House Small Business Committee Subcommittee Hearing Highlights How Private Capital Provides Critical Support to Small Businesses
Testimony from small business owners emphasized the importance of private investment in growing and scaling small businesses and creating jobs in local communities
WASHINGTON, D.C. – On Tuesday, March 12th, the House Committee on Small Business’s Subcommittee on Oversight, Investigations, and Regulations held a hearing to discuss the critical role private capital plays in helping small business owners start, grow, and scale their businesses.
During the hearing, titled “Navigating Regulations: Alternative Pathways to Investing in Small Businesses,” Subcommittee Chairwoman Beth Van Duyne (R-TX-24) and members of the subcommittee heard testimony from two business owners – Parag Shah, co-founder and CTO of hospitality mobile payments and analytics company Vēmos, and Mary Kennedy Thompson, COO of home services company Neighborly.
The witnesses shared how private equity firms have provided capital, resources, and guidance to help them grow their businesses. In addition, they emphasized how unnecessary regulations are costly, complicated, and overly burdensome on small business owners and workers.
In her opening statement, Chairwoman Van Duyne emphasized how new regulations make it more difficult for small business owners to succeed, referencing a community banker in her district who told her that existing regulatory barriers mean “capital is sitting there and her hands are tied.” Chairwoman Van Duyne added that “our small businesses are getting left behind because this administration continues to impose new regulations and direct investment where they think it is best, rather than allowing meritocracy to prevail … Since the day President Biden took office, he has burdened our job creators with more than 287 million hours in additional paperwork.”
Thompson shared how private investment was integral in starting her own career as a business owner, comparing strong private equity partnerships to “rocket fuel that takes [a] business into that stratosphere.” She said, “I have lived the American dream of being an entrepreneur, and helping grow and scale businesses. But it would not have been possible without alternative forms of capital. Private equity for me has been a catalyst for growth and for many of our franchisees at Neighborly.” Thompson added that, “the benefits of private equity networks extend well beyond financial backing. They open doors for our franchise owners and help them connect to potential clients, suppliers, and other businesses within the portfolio. These relationships can supercharge in terms of new partnerships, joint ventures, and new market opportunities.”
Chairwoman Van Duyne asked Shah about new regulations on mergers and acquisitions. “In the private equity space, merger and acquisition transactions are a vital tool to help businesses expand into new geographic markets. They also help fuel innovation and lower prices. While most mergers do not require additional information, once a pre-merger notice is filed with the FTC and DOJ, a small percentage are subject to additional review out of fear of possible antitrust harm. In your testimony, you mention that you’re concerned with one of the newer FTC proposals that would subject every pre-merger notice to additional review, which would force small businesses to spend a lot more time and money on providing likely unnecessary documentation. Do you believe that this will affect one’s ability to find alternative financing, and if so, how, and why?”
Shah responded, “I believe that because when you’re starting a business, specifically small businesses that are in technology and software that are very high, fast-growth companies, and it’s required to go after private financing, like angel investing and venture capital, it is important that we have an exit strategy. If that exit strategy by any means is compromised or could be compromised, even the eyes of an individual, a fund, society in general, then it definitely impacts our ability to raise that capital.”
When asked by Rep. Eli Crane (R-AZ-02) about whether regulations cause entrepreneurs to forgo resources from banks and the Small Business Administration, Shah responded, “I’ve definitely noticed a lot more of that. I can say from my perspective in the type of businesses that I’ve run in the technology sector where it’s software-based, it is extremely difficult, if not almost impossible, to go get traditional lending because we don’t have assets such as a physical location and physical assets. They don’t really deem software as something that is able to be collateralized. So, it’s very difficult. Private equity, whether it’s angel investors, seed rounds, or venture capital, is just the route you have to take. There aren’t really a lot of other financing options.”
Rep. Mark Alford (R-MO-04) asked Thompson how private investment helped Neighborly grow, stating, “Private equity is an essential tool for small businesses looking to access capital and actually grow. In our district alone, there was $1.4 billion of private credit investment in 2022. Unfortunately, the Biden administration cannot abide any pathway for Main Street to grow and has released new merger guidelines through the FTC and DOJ that curtail private equity’s ability to invest. By the FTC’s own estimate, the new merger guidelines would lengthen the process for filing by 300 percent. I feel that’s unacceptable. Over the next decade, compliance with President Biden’s regulations will cost Americans more than $1.5 trillion.”
Thompson agreed, adding, “When I came into [Neighborly], we were doing $400 million with six brands, and today we’re doing $4.1 billion with 30 brands. It is a testament to the private equity investment that our PE sponsors have made with us. Along the way as we’ve grown, we’ve been able to grow our franchisees as well because we’ve had the right resources at the right time to bring in the right talent to be able to have the right access to capital so we could buy some of those companies to be able to provide our customers the right and best experience.”
Watch the full hearing here.
