Many Startups Can’t Get Financing in Tough Economy, FCC Told

McDowell chaired an earlier FCC broadband forum on capital formation, which raised similar questions (CD Oct 2 p1). “I have consistently called for greater awareness of the financial realities that face small enterprises and new entrants,” he said. “In today’s economy, of course, businesses of all size are struggling to survive through the worst economic downtown in generations. It may be rather cold comfort . . . to know that many big companies now empathize with small entrepreneurs concerning cash flow and the state of their balance sheets, but I'm hopeful that new opportunities for small entities may arise from today’s challenging economic environment.”

The Small Business Administration has a loan program for minority investors in communications, said Major Clark, its assistant general counsel for policy and procurement. “You have to get the bank to make that loan,” Clark said. “If the bank is looking at your assets and net worth and . . . whatever you're bringing to the table is at a minimum, no matter how great FCC and the world says it is that minorities should be in telecommunications, the banks simply are not going to make those loans.”

Anita Stephens Graham with Opportunity Capital discussed the problems minorities are having investing in broadcasting as banks look more aggressively at all loan applicants. “The marketplace has changed,” she said. “We have always been able to rely on what we call the downside protection that the value of the licenses always provided. With the significant decline in valuation of those licenses, what it has created in this industry is companies that are upside down, where the value of the business is no longer sufficient to cover the debt on the stations.” Investors are still trying to get a better handle on the current economic climate, Graham said. “We're struggling to find out where is bottom,” she said. “It’s a crazy time, quite honestly, to be investing in this marketplace.”

But Mark Levine, managing director of Core Capital, said he’s optimistic about the outlook for entrepreneurs to get funding, especially as the economy improves. “We're seeing really interesting investing opportunities,” he said. “Even though this is a pretty tough market right now, there are several big companies that get formed in recessions and great investments get made in recessions. We are very actively investing in this market.”

Big industry players like Cisco, Microsoft and IBM, which traditionally buy smaller companies, are “flush with cash,” Levine said. “What we've seen in the past is coming out of recessions, when internal programs are closed down or trimmed down, we've seen these companies be particularly acquisitive.”

The Telecommunications Development Fund has played a major role in getting funds to communications startups, said Jenell Trigg of the Lerman Senter law firm. “Small business can have big plans,” Trigg said. “There are three major obstacles to fulfilling that reality -- 1) access to capital, 2) access to capital, 3) access to capital. It’s not surprising that these major issues were present with passage of the 1996 Telecommunications Act. This was one of the number one issues.”

Meanwhile Thursday, the FCC sought additional comment on the “relationship between broadband and economic opportunity.” In its 18th public notice under the National Broadband Plan, the FCC asked a series of questions about small businesses, medium and large businesses, nonprofits, economic opportunity and workforce development. Comments are due Dec. 4.