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Running dry: if funding for small business investment companies dries up,.

Running dry: if funding for small business investment companies dries up, who will suffer?.

MARIA CIRINO was on the second round of fundraising for her Waltham, Massachusetts-based information security service company, Guardent Inc., when her capital search led her to Boston-based Axxon Capital. A Small Business Investment Company, or SBIC, Axxon uses its own capital, plus funds borrowed from the federal government, to provide equity capital to entrepreneurs outside traditional investment circles.

Though Cirino had already experienced success with mainstream investors--she raised $25 million in her first fundraising round--she was so impressed with Axxon's extensive contact network that she included the SBIC in her subsequent, $5 million round of financing. It was also important to Cirino that Axxon focused on investing in women- and minority-owned companies.

"There is too little focus on helping women and minorities start companies," says Cirino, whose business was eventually purchased by VeriSign Inc., an infrastructure and security services provider in Mountain View, California.That was a few years ago. Today, the SBIC Participating Securities Program, which provides up to $2 for every $1 of private capital raised by venture funds licensed by the SBA, is fighting for its long-term survival.

The program has been suspended by Congress, meaning it cannot license any new funds until the next fiscal year, which begins Oct. 1, 2005. To make matters worse, President Bush's 2006 budget proposal doesn't request funding for the program, which would effectively kill an initiative that provided over $1.5 billion in venture capital to small businesses last year.The program suspension is in response to projected investment losses of as much as $2 billion in recent years.

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