New guidance from the Small Business Administration opens the way for more venture capital-backed startups to apply for Paycheck Protection Program loans, but there is a cost for investors.
“We are watching most closely the impact on the early-stage investors,” says Justin Field, senior vice president of government affairs at the National Venture Capital Association. “The first money in often needs these controls, because they’re taking the greatest risks on the company.”
The SBA guidance says some investors may have to give up some rights.
According to Inc., earlier this week “the SBA said that if an investor has the ability to block actions by a startup’s board of directors, the investor and the startup are still considered affiliates. But it presented an alternative: If the investor ‘irrevocably waives or relinquishes’ these rights, the business would no longer be an affiliate. That gives the startup a better chance of meeting the headcount requirement and provides a path for the startup to apply for the loan program.”
The “affiliates” link related to venture investors and the relationship could push startups past the 500 employee threshold for small business loans.
“The reasoning is that the investor controls the portfolio companies, and therefore, they’re really one company. This is called affiliation,” Inc. reported.
Read the full story from Inc online.
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