Venture Capitalists (“VCs”), Angel investors (“Angels”) (i.e., accredited investors), and Business Development Companies (“BDCs”) fulfill generally the same role: to help small and medium-sized companies obtain financing when more traditional means of funding (e.g., bank financing) are unavailable.  Bank financing, though, almost always requires accounts receivable, inventory, buildings, equipment or other assets that can be held as collateral for a loan or line of credit.  Smaller companies, startup companies, individuals with a business idea, or medium-sized companies that do not have sufficient funds to grow their business often do not have the capital required, nor do they have the requisite assets or accounts receivable required by traditional banks to meet their loan requirements.  This is where Angels, VCs and BDCs come in.

Angels are regulated by the Securities and Exchange Commission (“SEC”) and generally must be “accredited investors” with a net worth of at least $1,000,000 in order to invest in startups.  VCs are generally partnerships of accredited investors that provide the same type of funding.  In the case of both Angels and private VC firms, these activities are, by regulation, the realm of wealthy investors and beyond the reach of most individuals.

In 1980, Congress created BDCs to provide public investors or retail investors a means to invest in small-to-middle market, private U.S. businesses.  BDCs investors are not required to be accredited or high-worth individuals.  Typically, BDCs are structured to originate and hold debt and equity investments to maturity and can invest across a portfolio company’s capital structure.   While BDCs and VCs have similar investment goals, BDCs and VCs differ in that the shares of BDCs are traded on the major exchanges, and anyone can own them.  BDCs typically pay significantly higher dividends than the average company, and many consider BDCs a valuable part of a diversified portfolio.

Start up companies might consider turning to BDCs as an additional source of capital.  Some of the larger, more established BDC’s are Ares Capital Corporation, American Capital Strategies Ltd., Apollo Investment Corporation, BlackRock Kelso Capital Corporation and Prospect Capital Corproation.   Since all BDCs are registered with the Securities and Exchange Commission, more information can be found in the offering materials available at