E171: SBIC Funds: How to Raise $175 Million for Private Equity & Credit Funds

Jun 6, 2025

Brett Palmer, President of the Small Business Investor Alliance, advocates for unique capital structures in private markets, while David Demeter manages Davidson College’s endowment and focuses on diverse investments. They delve into the power of Small Business Investment Companies (SBICs), which have outperformed benchmarks by ~4% net IRR. The podcast highlights how SBICs can raise up to $175M with low refinancing risk, making them a pivotal tool for growth in the lower middle market, while also tackling the challenging landscape for small businesses in the U.S.

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INSIGHT

SBIC Funds Outperform Benchmarks

SBIC funds outperform non-SBICs by about 4% net IRR and 0.68x MOIC on average.
This outperformance is significant compared to hundreds of benchmark private funds studied by the Institute for Private Capital.

INSIGHT

Leverage Amplifies SBIC Returns

SBIC funds use 2:1 leverage from the government, borrowing up to $175 million to scale.
This fixed-rate, non-recourse leverage at Treasury rates plus 50-80bps amplifies returns efficiently for GPs and LPs.

INSIGHT

SBIC Program's Massive Growth

The SBIC program grew from $2 billion in 2008 to over $50 billion today.
Growth is driven by private credit market expansion, regulatory banking changes, and recognition of lower middle market inefficiencies.

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This episode is a masterclass on one of the most powerful — and under-the-radar — capital structures in private markets: Small Business Investment Companies (SBICs). I’m joined by Brett Palmer, President of the Small Business Investor Alliance, and David Demeter, who helps manage Davidson College’s endowment. We dive deep into the SBIC program — a unique public-private partnership that lets private equity and credit funds access 2:1 fixed-rate, non-recourse leverage from the U.S. government. The result? LPs can access equity-like returns for credit-like risk, and fund managers gain scale without sacrificing strategy. Most people haven’t heard of it. That’s exactly why we did this episode.

Highlights:

SBIC funds outperformed benchmarks by ~4% net IRR, per UNC-Chapel Hill study
SBICs access 10-year fixed-rate leverage at ~50–80 bps over Treasuries
Funds can borrow up to $175M with no refinancing risk
Net-of-fee returns can exceed gross-of-fee returns — due to leverage
Lower middle market is still inefficient, underprofessionalized, and rich with alpha
Davidson College uses SBICs to target 3x net MOIC — with less risk Program has grown from $2B to $50B+ in AUM since 2008
LPs include family offices, endowments, and banks — but few large institutions

-- Guest Bio: David Demeter helps manage Davidson College’s endowment, where he leads investments across hedge funds, venture capital, and private equity. Davidson is known for its barbell strategy — combining high-performing venture and niche private strategies like SBICs.

Brett Palmer is the President of the Small Business Investor Alliance (SBIA), the leading advocacy group for SBIC fund managers and investors. He’s been at the helm since 2008, helping modernize and grow the SBIC program.

Our Podcast now receives more than 300,000 downloads a month. Are you interested in sponsoring an episode? Please email David Weisburd at david@weisburdcapital.com.

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-- Stay Connected: X / Twitter: David Weisburd: @dweisburd

LinkedIn: David Weisburd: https://www.linkedin.com/in/dweisburd/ David Demeter: https://www.linkedin.com/in/david-d-demeter-117aa913/ Brett Palmer: https://www.linkedin.com/in/brett-palmer-2160b95/

Links: Davidson College: https://www.davidson.edu/ Small Business Investor Alliance: https://sbia.org/

-- Questions or topics you want us to discuss on How I Invest? Email us at david@weisburdcapital.com.

(0:00) Episode preview (1:20) SBIC performance metrics and leverage explanation (4:20) Benefits and growth of SBICs (7:41) SBIC funds' role in private credit, equity, and structural alpha (11:10) Lower middle market investments and economic impact (16:04) Backing and special features of SBIC leverage (18:33) SBIC program awareness and emerging managers (23:24) Challenges and eligibility for SBIC licensing (27:28) Davidson endowment's investment strategy (29:20) Hedge fund and venture capital investments in Davidson portfolio (31:12) Quant strategies and hedge fund allocation challenges (33:18) Resources for SBA funding and parting words (34:27) Closing remarks