Benefits which we believe have been provided by the Virginia Capital Corp. are as follows: Since inception, Virginia Capital Corp. has disbursed almost $3 million to some 35 diversified small businesses. As a result of this overall financing, at least 1,500 jobs have been created or preserved and a foundation built by many of the businesses concerned for ultimate employment several times as great. In addition, Virginia Capital Corp. has preserved enterprises which were on the brink of failure and thus threatening their local economies with the usual detrimental consequences. By way of example, I would cite the case of a Virginia company employing 150 people whose management was unable to solve its operating problems, and was ready to terminate operation and declare bankruptcy. With the full cooperation of that owner-manager group, Virginia Capital Corp. injected long-term capital and simultaneously succeeded in acquiring through an executive branch, several experienced executives for key management positions. After 2 years of further operation during which continuing assistance has been provided by Virginia Capital Corp.'s staff, the nearly defunct company has become profitable and its employment has increased to almost 200. Its future appears even brighter. Another example of beneficial use of SBA funds by Virginia Capital Corp. is supplied by our investment in a company newly engaged in creating electronic test instruments for use in industry and research laboratories. In the 3 years following that financing, the company's sales have grown from $300,000 annually to a rate exceeding $2 million, and its number of personnel has increased from 15 to over 100. A letter written to Senator Sparkman by the president of that company is attached hereto as exhibit C. Other examples could be cited by Virginia Capital Corp. and hundreds more by other SBIC's and the Small Business Administration has done such an exemplary job of administering the SBIC program. Much remains to be done, however, as with any relatively new legislation. In particular, we feel that room exists for improvement in key areas such as the elimination of dual regulation by the Securities and Exchange Commission and the Small Business Administration which publicly held companies must face. I am sure you will be hearing about this complaint area and others from the able representatives of the National Association of Small Business Investment Companies. I would like to close with the general observation that we in the industry are striving daily to justify the faith shown in this program by the Congress in 1958 and by each Congress since. It is difficult to find any excusable reason why our efforts and yours won't jointly succeed in perfecting this fourth banking system and preserving its benefits for the small businesses of the future. Thank you. The CHAIRMAN. Thank you, Mr. Pratt, for a very comprehensive and very informative statement. Without objection we will include for the record the various exhibits attached to the statement, the balance sheet of its operations, the operating statement and description of the concerns served, the types of investments and the letter to Šenator Sparkman to which Mr. Pratt referred. EXHIBIT C SEPTEMBER 23, 1963. Subject: Senate bill 298. Senator JOHN J. SPARKMAN, Washington, D.C. DEAR SENATOR SPARKMAN: This corporation, with the essential help of SBIC financing, has grown in 2 years from a 20-employee company to a 75-employee company and now has annualized sales nearing $1.5 million. Original financings were made through Virginia Capital Corp. in Richmond, Va., and early this year a considerably larger financing was made with Capital Southwest Corp. in Dallas. Any operator of a small growth company lacking large personal resources of his own will recognize the large gap between the type of financing that is feasible for commercial banks or small groups of individuals and that which is feasible through registered public offerings. SBIC's are filling this gap. It would have been next to impossible for Houston Instrument to accomplish its past growth from aftertax earnings. A high portion of our past earnings has been plowed back into developing broader lines of technical products. If a principal concern is economic growth in the United States, I can think of no way that funds can better be applied than to strengthen the SBIC program. Very truly yours, HOUSTON INSTRUMENT CORP., The CHAIRMAN. Mr. Pratt, you started out as a small Virginia investment company; later you increased your capital structure; then you merged with Southside Virginia Capital Corp.; and now you have a capitalization of $2.5 million. Mr. PRATT. Our basic capitalization is $1.25 million. Our total assets are $2.5 million. We have $1.25 of private capital to work with, yes. The CHAIRMAN. What do you consider the capital structure? You have $2.5 million in assets? Mr. PRATT. Assets, that is total assets. The CHAIRMAN. A million and a half is your capital structure? The CHAIRMAN. And you have disbursed loans and investments in excess of $3 million? Mr. PRATT. Approximately $3 million, but we now have, based on the original cost of our present portfolio, $2.6 million devoted to 30 companies. The CHAIRMAN. You are very active and there is a lot of turnover. You operate a small business investment company of this size with a staff of three or four? Mr. PRATT. We have four men and a secretary. The CHAIRMAN. I believe you have described why you thought the merger was necessary. Is it your view that the pattern in the future will be more and more investment companies will be merging? Mr. PRATT. I would think that the smaller SBIC's would have to attract or acquire additional capital through such an approach. The CHAIRMAN. Were each of them operating successfully prior to merger? Mr. PRATT. NO, Southside Capital was not operating at any more than the breakeven point, and even then it was operating with one man who was providing part-time services. Virginia Capital was operating successfully, but with only nominal profits, and the earning |