide the high-growth small business community with
access to long-term financial capital and R&D funds aimed at
commercializing innovations. We do this through three programs:
the Small Business Investment Company Program, the Small
Business Innovation Research Program, and the Small Business
Technology Transfer Program.
The SBIC program has been a successful model for public-
private partnerships. Professionally managed investment funds
raise private capital from institutional investors. The private
capital is then matched by SBA guaranteed leverage and enable
the funds to capitalize more small businesses in the form of
equity, structured loans, or combination of both.
The SBIR and STTR programs have helped small businesses
compete and obtain federal R&D funds. One of the key goals of
these programs is to commercialize small business inventions.
These programs are paramount in keeping the U.S. at the
forefront of science and technology in our global economy and
in allowing us to expand the frontiers of human knowledge.
In addition to these programs, to keep the U.S. in a
leadership role we are focused on innovation. During the bulk
of our nation's history, the backstop of innovation ecosystems
resided in the walls of large corporations. Companies like
Xerox, General Motors, and DuPont were centers of innovation
and entrepreneurial activity. They invented, produced, built,
and distributed products creating world-changing technologies
like the computer mouse and Teflon.
Times have changed. Small businesses have taken the lead,
outpacing innovation rates of larger companies. Itemized pools
of capital formed and more technologies were made available.
This democratized the entrepreneurship process but has also
created gaps in funding and scaling mechanisms.
The SBA is determined to be a partner in helping friends
work and innovate in the new economy. This is why we are taking
a role in developing and enhancing effective pass-through
entrepreneurship which is important to our economic growth and
to maintain America's competitive edge when it comes to
nurturing innovative firms.
SBA runs two programs to address these gaps: the Growth
Accelerator Fund and the Regional Innovation Clusters which my
colleague, Tameka Montgomery, will discuss further.
Accelerators focus on start-ups and early-stage firms. Clusters
focus on scalable and more mature firms. Both are critical to
the growth of regional economies and address different stages
in the lifecycle of businesses. Accelerators are physical
microcosms of the larger clusters. They provide physical space,
mentoring, networking, and often capital to the smallest start-
ups, usually on a rotating basis of three to nine months or
until a start-up can graduate and continue to grow on its own.
Accelerators fill this gap in new and exciting ways, and
they are growing. Our agency estimates that there are about 700
accelerators in the United States. We are launching a $2.5
million competition for accelerators. The awards are meant to
assist in funding their operations and to allow more capacity
to scale up. The competition will award capital to the best-in-
class models and will focus on geographic areas in which
financing is in short supply, as well as models that are run by
and support the underrepresented groups.
The evaluation criteria will be similar to those we use for
our SBIC applicants: management team, track record, business
model, and policy impact, including identifying what gaps the
applicant will fill. We will choose entities that have the best
models for financial success and impact. Winners will be
selected by a combination of SBA personnel, venture
capitalists, and entrepreneurs, and our hope is to announce
winners by the end of the fiscal year.
We plan to forge long-term partnerships with these
accelerators. Through establishing these relationships, we will
be introducing a sector which is historically unfamiliar with
our agency's suite of services to our resource partners
programs and our more traditional loan programs. The SBA must
lead the new economy and meet the needs of scalable and high-
growth small businesses.
I look forward to working with all of you on these and
other programs that will help us achieve this goal. Thank you
so much.
Chairman GRAVES. Our final witness is Tameka Montgomery,
the Associate Administrator for the Office of Entrepreneurial
Development at the Small Business Administration. In this
capacity, Ms. Montgomery is responsible for overseeing the
SBA's counseling and training programs for entrepreneurs. I
appreciate you being here today. Thanks. Please go ahead.
STATEMENT OF TAMEKA MONTGOMERY
Ms. MONTGOMERY. Chairman Graves, Ranking Member Velazquez,
and distinguished members of the Committee, thank you for
inviting me to testify before you about your Regional
Innovation Clusters and our Entrepreneurship Education
Programs.
Strong and thriving small businesses are key to a
flourishing economy. While we know that small businesses create
two out of every three net new jobs, the bulk of these jobs are
being created through the sustained, incremental expansion of
existing small businesses across a wide range of industries.
According to outside sources, 92 percent of new jobs come from
the expansion of existing businesses, while start-ups accounted
for around seven percent of net new jobs in the past decade.
SBA believes that by providing additional technical
assistance to more growth-oriented entrepreneurs, our
government's limited resources will be maximized and
strategically focused on the firms that have the highest
potential to create positive economic impact. SBA's clusters
and entrepreneurship education programs do exactly this. Each
program has a proven track record of helping entrepreneurs
better lead and grow their businesses.
SBA created the clusters program to strengthen small
business participation in existing regional economic clusters.
We do this by fostering a network of small businesses,
universities, and investors that work to grow a related set of
industries.
Leveraging these resources, each cluster acts as a
networking hub, connecting small businesses to innovation
assets, while providing targeted matchmaking, training, and
mentoring.
Small businesses participating in our clusters are able to
access new markets, commercialize products, thus accelerating
their growth. These clusters are powerful at creating an
environment where small businesses can successfully
participate. According to the data, revenue of small business
participants increased by 23 percent. Employment grew on
average by more than 18 percent. And the program helped small
businesses access more than 66 million in private funding
sources as well as 14 million from federal SBIR and STTR
awards.
The San Diego Advanced Defense Technology Cluster provides
expert assistance with product development, as well as
networking opportunities to help small businesses secure
customers, investors in cybersecurity, autonomous systems, and
other defense-related sectors. Resource partners, like the
North San Diego Small Business Development Center, provide the
businesses with information and management assistance on key
building blocks of business success.
Like the clusters program, SBA's entrepreneurship education
programs help equip entrepreneurs to better lead and grow their
businesses. Growth-oriented businesses face an entirely
different set of challenges than start-ups, and the
Entrepreneurship Education Program provides them with some of
the tools they need to sustain their growth trajectory. Through
this program, we have seen much success with our Emerging
Leaders Initiative. This initiative, now in its seventh year,
was launched to assist small businesses in underserved
communities that are poised for growth. By providing nearly 100
hours of in-person and out-of-classroom coursework over a
seven-month period, business owners learn how to refine their
core strategy, gain a stronger foothold in the market, and
secure more customers.
A third-party evaluator found that 62 percent of 2012
graduates saw an average revenue increase of 45 percent, with
median revenue increasing from $894,000 before participation to
$1.1 million following the first year of completion.
Additionally, 40 percent of participants in 2012 reported
security contracts with an average value of approximately $2.1
million.
Leveraging SBA's local presence and convening power, our
district offices administer this initiative, while also
engaging local resource partners in a variety of ways.
Both the Regional Innovation Clusters and the
entrepreneurship education programs help to improve the
competitiveness of high-potential, growth-oriented small
businesses. We know these programs provide relevant assistance
in education that address the unique challenges of growing
small businesses.
Thank you for the opportunity to testify before you today.
I look forward to answering any questions that you may have.
Chairman GRAVES. I will start off with Mr. Collins.
Mr. COLLINS. Thank you, Chairman.
I am new to Congress, but I am not new to life. I have
noticed from the opening statements of our chairman and ranking
member that you have united this Committee in opposition to the
SBA's continued evolvement of new programs and not perhaps
funding, as the ranking member said, the SBDC as we should. So
I am really baffled by this.
And so let me ask you kind of, do you not care what
Congress things? Mr. Jeppson? Was it not obvious to you that we
are not happy with you and your new programs, right? You have
sensed that? You heard the opening statements, right? Or did
you?
Mr. JEPPSON. Sir, I did hear the statement.
Mr. COLLINS. So what do you think about that? Does that
concern you at all?
Mr. JEPPSON. Sir, I understand that there is some concern
about new programs and about metrics here.
Mr. COLLINS. More than a concern.
Mr. JEPPSON. Yes, sir.
Mr. COLLINS. Are you not concerned that you seem to be
flying in the face of what Congress wants? I mean, do you
really not care? Does your agency not care?
Mr. JEPPSON. Sir, I cannot speak for the other programs,
but I will tell you that in my case I think that we are
fulfilling the responsibility that Congress gave us. The
organizing language in my statute that set up my office, 10650,
we were tasked to provide entrepreneurial development among
other things to service veterans. In the 2008 Small Business
Act, we were specifically directed to participate in the TAP
program. If you look at the program or the statute that
authorized TAP back in 1990, we were authorized----
Mr. COLLINS. All right. Well, let me ask Mr. Saade. I will
ask you the same question. You have heard the opening
statements, and clearly we would like you to be taking another
direction relative to, you know, we are not looking for new
programs. Is that obvious to you? We in Congress are not
looking for new programs. Is that clear or not clear?
Mr. SAADE. Thank you for the question.
Our general legislative authority for these programs----
Mr. COLLINS. I am not asking about authority. Is it clear
that we are not looking for new programs? From the opening
statements of our chairman and ranking member, is that clear or
is that somehow----
Mr. SAADE. It is clear you want to discuss how we arrived
at these programs.
Mr. COLLINS. It is not clear that we do not want new
programs? We would prefer you to be funding at a better level
existing programs, that is not clear to you? I think it should
have been clear.
Mr. SAADE. I heard the comments. Absolutely.
Mr. COLLINS. Are you going to relate that back to your
superiors, that Congress is not happy with these new programs?
We are more than not happy. We do not want any more new
programs. Is that clear? Is it?
Mr. SAADE. I am listening to what you are saying. Yes.
Mr. COLLINS. Okay. All right.
Ms. Montgomery, I will ask you the same thing.
Ms. MONTGOMERY. Well, yes. Obviously, from your comment, it
is very clear on your concerns about the programs, and I think
that is the reason why we are here today is to answer any
questions that you may have regarding the reason why we have
launched these programs, and then also the evidence on how
these programs impact small businesses. So that is why we are
here today.
Mr. COLLINS. Yeah. I guess, again, like I said, I am new to
Congress. I am not new to life. It just is astounding to me
that with that much clear direction, bipartisan united
opposition to this agency's continuation of new program after
new program when we have limited funding, and clearly we are
not satisfied with the metrics or the follow-up that goes with
it, but your agency seems to just not care about Congress,
which represents the people and the dollars and the funding.
And I really do not get it. I mean, usually people do recognize
the direction of Congress, so I guess what I would just hope is
that you report back to your supervisors, plain and simple, we
do not want new programs. If we wanted new programs, we would
tell you we wanted new programs. We want you to do a better job
on current programs, taking the dollars we have. Again, as the
ranking member said, the SBDCs do work. We do not need people
going on a wild goose chase. And if you have got so many people
there you have got nothing to do but dream up new programs,
maybe you need less people. That would be my conclusion. Let us
work on what we have got and all these folks creating new
programs, I would say it is obvious to me we do not need you. I
would remove you from your positions and then I would save the
taxpayers money. That is what I would do.
So thank you, Mr. Chairman.
Chairman GRAVES. Ranking Member Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Definitely, personally, I am embracing the issue that it is
Congress's authority. We are the ones that create new programs,
but you decided to go ahead and create new pilot programs. And
it is our responsibility to make sure that you have proper
mechanisms in place so that we could measure whether or not
those programs are producing the results that are expected.
I would like to talk to you about the entrepreneurship
pilot program. It has been expanded to 27 communities by 2012,
and your numbers are telling us that only 450 business were
assisted annually. And this, when you look at this number, 450
and compare it to over one million clients assisted, 15,000
businesses created at SBDCs, Women Business Centers and SCORE
chapters alone, then we question how do we take money, why do
we cut money from the Women's Business Development Center, the
Small Business Development Centers that have a track record
that are assisting over a million client a year and creating
15,000 businesses to put their money into a program that only
has been able to create 450 businesses annually.
Ms. Montgomery, in order to participate in the SBA's
Emerging Leaders Program for 2014, a business must have at
least $400,000 in revenue; right? And been in operation for at
least three years. Given this, I guess it is not a surprise
that the SBA found that the companies that participate in this
program become successful because, indeed, they are successful.
They have $400,000 in revenues and have been in operation for
three years.
So my question is, with all the emphasis on start-ups, why
not focus on those small businesses that are truly struggling
and could benefit from the intensive training of this
initiative?
Ms. MONTGOMERY. So I want to thank you for the feedback
that you gave with respect and the confidence that you have in
our Small Business Development Centers. I was a SBDC director
for seven years, and so I know about the hard work that SBDCs
do and what their capabilities are. One of the unique things
about the Emerging Leaders Program as I shared with you earlier
is that it provides 100 hours of in-person and out-of-person
classroom work. And I know just from my personal experience
with leading a Small Business Development Center and serving a
number of small businesses, it is quite a challenge for SBDCs
to invest that much time into a program when average SBDC
clients might receive about five hours or more of service, and
so this particular program----
Ms. VELAZQUEZ. My question is why are you providing 100
hours in training to a company that has $400,000 in revenues
and has been existence for three years, proving that it is
already successful? Why not then focus on those businesses that
are struggling?
My next question is to Mr. Saade. According to industry
statistics, there are more than 100 accelerators operating in
the U.S., with more than $5 billion in funding commitments.
Right?
Mr. SAADE. Go ahead. I am listening.
Ms. VELAZQUEZ. Even though accelerators are growing rapidly
without government funding, so I just would like for you to
explain to me, if the industry has $5 billion in funding
commitments, why does SBA create this program and put $7.5
million in the accelerator program rather than doubling the
funding for microloans? Because $5 billion clearly, there is no
such need to create a program diverting money that should go to
the microloan program or SBDCs. What gap, $7.5 million, is
filling that the private sector is not?
Mr. SAADE. The number is actually 2.5, not 7.5 million. And
you are correct that there is a burgeoning and thriving
accelerator network in the United States. No question. The same
can be said about a thriving and burgeoning research and
development community. And the same can be said about the
banking industry. And the same can be said about alternative
asset management. But there are definitely gaps. And when we
look at what is happening with the accelerator, the
entrepreneurial ecosystems around the country, they are
typically concentrated in states. If you were to look at where
the venture capital and some of these accelerators happen, they
are very concentrated in some states. So we do see some gaps
that some of these accelerators in other places, so that
everybody can have access to the potential of creating another
Air B&B or another company that comes out of these
accelerators. So the point of the program is to actually expand
that ability to accelerators across the land.
Ms. VELAZQUEZ. So the SBA cannot use its influence to get
those accelerators to expand geographically, and so I do not
know, and I do not understand what $2.5 million impact is going
to have in a $5 billion industry. I do not.
My next question is to Mr. Jeppson. The Boots to Business
pilot relies heavily on Internet-based video instruction;
correct?
Mr. JEPPSON. No, ma'am. We conduct a two-day course on each
of the installations, and we actually use the Resource Partner
Network to deliver that two days in-person. So we have SCORE,
SBDCs, WBCs, those that are located close to the base, to
actually do that two-day training.
We do have an eight-week online component that does do
business plan development. That reaches a portion of the
students who opt into that program.
Ms. VELAZQUEZ. So how do you measure the efficiency and
efficacy of the program in terms of the online training?
Mr. JEPPSON. Right. So we look at that, just like we would
any other program. And so what we have focused on right now----
Ms. VELAZQUEZ. Can you give me metrics?
Mr. JEPPSON. I can give you metrics right now on what the
throughputs are. As you know, most service members, the
program--I should back up. The VOW Act in 2011, which made TAP
mandatory for all service members, became effective last
October. So we are within the first year of operation where all
service members are required to go through.
So ideally, the service member goes through TAP now a year
prior to leaving the service, so it will be this October before
we see the first group of service members leaving the service.
I am sure there are some who already have, but that is where we
will actually see when the new business starts.
I can give you the numbers of how many went to the two-day
course, the numbers who have gone to the eight-week online
course, those who completed the eight-week online course. As I
mentioned, we did that without any funding, so capacity was an
issue. We were only able to get a fraction and the waiting
lists were long for the eight-week online course. But our
intent is to be able to tell you how many new starts we have
got at the one year mark, at the three-year mark, and what the
mortality rate of the business is at five years.
If you look at our other veterans' programs, I can tell you
that for EVB, for example, or VWISE. And I will tell you that
in our programs, which have an online component, our start rate
is over 50 percent at first year and at year three we are over
70 percent of participants who complete the course starting new
businesses. So our track record with veteran entrepreneurship
is very high, but we are still within that window where we
cannot give you a new start number.
Ms. VELAZQUEZ. And will you submit to this Committee the
metrics and the data collection?
Mr. JEPPSON. Absolutely.
Ms. VELAZQUEZ. Okay.
Mr. JEPPSON. Absolutely.
Ms. VELAZQUEZ. Mr. Saade, and this is my last question, the
Growth Accelerators Pilot Program was originally envisioned to
operate with $25 million in appropriations and require a four-
to-one private investment matching. Is that correct?
Mr. SAADE. That was the original intent. That is correct.
Ms. VELAZQUEZ. So would you explain to me why was the
matching requirement eliminated in the Fiscal Year 2015 budget
request?
Mr. SAADE. The program, as well know, it is a brand new
program.
Ms. VELAZQUEZ. Yeah, I know that.
Mr. SAADE. And we just received funding for it eight weeks
ago. And we just recently received authority from OMB to
implement it. We are in the process of running a competition to
supply that money, so that was the most efficient way.
Ms. VELAZQUEZ. My question is why was the matching
requirement eliminated in the Fiscal Year 2015 budget?
Mr. SAADE. I have to get back to you.
Ms. VELAZQUEZ. Well, it is important. Let me explain to
you. Because we are facing budgetary constraints, and we do
know about the effectiveness of the Small Business Development
Centers, of the Women's Business Development Center, of the New
Markets, SBICs. And for the Women's Development Center, there
is a matching requirement and they have to fulfill that. So why
is it that the administration eliminated this requirement when
money is an issue? So we are going to have the public part of
it, so the government is putting the money, but then the
private sector is not required to put their part of the money.
That is not right.
Mr. SAADE. So the way in which accelerators work is you are
not making bets or specific types of investments in companies.
Just like the SBICs work, where you are providing money to
platforms. So the idea behind the program, and it is actually
pretty scalable, is that if you provide some operational funds
to some of these accelerators in areas where there are gaps,
not that much money is probably enough to get some of those
companies within the accelerators to get there. So if we would
have had more capacity to do it, we would have gone in a bigger
way, but with what we have we are able to do it.
Ms. VELAZQUEZ. I guess the simple answer here is that it is
an unauthorized program. And basically, taxpayers are the ones
paying for it after we created this illusion that it is a
public-private partnership.
Thank you, Mr. Chairman.
Chairman GRAVES. Mr. Luetkemeyer.
Mr. LUETKEMEYER. When I looked at the information for the
hearing today and I saw what was going on I was like, you have
got to be kidding me.
I am kind of curious. When you started creating all these
programs, did any of you contact the ranking member of the
chairman to see if it was okay to go ahead with this? Or did
you just continue on down this road without any sort of
Congressional correction whatsoever?
Ms. Montgomery, yes or no?
Ms. MONTGOMERY. Well, I was not in this role when these
programs were created. As I mentioned, the Emerging Leaders
Program has been around since 2007, and the Regional Innovation
Clusters has been around since 2010. And so I am not able to
answer your question.
Mr. LUETKEMEYER. Okay. Mr. Saade.
Mr. SAADE. The agency takes direction on what programs to
fund from the Joint Statement of Managers from the
Appropriations----
Mr. LUETKEMEYER. You did not call the chairman or the
ranking member to see if it was okay to expand your role. Yes?
No?
Mr. SAADE. Me, personally? No.
Mr. LUETKEMEYER. Okay.
Mr. JEPPSON. Sir, if I could, we believe that we have
statutory authority to execute----
Mr. LUETKEMEYER. Well, obviously today there is a lot of
discussion about that. We do not think you do.
Mr. JEPPSON. Sir, in the 2008 Small Business Act, it
directs us to participate in the Transition Assistance Program.
That is what Boots to Business is. It is simply the
entrepreneurship track of the Small Business Act that
authorizes----
Mr. LUETKEMEYER. It looks like----
Mr. JEPPSON. Sir, it is also authorized again in the BOW
Act and in Public Law 110 which was the originating act for
TAP. So I had what I believe was authorization and finally
received funding this year to execute what we were authorized
to do for some time.
Mr. LUETKEMEYER. Where did you get all the funds? You took
funds away from other programs to do this, did you not? All
three of you, you took funds away from other existing programs
to do these new programs. Is that correct?
Ms. MONTGOMERY. No, we did not. We received line item
funding for Fiscal Year 2014 for the programs that we are
discussing today.
Mr. LUETKEMEYER. Mr. Saade.
Mr. SAADE. It is the same answer. Line item funding.
Mr. JEPPSON. Sir, the same here. The $7 million that we
have for Boots to Business is a new appropriation and a line
item funding in the ED account.
Mr. LUETKEMEYER. Well, this is kind of interesting. There
does not seem to be that feeling on this side of the table. I
am very concerned about the direction of the agency from the
standpoint that it does not seem to be a coordinated effort
between the agency and Congress. As a member of Congress, our
job is to represent the people, their concerns, their money,
and make sure that it is maximized by the way it is spent to
help the economy. SBA is something that should be helped with
our local economies, the small business folks. Those dollars,
we as a congressional group are responsible for those. And to
basically go off and do some of these initiatives, which I
applaud your willingness to think outside the box and do some
new things here perhaps, but some of these look like
duplicative programs to me. We are taking money from other
programs, depending on what agency you were looking at, and it
does not appear to us to be the direction you need to go.
Mr. Chairman, I would recommend that you request a report
from these different agencies and probably SBA as a whole and
have it submitted to you within the next 60 days for these folk
to evaluate what programs they feel are necessary, they would
support, and ask for approval from this Committee to enlarge
their role to those new programs, and also ask in that report
which programs are going to wind down and how quickly they are
going to get done, because I think it is important that we
control the SBA. That is our directive. This Committee's
directive is to control this agency and be responsible for its
actions, and at this point it does not seem like we are doing
that.
So I appreciate you bringing this Committee hearing to us
today, and I certainly applaud your efforts to try to again get
our Committee in charge of the actions of the SBA.
With that I yield back.
Chairman GRAVES. Thank you, Mr. Luetkemeyer.
I might point out that on February 21st, Ranking Member
Velazquez and I, we did request details on the SBA's use of
funds for these various initiatives, but the response we
received back, it appeared completely incomplete.
Mr. LUETKEMEYER. Mr. Chairman, with all due respect, I
think we need to follow up on that.
Chairman GRAVES. We are.
Mr. LUETKEMEYER. And if we do not get a response, I think
the director needs to be in front of us within 30 days here to
solve this problem.
Thank you, Mr. Chairman.
Chairman GRAVES. Mr. Schrader.
Mr. SCHRADER. I will yield my time to Ms. Chu. She has got
to leave here directly and go after the next.
Chairman GRAVES. Ms. Chu? Go ahead.
Ms. CHU. I am not necessarily against any new program;
however, I do want to make sure that a program is not redundant
and that it is authorized and that it is not taking away from
other important programs.
And so I wanted to ask Mr. Jeppson about the Boots to
Business Program. I wanted to know, you have the Transition
Assistance Program, you have the Veterans Business Opportunity
Centers, so why did you feel the need to create this program
and also make it seem as though it is a different program?
Mr. JEPPSON. Yes, ma'am. It is actually apples and oranges,
if you will.
The VBOCs were authorized in 2008 under the Small Business
Act. Well, those are similar to SBDCs or WBCs, and there are 15
of them scattered throughout the nation. With Boots to
Business, it is the track that we teach as part of the
Transition Assistance Program for transitioning veterans, those
leaving active service and returning to civilian life. The
VBOCs in one or two instances are co-located next to military
installations, and they do teach the Boots to Business class.
But many of them are located in areas that are not close to
installations, but they focus on the veteran entrepreneur who
is out there already starting a small business or in the start-
up phase in their hometown when they return. As you know, most
veterans will exit the service and return to their hometown and
it is nowhere near an installation. So the limited number of
VBOCs we have and the rest of the SBA Resource Partner Network
is there to support those veterans. But the Boots to Business
money is directed specifically at the transitioning vets and
handles--when TAP became mandatory, we started to get an influx
of veterans that come through the TAP pipeline. So where we had
a few thousand going before when it was optional, now we have
250,000 every year who come through the pipeline. So we needed
to have a program to handle the number of veterans that would
take the entrepreneurship track, and that is what Boots to
Business is focused on.
I can tell you that as a veteran who has transitioned and
ran a small business and made a few mistakes when I was running
that small business, I wish I would have known about a SBDC or
a VBOC just down the road from my house. It could have saved me
a lot of headaches.
In the same vein, one of the most important things that we
do in the Boots to Business class is, because we do ask the
resource partners to teach those classes on base, and now with
this funding we will actually pay them to do that and cover
their travel costs, the introduction to that network is
extremely important, because when they do transition, they are
not going to leave from that installation and start a business
in that community. They are going to go back home and start
their business, whether it is rural American or inner city
America or the suburbs. And so that knowledge and that
interaction with the Resource Partner Network is one of the big
benefits we see in the Boots to Business Program, which is
simply the name we gave to the Transition Assistance Program,
our component of the Transition Assistance Program that we have
been told by Congress to execute.
Ms. CHU. So I understand, because you said it a few times,
about the authorization for the Transition Assistance Program,
but did you really need to develop this Boots to Business
Program? Because I do not think there was an authorization
specifically for a Boots to Business Program; right?
Mr. JEPPSON. No, ma'am. What it does say is it tells us to
develop written materials and materials for the TAP program.
Boots to Business was just a branding that we gave to those
materials that we created for the Boots to Business, and then
with the service, as you can imagine, the service is like a
uniformed product for all of the service members and it is
modular and it fits within the TAP Program. That is what we
have distributed to the resource partners to use. So that if
you are exiting from Stuttgart, Germany, or if you are exiting
from Davis-Monthan or Pearl Harbor, you are going to get the
same curriculum taught by a resource partner and that it is
uniform across there. It makes it easier for our service
members to deliver and for the Department of Defense to fit it
in their modular curricular system.
Ms. CHU. So basically, you are saying that this really is
the Transition Assistance Program, a subcomponent of it?
Mr. JEPPSON. Absolutely. It most certainly is.
If I could, just briefly, it is one component. There is a
component for Vo-Tech and there is one for Higher Education.
And there is mandatory for all people, all transitioning
service members, an employment workshop that is run by the
Department of Labor. We think that it is beneficial to those
who are not interested only in starting a business right off
the bat but because it is modular, many of the people who go
through the Vo-Tech training will come back and take that
because we believe that a lot of the people who go and further
their vocational education will be small business owners in
their community and can benefit from the Boots to Business or
the entrepreneurship track of TAP.
Ms. CHU. So I am assuming then that you are not taking
money away from the Veterans Business Opportunity Centers, the
Small Business Development Centers, and the SCORE chapters?
That is what I am concerned about.
Mr. JEPPSON. No, ma'am. We are not taking any money away.
As a matter of fact, what we had last year is we put 6,000
service members through Boots to Business, and I was not able
to reimburse any of the resource partners for the materials or
their time or their travel. We are putting grants in place
currently to be able to give them a stipend and the travel
money for each of the Boots to Business classes that they
teach. So it will actually go directly to the resource partner
who delivers the course online. That is what a portion of that
$7 million is for. In fact, it is almost half of the $7
million, a little over $3 million total.
And more specifically, to the VBOCs, the VBOCs were not cut
any. The Veteran Business Owners were not cut any. They have
been flat-lined at about $2.5 million since 2008.
Ms. CHU. Thank you. I yield back.
Chairman GRAVES. Mr. Schrader?
Mr. SCHRADER. Thank you, Mr. Chairman.
I understand you are all the sacrificial lambs, so please
do not take anything I say personally. You are doing what you
are trying to do and help people get jobs, and I appreciate
that.
Having said that, I guess I am curious. Each one of you
real quick, what are the top two, maybe three programs in the
SBA for small businesses? What do you think your top two or
three programs are?
Start with you, Ms. Montgomery, if you do not mind.
Ms. MONTGOMERY. Well, I believe the top thing that we do is
provide counseling and training to small businesses.
Mr. SCHRADER. I meant which program?
Ms. MONTGOMERY. So the programs that come out of my office,
the Office of Entrepreneurial Development.
Mr. SCHRADER. And you, Mr. Saade?
Mr. SAADE. We each manage, as you pointed out earlier, we
each manage a particular part of the agency.
Mr. SCHRADER. Well, I am not talking about just yours. I am
talking about the entire organization.
Mr. SAADE. The entire agency? I am not in a position to--we
have a new administrator, as you know, and she is tasked with
figuring out all the programs. What I can echo, what Tameka
said, is that the mission of the agency is to aid counsel and
help small businesses. And we do that through all these
programs.
Mr. SCHRADER. Mr. Jeppson, what do you think?
Mr. JEPPSON. Sir, if we broadly bend it, there are two
things that we do that are hugely important. Number one is we
provide access to capital. And two is we provide
entrepreneurial development. But the two go hand-in-hand. With
the entrepreneurial development, we help prepare small
businesses, and each in our own way, but then that access to
capital is vital. It is vital to our small businesses.
Mr. SCHRADER. I appreciate that. That is probably the best
answer I have heard so far, if I may say so.
You know, really, it is clear from my tenure on this
Committee, and I think the ranking member and the chairman
would agree that the SBDCs are right up there, the 504 program,
and the 7(a) program. Outside of that, I mean, there are a lot
of other good programs, maybe some of yours, but those are the
top ones.
I guess my question would be is that adequately funded? Is
anyone here prepared to answer that question? Or is that again
out of your sphere of influence and expertise?
Let us start with you, Mr. Jeppson, this time.
Mr. JEPPSON. Sir, I would hate to comment for the SBDCs. I
can tell you that our VBOCs operate on a shoestring. Our
average grant is about $150,000 a year, and that is not a lot
when you consider the amount of service that they give to our
veterans. As I mentioned, we only have 15 VBOCs.
Mr. SCHRADER. That is okay. I appreciate the work you are
doing for our veterans, absolutely. With the limited funding,
as the ranking member pointed out, it is tough to justify a lot
of these other new programs, and I am looking forward next year
to seeing absolutely great metrics, how well these new programs
are doing compared to the older programs that are now
underfunded as a result.
Did any of you know if the Small Business Development
Centers got an increase in funding this year? Ms. Montgomery?
Ms. MONTGOMERY. Yes. Over the previous year they did. And
so for Fiscal Year 2014, SBDCs are at $113,625,000.
Mr. SCHRADER. Is that adequate for their mission?
Ms. MONTGOMERY. Yes, it is.
Mr. SCHRADER. Okay. Well, my own SBDC officer does not
agree with you, and I bet if I was to talk to every single SBDC
officer around the country and various things, I do not think
they would agree with you. That would tell me, with all due
respect, you are a little out of touch with the folks you all
are supposed to be hopefully representing and advocating for at
the end of the day. I think it is a little disconcerting that
the agency--thank you for your comment--that the agency feels
like they can legislate all these new initiatives.
I guess my last question perhaps would be--second to last
question would be is it the responsibility of the executive
branch to be legislating programs?
I will start with Mr. Saade, just to make sure I am mixing
it up.
Mr. SAADE. No. That is not the intent of the division of
government. The executive branch is to execute and manage.
Mr. SCHRADER. That is my recollection, too.
Mr. Jeppson?
Mr. JEPPSON. Absolutely, sir. And as I mentioned earlier,
we feel that we are, and at least in my instance, executing the
statutes that are on the book.
Mr. SCHRADER. I appreciate that.
Ms. Montgomery?
Ms. MONTGOMERY. We believe we are operating under the
authority that we are given.
Mr. SCHRADER. But you do not think you should be
legislating, is that correct?
Ms. MONTGOMERY. Correct.
Mr. SCHRADER. Okay. So we agree on one thing anyway so far
on the panel today. That is a good start. And I appreciate the
fact you all think you are operating statutorily along the
lines of what is allowed. But as some of my colleagues have
said on both sides of the aisle, we are obviously in some
disagreement. What is prohibiting you all from coming to this
Committee after you dream up--that sounds inappropriate--come
up with an excellent new program and getting our consent or
buy-in? I mean, most good businesses, every small business I
have been involved in, usually you come up with an idea. You
have to get the team involved and have them support it,
otherwise it goes down. So what is preventing you from coming
to us about the Boots Program or the Entrepreneurial Growth
Program or whatever? Why have you not come before us and said,
``Hey, we would like to pursue this. We think it is under our
statutory authority. Do you agree?'' since we sort of make the
statutes.
Mr. Jeppson?
Mr. JEPPSON. Sir, happily. You know, I will be honest with
you, Boots to Business, we felt like we were implementing the
statute that Congress had passed. You know, we believe that we
have legislative authority. It is very----
Mr. SCHRADER. I understand all that. You have all been very
clear. But why not come and make sure that we agree with what
your interpretation is?
Mr. JEPPSON. Sir, I think we have. I must be missing the
disconnect on where, if we have statutory authority and
appropriation, that we have----
Mr. SCHRADER. Statutory authority is your--I will be done
here real quick, Mr. Chairman. I apologize.
Statutory is your interpretation. The Supreme Court
interprets a lot of things we never intend, and with all due
respect, so do the agencies. I know it is with good intentions.
The real world is we are the people that should be deciding
what happens or not. Whether or not it is a good idea or not.
We are the people that are elected. You are unelected people.
You are unelected officials, and I appreciate you are willing
to serve. Public service is tough these days, whether you are
on this side of the dais or your side of the dais, but it is
our job--our job, not yours--to come up with the programs that
should be going forward. And if they are not what we are
wanting, and you have heard uniformly no one is supporting any
of the programs that you have come up with, it seems to me the
logical thing would be to go back to the legislators, to people
who you agree should be legislating and say is this a correct
interpretation of where we should be going?
With that, I yield back, and I appreciate you coming all
before us.
Chairman GRAVES. Mr. Schneider?
Mr. SCHNEIDER. Thank you, Mr. Chairman. I believe I am the
last, so we are almost at the end.
I appreciate you coming here. I appreciate the candor
within the exchange.
Look, having spent my career with small business, I
understand the need for constant innovation and coming up with
new ideas. I think what we are hearing today is the innovation
within the SBA, within the agency, needs to fall underneath the
guidance of this body of the people here. There needs to be
measurement, and we touched on some of those, and there needs
to be accountability. And my frustration is where we get
outside of those bounds. But it is important that we do make
sure that the guidance comes here. The need to help small
businesses grow and prosper, accelerators to help small
businesses go from idea to start-up to step-out to success,
help veterans that are coming back and going truly from Boots
to Business but integrating back into civilian society, they
need to know the lessons they have learned and the skills they
have developed, how to apply them.
And again, speaking just for myself, there is no greater
application than being your own boss, but there is no better
way to be your own boss than learning the lessons from other
people. So these, while good ideas, have to fall within the
guidance of the programs we are laying out or the objectives we
have set.
Having said that, Ms. Montgomery, let me turn to you and
talk about the sense of clusters, because there is a lot of
discussion around the country on clusters and the ability to
get people. In my district, we have a large pharmaceutical
cluster, and there is a lot of small, medium, and large
companies, but a lot of start-up opportunities. We have a lot
of manufacturing. My district is the third highest
concentration of manufacturing. There are small companies
coming in there.
What do you see or can you further explain how clusters
play a role in the strategy of what you are trying to
accomplish at the SBA?
Ms. MONTGOMERY. Yes, thank you for the opportunity to
respond.
You know, one of the things I said in my opening testimony
is that the programs that I spoke about and that I am here to
talk about today really focus on how do we help growth-oriented
businesses scale up and grow? Because we understand and the
research shows that jobs are really created by established
businesses growing and expanding. And so what our clusters do
is give small businesses an opportunity to participate in the
clusters. We know that oftentimes in the clusters you have this
conglomeration of large businesses that are receiving business,
but sometimes small businesses are not able to get in there and
really access the opportunities and the revenue generation that
is taking place. And so with SBA, our clusters is really about
how do we increase participation of small businesses in those
various clusters throughout the United States so that we can
see increase in jobs, increase in revenue of those small
businesses. And so that is the role that SBA is playing in this
space.
Mr. SCHNEIDER. Now, as far as clusters integrating with
institutions like accelerators or incubators, I will throw it
to both of you, how does that play, and how do we make sure
that we are working hand-in-hand within the different
departments of the agency and we are not creating the concern
here you are hearing of redundancies and overlap and the
alternative separation? How do we make sure that what we are
doing is reinforcing each other rather than working against
each other?
Ms. MONTGOMERY. Well, as my colleague mentioned in his
opening statement, when we look at clusters, in a cluster you
may have an accelerator that is participating in that broader
cluster, so they are most definitely working together.
Mr. SCHNEIDER. Mr. Saade?
Mr. SAADE. Yeah. No, I think the way to think, I mean, you
can probably put the different models in a continuum of where
they are. Is it an idea on a napkin? Is it poised for very fast
growth quickly or is it more measured growth? And you can map
where those different models of acceleration or creating
clusters around Centers of Excellence. So there is no
duplication. These are two models that enable us to deliver on
our mission, which is not only to continue to help create jobs,
but also the small business economy, just like our overall
economy, is a very complex machine. And a lot of the focus that
we have been discussing has talked about a lot of the SBDCs and
the traditional loan programs, which are for more traditional
businesses, but there is another set of constituents which are
a very important part of our economy and either they are growth
or high-growth, but both of those things need to be served
differently. So we are working within the bounds of our
authority as we understand them. It sounds like there is
obviously some disagreement. Are we doing it? Are we not? But
at the end of the day what we feel is that just--you mentioned
you were in the private sector. I was in the private sector,
too, and the people we serve, be them in Main Street or in the
high-growth sector, they are entrepreneurs.
Mr. SCHNEIDER. I think, and I will close with this, I think
it is crucial, as you come up with these ideas, you work with
programs, that you come to us. You talked about being within
the mission. The mission comes from Congress. Comes from this
Committee, and it is important that we understand that the work
you are doing, the impact you are having, and I am going to
close and touch on Boots to Business. The ability to help
individuals and entrepreneurs is critical, but it has to fall
within the guidelines of what we are laying out here. I think
that is important.
We have a program in my state, in my district, a Veterans
Rapid Employment Initiative. It is a two-week, simple program,
but it is introducing veterans to new ideas, new opportunities
that they may not have seen before. Stuff working in partnering
a public-private sector partnership where you can do that.
Bring it to us, highlight it, celebrate it, and get us behind
it, but make sure it is coming from our direction and not
outside on the initiative.
With that, I will yield back. Thank you again.
Chairman GRAVES. With that, I want to thank you all for
participating today.
It is evident that both the Committee and SBA want to
bolster the growth and development of entrepreneurs around this
country. However, with limited federal funds, the Committee has
to ensure that necessary programs remain intact, while
advocating for the elimination of those that are just simply
redundant or ineffective.
And with that, I would ask unanimous consent that members
have five legislative days to submit statements and supporting
materials for the record.
Without objection, that is so ordered.
With that, the hearing is adjourned. Thank you.
[Whereupon, at 2:30 p.m., the Committee was adjourned.]
A P P E N D I X
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Veterans are a cornerstone of small business ownership.
They have the skills to adapt to many challenges as well as the
leadership and discipline required to own and operate a small
business. By investing in our veterans' futures, we are
investing in the future of America.
As small business owners, veterans continue to serve our
country and create jobs in our communities. According to the
most recent U.S. Census data, nearly 1 in 10 small businesses
are veteran-owned. These businesses generate about $1.2
trillion in receipts and employ nerly 5.8 million Americans.\1\
Reserch also demonstrates that veterans over index in
entrepreneurship. In the private sector workforce, veterans are
at least 45 percent more likely than those with no active-duty
military experience to be self-employed.\2\
Boots to Business is the entrepreneurial track of the newly
revamped Department of Defense Transition Assistance Program
(TAP) and provides transitioning service members with the
training, tools and resources they need to make the transition
from military service members to successful business leaders.
The program not only teaches participants business
fundamentals, but introduces them to the SBA network that
consists of 15 Veterans Business Outreach Centers, more than
100 Women's Business Centers, over 900 Small Business
Development Centers and more than 11,000 SCORE Counselors.
Often times, when a veteran returns home, they do not live near
a military installation, but these SBA Resource Partners are
dispered through the United States in local communities.
Since the creation of the Transition Assistance Program in
1990, the Small Business Administration has been providing
information and programs to those seeking to start their own
small business.\3\ The Office of Veterans Business Development,
within the SBA, has been intimately involved in providing the
programs and information to service members since we were
directed to do so by Congress in 2008.\4\
The overall goal of the TAP, which was developed at the
interagency level by DOL, VA, DOE and SBA, is to strengthen the
transition of all of our service members from military to
civilian life and to prepare them for success. Each service
member will receive ``core'' education in post-service
veterans' benefits. In addition, the goal is for each veteran
to choose from three ``optional'' tracks for further, targeted
training: 1) Higher Education; 2) Technical Training; and 3)
Entrepreneurship.
Boots to Business is the entrepreneurship track of TAP. SBA
was directed to provide training to veterans and oversee
participation of its Resource Partners by delivering the
entrepreneurship track to transitioning service members who
opt-in to receive entrepreneurship training. In order to handle
the increased flow of service members created by the VOW to
Hire Heroes Act,\5\ SBA used its existing authority \6\ to meet
its responsibility to train and educate veterans \7\ by
overseeing the participation of its Resource Partners.
The SBA's role in supporting veterans who are, or who want
to become, business owners has never been more important. Many
have either returned from overseas or are coming to an end of
military career and have both the skills and the motivation to
continue serving their country by building a business and
creating jobs for themselves, their neighbors and other
veterans.
In the first phase of the TAP program, transitioning
service members gain exposure to smal business ownership by
viewing an introductory video highlighting the character
traits, skillsets and lifestyles of successful entrepreneurs.
If a service member chooses to take advantage of the Boots
to Business program, they attend the two-day course, on their
military installation. SBA Resource Partners collaboratively
deliver face-to-face introductory entrepreneurship training as
a network. The instructors introduce transitioning service
members to the essentials of entrepreneurship including a
feasibility analysis, discussion of business financials and a
review of available SBA resources and programs.
The final phase of the course is an 8-week, interactive
course taught online by Syracuse University professors. The
course walks participants through the fundamentals of
developing a business plan, as well as other techniques and
tips for starting a business. The program not only teaches
participants core business fundamentals, it provides a lifetime
of business support available locally across the U.S. by
introducing them to SBA's network of VBOCs, Women's Business
Centers, Small Business Development Centers and SCORE
Counselors.
With the funding provided for Fiscal Year 2014, the SBA
plans to expand Boots to Business to more military
installations within the United States and launch the program
internationally. We project that we will train an additional
12,000-15,000 participants through Boots to Business in FY
2014, setting these separating service members on the path to
realizing the American Dream of self-employment and small
business ownership.
Participation in the Boots to Business program is as
culturally dynamic as the services themselves. In 2013, 21
percent of Boots to Business participants were African
American, ten percent were Hispanic, five percent were Asian/
Pacific Islander and two percent were American Indians/Alaskan
natives. Women, especially, are over indexing in Boots to
Business. Though women make up 14% of the services, they make
up 25% of Boots to Business participants. Spouses of
transitioning service members are also taking advantage of the
course as a way to provide stability for their families.
By training transitioning service members in the Boots to
Business program, we are introducing them to the SBA network
and the resources we provide. Introducing vets to SBA's network
provides them with a network of counselors who will be able to
assist them not only when they start their business, but
continue to assist for the rest of their lives as they run and
grow their businesses.
Investing in our veteran is investing in America's future.
We know that our nation's veterans helped reshape the American
economy following World War II. They helped to build one of the
longest periods of economic growth in our country's history.
And, we know they can do it again.
The SBA is committed to ensuring that these amazing men and
women have the training, access and opportunity they need to
fully recognize their potential as entrepreneurs and small
business owners. There is no one who deserves to live the
Amerian Dream more than those who wore the uniform and fought
to defend it. Thank you for your time today and for allowing me
to appear before this committee.
----------------------------------------
\1\ ``Survey of Business Owners - Veteran-Owned Firms, 2007,'' U.S.
Census Bureau, Department of Commerce, May 2011.
\2\ ``Factors Affecting Entrepreneurship among Veterans,'' Office
of Advocacy, U.S. Small Business Administration, March 2011.
\3\ 10 U.S.C. Sec. 1142 (b)(13), Pub. L. 101-510.
\4\ 15 U.S.C. Sec. 657b (d)(1), Pub. L. 110-186.
\5\ 10 U.S.C. Sec. 1144 (c), Pub. L. 112-56.
\6\ 15 U.S.C. Sec. 637 (b)(1)(A), Pub. L. 106-554 and Pub. L. 108-
447, 15 U.S.C. Sec. 637 (b)(17), Pub. L. 105-135 and Pub. L. 108-447,
and 15 U.S.C. Sec. 648 (n)(1), Pub. L. 110-186.
\7\ 15 U.S.C. Sec. 657b (d)(1), Pub. L. 110-186.
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Chairman Graves, Ranking Member Velazquez, members of the
committee--thank you for giving me the opportunity to speak on
some exciting programs today.
I am proud to report the important work my office is doing
to support high growth small businesses across the United
State; I want to start by giving a quick overview of the
programs in our office. I will then discuss our regional
innovation clusters program and our growth accelerator fund--
two programs which are part of what we call the
entrepreneurship ecosystem and are designed to further support
start-ups and job growth across the country.
SBA's Office of Investment and Innovation (OII) leads
programs that provide the high-growth small business community
with access to two things: financial capital and R&D funds
aimed at commercializing technologically driven innovations. We
do this primarily via three programs which you are familiar
with--the Small Business Investment Company (SBIC) program, the
Small Business Innovation Research (SBIR) program and the Small
Business Technology Transfer program (STTR).
Since 1958, the SBIC program has served as a model of
successful public-private partnership in which the SBA
guarantees leverage to privately owned and professionally
managed private equity funds that in turn provide long term
loans and equity funding to small businesses. Last fiscal year,
SBICs provided almost $3.5 billion in financings to 1,068 small
businesses across the country, the highest amount of financings
in over ten years. For every dollar of SBA-guaranteed leverage
issued to SBICs in 2013, SBICs provided two dollars in
financings to small businesses. Today, the program oversees
about 280 active SBICs with over $20 billion in private and
SBA-guaranteed capital under management. Given SBICs have
already provided almost $2.4 billion in financings as of the FY
2014 midpoint, we expect to exceed FY 2013 numbers.
The SBIR and STTR programs are two set-aside programs
designed to help small businesses compete in the world of
federally funded R&D and help drive them towards
commercialization of their inventions and ideas. These programs
are paramount in keeping the U.S. at the forefront of science
and technology in our global economy given the dearth of
investment at the earliest stages of world-changing
innovations.
The SBIR program operates across 11 government agencies
through which R&D grants are awarded to small businesses, so
they can support the needs of the federal government. Thanks to
the work of this committee, this program is authorized to be
2.8% of the extramural research budget; and up to 3.2% by 2017
for all agencies with over $100 million in extramural budgets.
The STTR program operates across 5 government agencies and
facilitates cooperative R&D between small businesses and
research institutions in the United States. This makes up .35%
of the extramural budget for the five agencies with extramural
budgets over $1 billion.
In addition to these programs, my department works on a
series of other projects related to innovation. To keep the
U.S. in a leadership role, SBA, and in particular the Office of
Investment and Innovation are especially focused on that second
``I'', the one for Innovation. Our office is committed to
helping innovative Americans access capital and launch lasting
businesses in new and cutting edge ways.
In the first half of the 20th century large corporations
were key drivers of our country's innovations. This is no
longer the case as the entrepreneurial ecosystem has been
significantly atomized in terms of innovation, capital,
institutional support and human resources. This atomization has
created an entrepreneurial ecosystem that is the most dynamic
in the globe, but in which funding gaps still exist, especially
geographics that are far from the coasts. In the past three
years, almost 80% of U.S. early and seed stage venture
financings were provided to companies in four coastal states:
California, Massachusetts, New York and Washington.\1\ These
figures demonstrate that startups and small businesses in other
parts of the country have less support from conventional
private capital and the big banks. But what they can do is pool
together talent and resources, share best practices and create
their own local ecosystems. At the SBA we are aiding in this
process through Regional Innovation Clusters and the new Growth
Accelerator Fund.
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\1\ Numbers based on Thomson One Data for all U.S. Venture Capital
Deals between 1/1/2011 and 4/15/2014.
Capital isn't available to small startups from large banks
and institutions in the way it used to be pre-2007. Regional
Innovation Clusters tap into resources, talent and capital to
create deeply entrenched networks for industry or region
specific groups of small companies. Through these clusters,
companies have access to technology and opportunities which
---------------------------------------------------------------------------
they otherwise wouldn't be able to tap into.
Accelerators are typically a physical microcosm (think of a
hub) of these larger clusters (think of threaded spokes). They
provide physical space, mentoring, networking, and often
capital to the smallest startups; usually on a rotating basis
of 3 to 9 months cohorts; or until a startup can graduate and
continue to grow on its own. Accelerators fill a resources gap
in the entrepreneurial ecosystem in a new and exciting way; and
they're growing--SBA estimates that there are now about 700
accelerators in the United States.
To that end, SBA is launching a $2.5 million contest for
accelerators. The cash awarded to contest winners is to assist
in funding their operations and thus allow more capacity to
scale up. The overall goal of the competition is to award
capital to the best in class models, with a special focus on
geographic areas in which financing is in short supply, and
models which are run by women or other underrepresented groups.
SBA will use evaluation criteria similar to those we use to
evaluate our SBIC applicants; management team; track record;
business model/strategy; and policy impact (including
identifying what gaps the applicant will fill). We will award
entities that have the best models for financial success and
impact. Winner will be selected by a combination of SBA
personnel with experience in evaluating venture fund
performance as well as people from the private equity industry.
We will be announcing this contest through a variety of
media conduits, as well as through events such as Demo Days and
webinars, in partnership with groups such as the Global
Accelerator Network. We will make the award decisions by the
end of this fiscal year, and winners will be asked to report
back results on a quarterly basis.
SBA will forge long term partnerships with these
accelerators. Through establishing these relationships, we will
be introducing a sector which, historically, has been
unfamiliar with SBA's suite of services and connecting them to
our resource partners' programs and our more traditional loan
programs.
Thank you and I am happy to answer any questions you may
have.
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Chairman Graves, Ranking Member Velazquez, and
distinguished members of the Committee. Thank you for inviting
me to testify before you about our Regional Innovation Clusters
and our Entrepreneurship Education Programs.
Strong and thriving small businesses are key to a
flourishing economy. While we know that small businesses create
2 out of every 3 net new jobs, the bulk of these new jobs are
being created through the sustained, incremental expansion of
existing small businesses across a wide range of industries.
According to outside sources 92% of new jobs come from the
expansion of existing businesses; while start-ups accounted for
around 7% of net new jobs in the past decade.
SBA believes, that by providing additional technical
assistance to more growth-oriented entrepreneurs, our
government's limited resources will be maximized and
strategically focused on the firms that have the highest
potential to create a positive economic impact. SBA's Clusters
and Entrepreneurship Education Program do exactly this. Each
program has a proven track record of helping entrepreneurs
better lead and grow their businesses.
SBA created the Clusters program to strengthen small
business participation in existing regional economic clusters.
We do this by fostering a network of businesses, universities,
and investors that work to grow a related set of industries.
Leveraging these resources, each cluster acts as a
networking hub, connecting small businesses to innovation
assets while providing targeted matchmaking, training, and
mentoring.
Small businesses participating in our clusters are able to
access new markets and commercialize products, thus
accelerating their growth. These clusters are powerful at
creating an environment where small businesses can successfully
participate. According to the data:
Revenue of small business participants
increased by 23%;
Employment grew on average by more than 18%;
And, the initiative helped small businesses
access more than $66 million in private funding sources
as well as $14 million from federal SBIR and STTR
awards.
The San Diego Advanced Defense Technology Cluster provides
expert assistance with product development, as well as
networking opportunities to help small businesses secure
customers and investors in cyber-security, autonomous systems,
and other defense-related sectors. Resource partners like the
North San Diego Small Business Development Center provide the
businesses with information and management assistance on the
key building blocks of business success.
Like the Clusters program, SBA's Entrepreneurship Education
Program helps equip entrepreneurs to better lead and grow their
businesses. Growth-oriented businesses face an entirely
different set of challenges than start-ups, and the
Entrepreneurship Education Program provides them with some of
the tools they need to sustain their growth trajectory. Through
this program we have seen much success with our Emerging
Leaders Initiative. This initiative, now in its seventh year,
was launched to assist small businesses in underserved
communities that are poised for growth. By providing nearly 100
hours of in-person and out of classroom coursework over a 7-
month period, business owners learn how to refine their core
strategy, gain a stronger foothold in the market, and secure
more customers.
A third party evaluator found that 62% of the 2012 program
graduates saw an average revenue increase of 45%; with the
median revenue increasing from $894,000 before participation to
$1.1 million following the first year of completion.
Additionally, 40% of participants in 2012 reported securing
government contracts with an average value of approximately
$2.1 million.
Leveraging SBA's local presence and convening power, our
District Offices administer this initiative while also engaging
local resource partners in a variety of ways.
Overall, the objective is for us to continue meeting the
needs of small business owners in the dynamic and changing
environment that exists for entrepreneurs. Our approach is
evolving and to meet those needs our Entrepreneurship Education
Program agenda will include more than the Emerging Leaders
Initiative. In the coming weeks and months we will be looking
at finalizing an initiative that builds off the existing
platforms through programs run within the agency.
In closing, both the Regional Innovation Clusters and the
Entrepreneurship Education Program help to improve the
competiveness of high-potential, growth-oriented small
businesses. We know these programs provide relevant assistance
and education that address the unique challenges of growing
small businesses.
Thank you for the opportunity to testify before you today.
I look forward to answering any questions you may have. Thank
you.
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