2013 Management Excellence

Harry Haskins and the Team

Revitalized a faltering small business investment program, putting billions of dollars in the hands of entrepreneurs who have created thousands of jobs since 2009.

As the U.S. economy was sinking into recession in 2008, a Small Business Administration (SBA) program designed to provide investment capital to private equity firms was stagnant and ill-prepared to help stimulate economic growth. The program officials had a reputation for being unresponsive and slow to act, and private-sector investors still had concerns about the failure of a sister program four years earlier.

Thanks in part to Harry Haskins, the deputy associate administrator of the SBA’s Investment Division, this state of affairs began to change in 2009. Haskins led his team to institute a series of reforms that included streamlining and simplifying the licensing processes to more quickly make private investment firms eligible for funding. At the same time, commercial financial institutions had stopped lending as the economic crisis worsened, making the guaranteed loans from government’s Small Business Investment Company (SBIC) program more attractive.

Haskins and his staff cut average processing times to license new investment firms from just under 15 months in 2009 to just over five months in 2012, and they committed $1.9 billion in funds to the private equity firms during 2012 alone compared to $788 million in 2009. These investments led to the creation or retention of an estimated 63,000 jobs in 2012 compared to about 28,000 three years earlier.

“Harry and his team were vital in transforming the SBIC into a model public-private partnership and elevated it to meet the desperate need of the economy for capital,” said SBA Administrator Karen Mills. “What’s more, the program is zero cost to taxpayers—a true win-win.”

The SBIC licenses privately owned and managed investment companies that use their own capital plus funds borrowed from lending institutions with an SBA guarantee to invest in qualifying small businesses.

An investment firm can borrow up to $150 million to invest in U.S. small businesses, which are defined as companies with a tangible net worth of not more than $18 million and after-tax earnings of not more than $6 million for the prior two years or meet alternative size standards of fewer than 500 employees. The investment firms pay interest biannually on the government-backed loans and must repay the principal within 10 years.

Since 1958, the SBIC program has invested approximately $63 billion in more than 110,000 small businesses in the United States, including many well-known companies such as Apple, Federal Express, Cray Computers, Callaway Golf, Outback Steakhouse, Jenny Craig and Pandora.

Brett Palmer, president of the Small Business Investor Alliance, said the revitalized SBIC has been “one of the great success stories of this administration.”

“Harry and his team took a moribund program and modernized it in the aftermath of the financial crisis to address a real market need,” said Palmer. “They kept standards high, and they attracted the highest level of fund managers to the program.”

In addition, Haskins had to overcome risk aversion stemming from an SBA venture capital investment program that was shut down in 2004. The Participating Securities Program had lost an estimated $2.5 billion, partially because of early-stage technology investments that did not succeed.

Jonathan Swain, the SBA’s chief of staff, said Haskins and his colleagues took the floundering SBIC program and “pulled it apart and put it back together.”

“They had to balance internal and external stakeholders’ interests, overcome past critics, and build new processes while accounting for risk management and their statutory authority,” said Swain. “It was difficult. They had to thread a needle and choose the right path.”

Sean Greene, former SBA associate administrator for investment, said job creation is critically important in today’s economy, making it essential to provide aid to small businesses that provide employment. In the past three years, Greene said the streamlined program has delivered more than $7.5 billion in capital to small businesses through private investment firms, and helped create or retain more than 160,000 jobs.

“At a time when Congress wasn’t doing a lot of new things, Harry and his team were able to take a program and do more with it without having to write new laws or regulations, but just by managing it better,” said Greene.

Haskins said the program is now licensing four to five times more investment firms a year compared to 2008, putting out three times more capital for private equity firms to invest than it did in 2009, and has made the SBIC financing relevant to the capital markets.

“We have put a lot more money in the hands of small businesses to grow and expand,” said Haskins. “In light of the current economic conditions, the tangible connection between our efforts and the growth of small businesses is something that makes us all very proud. We know we’re having an impact and doing it efficiently.”