SBA pulls plug on Bellevue venture firm

Venture-capital firm Pacific Northwest Partners of Bellevue, launched in 1995 with more than $10 million in capital from the U.S. Small Business Administration, has been placed in receivership after failing to meet its obligations to repay the government.

By Brandon Sprague
Seattle Times staff reporter

http://seattletimes.nwsource.com/html/businesstechnology/2001962775_sbic23.html

It was an SBA-funded Small Business Investment Company (SBIC), one of the region’s earliest, tapping into a program to create new sources of capital for emerging companies.

SBA spokesman Mike Stamler said the venture fund did not contest the agency’s lawsuit to force a liquidation, which was filed in U.S. District Court in Seattle last week.

"It looked like the company was going underwater," he said. "If a company’s portfolio is not panning out, then it needs to be under receivership," he said, comparing it to a bankruptcy trusteeship.

Stamler said only a small number of SBICs — 30 out of an estimated 450 nationwide — have gone into forced liquidation.

Pacific Northwest Partners invested in a wide variety of early-stage firms, initially focusing on the consumer sector.

Some of those investments did not bear fruit. Seattle-based Walt’s Radiator, Brake & Muffler filed for bankruptcy in 2002 and was subsequently sold. Newport Beach, Calif.-based Autobistro went into bankruptcy liquidation in 2000 after receiving $1.25 million from Pacific Northwest Partners, according to the MoneyTree Survey co-produced by PricewaterhouseCoopers.

Other investments fared better, including local companies Pet’s Choice (which received $2.3 million), Loudeye ($1.5 million) and Sur La Table ($1.5 million).

Under the Small Business Investment Company program, the SBA provided slightly more than $10 million to Pacific Northwest Partners.

The rules at that time required a venture fund to have at least $10 million of privately raised capital to qualify for federal matching funds.

The value of Pacific Northwest Partners’ assets had deteriorated to half of its original private investment by 2000, meaning the fund was in violation of SBA regulations, Stamler said.

By 2002, Pacific Northwest Partners owed more than $2.6 million in accrued payments to the federal agency.

Ted Wight, former managing director of Pacific Northwest Partners, could not be reached for comment. The company’s phone numbers and Web site are no longer in service.

Pacific Northwest Partners valued its portfolio of assets at $8.9 million in December 2003, court documents show.

Stamler said firms that received financing from Pacific Northwest Partners were not in jeopardy due to the receivership.

Other Washington state SBICs include Northwest Venture Associates, Integra Ventures and Fluke Venture Partners.

Fluke raised a $57 million fund this spring, with two-thirds coming from the SBA. Integra raised more than $30 million in 2002, also with two-thirds from the SBA.

The SBIC program has been controversial because it has lost money in recent years, especially after the tech bubble’s collapse.

Lee Mercer, president of the National Association of Small Business Investment Companies, said the government plans to restructure the program to minimize future losses.

Congress will take a look at the SBIC’s investment rules later this summer, he said.

bsprague: 206-464-2263 or [email protected]

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