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

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 . #VentureCapital #VC #Startups #OpenLP #assetmanagement -- 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