SBA Form 2181 Pre- Pre-Screen SBIC MAQ Short Form

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Overview

Instructions
Overview
Narrative
Investment Track Record
Principal Bios

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Sheet 1: Instructions

Short Form 2181 "Pre-screen" Instructions

OMB Approval No. ####-####

Expiration Date MM/DD/YYYY

Application Instructions

SBA provides an optional Pre-screen that prospective applicants may consider completing and submitting to SBA. This an optional step, but one that is highly recommended for first-time applicants to the SBIC Program. Prospective applicants are invited to submit a Pre-screen Form 2181 and receive feedback. The feedback is informal and non-binding, but it helps prospective applicants better understand SBA’s underwriting criteria and reassess their own fit with the program. The Pre-screen 2181 contains a subset of forms contained in the full MAQ. Specifically: • The Overview • Narrative • Investment Track Record • Principal Biographies Completing this form can help prospective applicants prepare for the Management Assessment Questionnaire (MAQ) without incurring the cost of the MAQ Application Fee. This information gives background context to aid SBA in providing informal feedback. Once this Pre-screen (Short Form 2181) is completed, prospective applicants may submit the Pre-screen (Short Form 2181) via e-mail to [email protected] with the subject line “Pre-screen: MM/DD/YYYY: Name of Prospective Applicant”. If considering the SBIC Critical Technologies (SBICCT) Initiative the subject line should state “SBICCT Pre-screen: MM/DD/YYYY: Name of Prospective Applicant”. You will be notified of the receipt of your Pre-screen form via e-mail within 2 - 4 business days, and SBA may follow up to offer the opportunity to share informal and non-binding feedback related to SBA’s underwriting criteria and program considerations.

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Sheet 2: Overview

[Applicant Name]
Applicant Overview Information
License Type Requested	Standard Debenture SBIC
Requesting SBICCT Consideration?	Yes
SBICCT Areas Covered
Applicant Name	[Applicant Name]
Investment Firm/Organization	[Applicant Firm Name]
Manager Registered RIA?	No
Fund Vintage Year	20xx
Fund Jurisdication / Fund Structure	Delaware				Limited Partnership
Minimum Fund Size to Close
Target Fund Size / Hard Cap	$ Target				$ Hard Cap
Amount Raised	$									Enter this info for Final License Application
Paid in Capital	$
Number of Closings Completed
Date of First Close	dd/mm/yyyy
Minimum L.P. Investment Size	$
Investment from Sponsor % | $	%				$
Investment Period (years)	x
Fund Term (years)	x
Target First Close Date	dd/mm/yyyy
Target Final Close Date	dd/mm/yyyy
Fund Style	Private Equity
Fund Strategy	Hybrid Growth
Security Allocation Targets	(i.e. 30% equity co-investment, 30% direct equity, 40% debt)
Geographic/Regional Focus	U.S. Nationwide
Industry(s) of Focus	Healthcare
	Pharma, Biotech & Life Sciences
Target Fund Return (Net)	Net IRR Range	Low %	High %		Net MOIC Range		Low #.#X	High #.#X
Target Fund Leverage (Requested Leverage)	Dollars	$			Ratio to Private Capital %		%
Annual Management Fee	Example: Initial Investment Period = 2% of Unreduced Regulatory Capital plus Assumed Leverage; After the Initial Investment Period = 2% of the cost of loans and investments for all “active” portfolio companies.
Other Fees	description and %
Carried Interest	%
Preferred Return (if applicable)	%
Fund's Primary Benchmark
Investment Principals	Last Name, First Name ; Last Name, First Name
Key Person(s)	Last Name, First Name ; Last Name, First Name
SUBMISSION DATES
Pre-screen Submission Date	dd/mm/yyyy
Estimated Target Date for MAQ Submission	dd/mm/yyyy

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Sheet 3: Narrative

Narrative

OMB Approval No. ####-####

OMB Approval No. ####-####

As of Date:

dd/mm/yyyy

Expiration Date MM/DD/YYYY

Expiration Date MM/DD/YYYY

The narrative sheet and all requested attachments must be completed in full by all applicants.

Name of Applicant:

[Applicant Name]

License no.: 01/23-4567

1

Investment Strategy

1.1

Investment Strategy, Allocation and Transaction Types

Describe the fund's investment strategy and the types of transactions you intend to pursue. Describe how this aligns with the Congressional mandate and mission of the SBIC Program. Unless it does not apply, please address the following elements:

1. Asset class and strategy 2. Investment mix (funds, directs, equity, debt etc.) 3. Geographic focus 4. Industry focus 5. Stage of investment

6. Company size 7. Investment/Deal size 8. Ownership/Control 9. Lead, co-investor or sole investor 10. Investment pace

For Reinvestor SBICs ONLY, include a description of the Underserved focus of the proposed fund and how this is reflected in the fund's investment strategy.

Response here. Limit to 500 words.

1.2

Approach to Portfolio Construction

Describe how you approach portfolio construction. Include details related to your allocation policy, targeted range for the number of portfolio company investments in the fund, approach to follow-on investments (if applicable), reserves management and recycling.

Response here. Limit to 500 words.

1.3

Leverage at the Portfolio Company Level

Whether you are primarily an equity or debt investor, discuss your view of the use of leverage at the portfolio company level. Identify the key leverage metrics you evaluate when making an investment and state your preferred leverage level for a typical investment.

1.4

Market Opportunity

Please explain the market dynamics underlying your strategy. What are the key macroeconomic or industry specific factors that will drive deal flow for your strategy? What key factors will determine your opportunities for exit and liquidity?

1.5

Competition

Identify your direct competitors and explain your competitive advantage(s).

1.6

Risk Management

Please identify the major risks to the success of your investment strategy. Describe your approach to identifying and managing risk.

1.7

Economic Impact

The SBIC Program was created to facilitate the flow of long-term capital to American small businesses and startups. Please discuss the economic impact you expect your investment activities will have on American small businesses and their employees. Please use data to support your response.

1.8

Restricted Use of Federal Funds

The following categories would result in either criminal liability for the SBIC and its managers or are otherwise prohibited under the program: Human Trafficking, Pornography, Tobacco, Federally Illegal Substances, and International Reinvestment. Will you restrict from investing in the following areas?

2

Firm and Team

2.1

Firm Overview

Please provide a brief history of your firm (including any affiliates) and describe all investing, advisory or other business activities the firm currently conducts, or will conduct in addition to managing the SBIC.

2.2

Team History

Briefly describe the origins of this team and any shared work history of the Principals. Please include dates, the context in which the Principals met, worked together, and the organizations for which each principal worked at the time.

2.3

Team Cohesion

2.3.1

Are there any known conditions (health, litigation, financial, personal, etc.) of any of the Principals that might affect their ability to execute their duties to the firm or the SBIC? If yes, please provide an explanation below.

2.3.2

In the past 5 years, have any senior members of your team departed the firm? If yes, please provide their names, titles and briefly explain the reasons for their departure.

2.3.3

In the past 2 years, have any employees departed the firm? If yes, please provide their names, titles, tenure in years, and briefly explain the reasons for their departure.

2.3.4

In the past 2 years, have you onboarded new employees to the firm? If yes, please provide their names, titles and tenure with the firm.

2.3.5

In the past 2 years, have you promoted any employees within your firm? If yes, provide their names and titles pre- and post promotion.

3

Investment Process

3.1

Overview of the Investment Process

Using a numbered list, please identify the steps in your fund’s investment process from deal origination

to portfolio monitoring and note any decision points. Please include no more than three to four

sentences explaining each step.

1

Deal Sourcing and Origination

2

Initial Screening

3

Due Diligence

4

Portfolio Monitoring and Risk Management

5

Liquidity and Realizations

3.2

Investment Due Diligence

Describe your due diligence process, specifically indicating the type and extent of your inquiries and

research. Indicate how this responsibility is allocated among principals, staff, committees, personnel

from affiliated organizations and outside consultants.

3.3

Decision-Making Process

Describe the decision-making process used to make new investments, exit current investments, make

follow-on investments or otherwise manage the operations of the fund. In your response please refer

to the following:

Periodicity of Management Team Meetings

Voting Power of Principals

Number of votes required for approval/disapproval of new investments, follow-on investments, exits or other fund operations

Any special voting rights, such as veto rights, held by one or more principals

Any requirements to obtain the consent of one or more principals

4

Portfolio Management & Monitoring

4.1

Investment Monitoring

Discuss the process you use to monitor investments in your portfolio. Please refer to the following

items in your response:

Reporting required of portfolio companies

Firm’s approach to board representation

Number of deals each principal will be responsible for at peak

Periodicity of portfolio reviews

Level of engagement with portfolio company management

Provision of consulting services to portfolio company management

Who and how will you work with the SBA so the Agency can effectively monitor the portfolio?

4.2

Underperforming Investments

Discuss your approach to monitoring and managing underperforming investments. Depending upon the investment strategy, explain the measures you take to turn around poor-performing investments, decline follow-on funding or sell-off your position. When possible, please provide specific examples from the principals' track records. Explain how and when you decide to mark-down or write-off your position and how this aligns with the valuation policy of the applicant fund.

4.3

Portfolio Services

Describe the scope of all portfolio services, outside of portfolio company financing, you intend to provide.

Examples may include Operating Partners, Venture Partners, Marketing, Human Resources, Recruiting, Back-office Services and Technology Applications and Services.

Do you intend to charge portfolio companies for services provided? If so, list the scope of all services you might charge portfolio companies for. If charging for portfolio services,

SBA requires disclosure of this fact and the scope of potential charges to be disclosed to SBIC portfolio companies as part of the terms of financing.

4.5

Value Creation

Discuss your approach to influencing and maximizing partial and full realization opportunities for equity capital investments or approach to maximizing potential cash returns for long-term loans and debt investments. Depending upon the investment strategy, explain the measures you take to influence positive and aligned outcomes for both the portfolio concern and investors in the fund.

4.5

Regulatory Compliance

Describe the processes you will use to monitor your compliance with SBIC Program Regulations and manage recurring Regulatory Examinations. Please

identify the person(s) that will have primary responsibility for regulatory compliance.

5

Fund Economics

5.1

Carried Interest

Please provide a detailed description of the carried interest provisions of your fund, identify the basis of the calculation (e.g. whole fund or deal-by-deal) and explain your vesting policy. If applicable, explain how these provisions compare with your previous funds and rationale for any changes.

5.2

Management Fee

Please describe the formula you will use to calculate the management fee that the SBIC will be charged.

Describe any changes that may occur over the course of the fund’s life. If requesting the inclusion of portfolio services charges in the management

fee offset calculation, please include the scope of the request in the space below as well.

5.3

Other Compensation

Provide details concerning any compensation, including bonuses, the principals earn outside this

partnership. Include a list of any funds for which (i) the principals are earning carried interest, or (ii) the

firm is earning management fees.

5.4

Fee Allocation

Please describe your policy on the allocation of fees, such as transaction fees, investment banking fees,

monitoring fees, directors’ fees, etc., between the SBIC and any management or other affiliated entities.

6

Capitalization

6.1

Identify your anticipated minimum to close, and discuss how your investment strategy, fund operations or other SBIC-related activities would change

if you fail to reach your target fundraising level and must operate with this lower amount of capital.

6.2

Placement Agent

Have you hired or do you intend to hire a Placement Agent? If "Yes", please enter the information under the "Service Providers" section of this Form 2181.

In the space below, describe the duties called for by any placement agents. State who will be responsible for payment of placement agent compensation, the basis for compensation and how and when such compensation will be paid.

6.3

Investors

Please describe the anticipated composition of your investor base by the following investor segments: banks, pensions, endowments & foundations, family offices, high net worth individual investors, RIAs/financial intermediaries, fund-of-funds, other entity investors. List anticipated percentages for each segment. List the names and contact information for investors who have "soft circle" committed to invest in the fund pending License approval

6.4

Third-Party Borrowing and Capital Call Lines

Do you have or do you intend to have any third party borrowing arrangements in place at any time prior to being licensed? "Yes" or "No"

If “Yes,” please provide a description of your current or expected capital call and/or borrowing arrangements. If this is a licensing application, provide any associated borrowing agreements.

(Please review 13 CFR 107.550)

7

Governance

7.1

Organizational Chart

Provide an organizational chart of all entities and persons related to the SBIC on one page. Include any parent funds(s) or side-car vehicles if relevant.

List below the ownership percentages for the Applicant’s management company and General Partner.

7.2

Associates and Affiliated Entities – Service Providers

Read the definition of Associate (13 CFR 107.50) and Affiliate (13 CFR 121.103). Identify any Associates

and Affiliated individuals and entities that will provide services to the Applicant in connection with the

Applicant’s activities as an SBIC, such as due diligence, deal sourcing, administration, or portfolio

consulting, and explain how they will be compensated.

7.3

Associates and Affiliated Entities – Organizational Structure

Read the definition of Associate (13 CFR 107.50) and Affiliated Entity (13 CFR 121.103). Indicate

whether any individual or entity identified in your organizational chart or in the previous question is an

Associate or Affiliate of any other SBIC applicant or currently licensed SBIC.

7.4

Conflicts of Interest

Describe current or proposed methods to identify any potential conflicts of interest and the procedures

for resolving those potential conflicts.

7.5

Advisory Committee or LPAC

Do you intend to have an LP Advisory Committee?

Do you intend to have any other type of corporate, advisory or governance committee?

If “Yes” to either question, please provide a brief description of the membership of each committee, if known.

Explain the role and responsibilities of each committee, and any compensation you expect to provide to its members.

7.6

Personal Co-Investments

Describe your policies regarding personal investments by principals and/or other employees in portfolio

companies. If personal investments are permitted, please indicate whether “hard” dollars or “soft”

dollars will be used and discuss.

7.7

Limited Partner Co-Investments

Describe your policies regarding co-investments made by limited partners. If you plan to offer limited

partners the opportunity to co-invest alongside the fund, explain the circumstances under which such an

offer would be made.

7.8

Other Co-Investments

Provide details regarding any Affiliates and/or Associates, as defined in 13 CFR 107.50 and 13 CFR

121.103, respectively, that are likely to participate in SBIC investments. Please specify the nature of the

affiliation or association of the entity.

7.9

Responsible Investing and Non-Discrimination Policies and Practices (Voluntary)

7.9.1

Do you maintain a formal ESG or Responsible Investing Policy?

7.9.2

If yes, what year was it established?

7.9.3

Do you maintain a formal Diversity, Equity and Inclusion Policy?

7.9.4

If yes, what year was it established?

7.9.5

As the mandate of the SBIC Program is to solve for capital access inadequacies for small businesses, SBA seeks address persistent shortfalls in access to capital for small businesses and startups across industries, geographies and communities. While not a requirement for licensing to invest in these areas, please check the box of all that apply to your investment strategy and focus.

Responsible Investment Themes

Challenges Address by Investing in Companies Developing Solutions in These Areas:

Climate Change

Mitigate and adapt to climate change

Clean Energy

Accelerate the energy transformation to a low-carbon economy

Biotech

Treatment and care of rare diseases

Domestic Supply Chain & Manufacturing

Supply chain disruptions and a fragile domestic manufacturing ecosystem

Cyber Security

Improved cyber and data security

Inclusive Workforce and Non-discrimination

Persistent systemic racism has denied access and opportunities to build equity and participate in the labor force for many Americans

Water

Global water scarcity and water quality crisis

Nutrition

Reducing the global food production imbalance

Health and Wellness

Improved mental and physical health

Education

Equality of access to information and educational technologies and services

Financial Inclusion

Improving financial wellness and building equity for all Americans

Rural, LMI, and Opportunity Zone Businesses

Expanding access and opportunities to jobs, equity, services and technology

Affordable Housing-Related Businesses

Largest shortfall in U.S. housing in 50 years

8

Attachments

Please refer to the "Attachment Checklist" tab and submit the documents listed and check the box next to each item you have submitted.

9

SBIC Critical Technologies Initiative (SBICCT) Applicants Only

9.1

SBIC Critical Technologies (SBICCT) Applicants Only

The SBICCT Initiative's mission is to increase investment opportunities in technology companies, critical industries, and capital-intensive small businesses addressing today’s most pressing national security supply chain needs. Please discuss the impact you expect your investment strategy will have on US national security and please justify your response.

9.2

The SBICCT Initiative requires at least 60% of all private capital and SBA leverage finance companies in one or multiple DoD Critical Technology Areas. Please detail the Critical Technology areas the proposed fund intends to invest in. If there are allocation targets by area, please describe. If you plan to invest in other technology areas, please describe these industries or technology verticals and the intended allocation.

9.3

The SBICCT Initiative is in support of U.S. national security. Do you intend to accept investment from non-U.S. entities and/or individuals? If yes, please list the countries you will consider.

9.4

Does your firm currently maintain relationships in other firm managed funds with non-U.S. investor entities and/or individuals? If yes, please list the countries and the number of investor and $ assets by country.

9.5

Are all Principals, Investors and Associates of the Applicant willing to undergo a U.S. Department of Defense background check?

10

Drop-Down Funds and Business Development Company (BDC) SBIC Applicants ONLY

Is this a drop-down SBIC?

10.1

Capital

How much capital do you intend to drop-down from the parent fund to the SBIC?

$

10.2

Parent Fund

Describe the types of investments the parent currently makes or plans to make. Discuss how those

investments and future investments may either be different from the SBIC’s investment strategy or how

they will be similar. State what criteria will be utilized for determining into which fund an investment

will be placed. Will you maintain a formal allocation policy to govern such decisions?

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Sheet 4: Investment Track Record

Investment Track Record

As of Date:

dd/mm/yyyy

Name of Applicant:

[Applicant Name]

Company Financials at Time of Full Exit OR as of Valuation Date

Other Key Personnel Involved in Deal

Firm name

Investment Vehicle (Fund)

Vintage Year

Size of Vehicle (if applicable)

Fund Style

Type of Investment

Deal Name (Company or Fund Investment)

Portfolio Company or Fund EIN #

Industry

State (Geography)

Sponsor (Name)

Lead Investor

Co-investors (Equity)

Co-Creditors (Debt)

Strategy

Venture/Expansion Stage

Equity Security

Debt Security / Loan

Purpose of Financing

Date of Inv.

Date of Full or Partial Exit

Invested Capital

Distributed (Realized) Value

Unrealized Value

Current Reported Value

Total Value

Cash Multiple (MOIC)

IRR

Sourced By

Led/Co-led Deal

Board or Board Observer Seat

Data as of MM/DD/YYYY

Transaction Type

Valuation Methodology

Number of Employees

Enterprise Value

LTM Revenue

LTM EBITDA

Cash & Equivalents

Total Debt/Loans

Ownership % at Full Exit or as of Valuation Date

Financial Analysis/Market Research

Lead Structuring

Lead Due Diligence

Made Recommendation to Investment/Credit Committee

Investment/Credit Committee

Negotiation

Officer of the company

Board of Directors

Board Observer

Exit Process

if applicable

if applicable

if applicable

if applicable

if applicable

2-digit Abbreviation

Firm or Fund Name

Firm or Fund Name

Firm or Fund Name

Firm or Fund Name

The amount of capital distributed to Fund from the investment to date.

Current reported value for the investment (based on current fair market value / mark-to-market value).

"Total Value" is equal to "Current Reported Value" + "Amount Distributed".

Last Name, First Name

if applicable

fully diluted

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Last Name, First Name (if applicable)

Washington Widgets

Manufacturing

Mezzanine

Sub-Debt

Dec-05

Jun-09

$2.5 M

$3.1 M

$0.0 M

1.24x

15.4%

Lincoln Group

Business Services

Special Situations

Sub-Debt

Mar-06

Oct-10

$1.8 M

$2.4 M

$0.0 M

1.33x

14.2%

Jefferson Trucks

Trucking

Growth Stage

Common Equity

Apr-06

Jun-07

$5.3 M

$3.5 M

$0.0 M

0.66x

(15.0%)

Kennedy Textiles

Textiles

Hybrid Debt/Equity

Sub-Debt

Jun-06

$1.5 M

$0.8 M

$2.0 M

1.87x

21.0%

VanBuren Windows

Manufacturing

Later Stage

Second Lien

Feb-07

$2.4 M

$1.0 M

$1.5 M

1.04x

8.0%

Cleveland Communications

Communications

Later Stage

Sub-Debt w/Warrants

Aug-07

$3.1 M

$2.1 M

$1.8 M

1.26x

16.0%

Wilson Components

Electronics

Later Stage

Senior Debt

Aug-07

$2.0 M

$1.8 M

$0.5 M

1.15x

6.0%

(Note: If you need to insert additional rows, please do so above the last line)

TOTAL:

$18.6 M

$14.7 M

$5.8 M

1.10x

7.5%

<-- Gross IRR

2.5%

<-- Net IRR (Gross IRR net of fees)

Description

Please describe the investment experience presented above and why it is relevant to the SBIC proposal

Please describe your role in making the investments described above.

Footnotes:

Include any footnotes below.

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Sheet 5: Principal Bios

Principal Biographies

As of Date:

dd/mm/yyyy

Name of Applicant:

[Applicant Name]

For each principal please provide a brief biography and a description of his/her role within the team. Use the suggested format below, ensuring you include all previous employment and associated time periods. Enter this information on the "Principal bios" tab in this workbook.

Template

First Name Last Name

Title

First Name Last Name is one of three General Partners at XYZ Capital and a member of the investment team. S/he joined XYZ Capital in 1995 as an Associate, was promoted to Partner in 2002 and General Partner in 2005. Prior to joining XYZ Capital, Last Name was an Associate with ABC Asset Management, where s/he worked from 1993 to 1995. S/he began her/his career as an Investment Banking Analyst at DEF Associates in 1990. Last Name earned a B.A. in Economics from ABC College in 1990 and an MBA from GHI University in 1993.

1

First Name

Last Name

Title

2

First Name

Last Name

Title

3

First Name

Last Name

Title

4

First Name

Last Name

Title

5

First Name

Last Name

Title

6

First Name

Last Name

Title

7

First Name

Last Name

Title

8

First Name

Last Name

Title

9

First Name

Last Name

Title