A Business Development Company, also known as a BDC, is an investment vehicle that invests in small- and medium-sized businesses. BDCs are similar to venture capital and private equity because they provide investors with a way to invest in small companies. Unlike VC and PE funds, however, a investments in a Business Development Company are open to non-accredited investors; shares are bought and sold on the open market (many are NASDAQ-traded).
BDCs were created in 1980 by an act of Congress to help small businesses raise capital. Capital formation for small businesses, however, is still an issue. In fact, according to a 2014 Pepperdine University survey, small businesses still raise external financing with significant help, even though BDCs have provided over $70 billion to small businesses since their inception. (This is one of the reasons the JOBS Act was signed into law).
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Investment capital raised by a Business Development Company remains under heavy scrutiny by the SEC although there have been some recent attempts to reform regulations and laws pertaining to BDCs.
Nonetheless, investors like the BDC vehicle because:
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By law, 70% of the investments a Business Development Company makes must be in:
BDC’s also have favorable tax advantages which add to their appeal. In short, BDCs are an important vehicle to fund small and medium-sized businesses while also allowing the non-accredited investor to participate in the investment.
To read more about BDC’s, Financial Poise recommends this excellent piece by By Ze’-ev D. Eiger and Anna T. Pinedo, of Morrison & Foerster LLP.
Jonathan Friedland is a senior partner in Sugar Felsenthal Grais & Helsinger LLP’s Chicago office. He is ranked AV® Preeminent™ by Martindale.com, has been repeatedly recognized as a “SuperLawyer”, by Leading Lawyers Magazine, is rated 10/10 by AVVO, and has received numerous other accolades. He has been profiled, interviewed, and/or quoted in publications such as Buyouts…
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