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SBA taking over local fund

Sat., June 27, 2009, midnight

Northwest Venture Associates’ III fund slumped in difficult economy

A federal court has ordered the Small Business Administration to take over operation of Spokane’s largest venture fund.

A judge in U.S. District Court for Eastern Washington ruled that the SBA should take over financial management of Northwest Venture Associates’ third fund, based on the decline in value of the fund’s investments. The action only affects the “III” fund, one of three established by Spokane-based Northwest Venture Associates.

At one time the III fund exceeded $100 million, according to Northwest Venture Associates’ Web site. Today that fund’s value is much lower because of the declining economy, said SBA spokesman Michael Stamler, in Washington, D.C.

Formed in Spokane in 1996, Northwest Venture Associates has invested venture funds in small and medium-size businesses across the Northwest.

In 2000 Northwest Venture licensed its III fund as a Small Business Investment Company. The government-subsidized SBIC program invests in growing businesses.

As an SBIC, Northwest Venture gained $52 million in federal cash that was added to $40 million raised from private investors.

The fund has so far paid back $15 million to the SBA, but the portfolio value has slumped to the point that the federal “capital impairment” rules kick in. That lets the SBA take control of the fund’s assets.

In 2004, Northwest Venture’s III fund invested in World Wide Packets, a tech company in Spokane Valley. The money helped World Wide Packets grow to the point that East Coast tech company Ciena Corp., in 2008, bought it for around $300 million.

It’s not rare during a bad economy for the SBA to take over an SBIC fund, said Tom Morris, director of the SBA’s Office of Liquidation.

Last year the SBA took over as receiver of two SBIC operators in the country. This year Morris estimates it will handle 15 or more.

Morris declined to give an estimate of the fund’s actual market value. “That would tell the public what we would expect to get” when trying to sell off the fund’s assets, he said.

In an e-mail, Northwest Venture Associates General Manager Tom Simpson said the receivership “does not reflect any other issue regarding NWVA, its principals and its portfolio companies.”

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