Adam Smith’s invisible hand sometimes gets help from Washington’s visible one. A prime example of this is a little-known federal program that has helped fund some of America’s largest and most successful companies. Small Business Investment Companies (SBICs)—federally subsidized investment firms—invested in Apple, Tesla, and Intel before they became household names and funded retail giants such as Costco, Whole Foods, and Staples. Some have argued that these vehicles helped pave the way for modern-day venture capital (VC). In 2024, SBICs invested $7.3 billion in American small businesses.
SBICs are investment firms licensed by the Small Business Administration (SBA). In exchange for additional regulatory oversight and certain investment requirements, SBICs can borrow money from the SBA to launch their funds and invest. Their primary restriction is that they can only invest in small businesses, defined as businesses with less than $24 million in net worth or below the SBA’s size standards for their industry. This sets the SBIC program apart from many other government investment programs, which are typically narrower in scope.
At first glance, the SBIC program looks unusual. Why would the government give money to private equity or venture capital? The United States lacks the tradition of government equity investment found in countries such as France, Norway, the United Arab Emirates, and Singapore. While the United States has programs to spur investment, such as the chips Program Office in the Department of Commerce and the Loan Programs Office in the Department of Energy, these are loans for large businesses that historically did not involve equity stakes
