Business Development

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Adam Farren

A business development company (BDC) is a company that makes private equity investments, and is essentially a private equity firm that goes public and sells shares of itself. It is funded with the purpose of lending and investing in private companies. A business development company is similar to a Venture Capital (VC) firm, but a key difference is that BDCs allow retail investors to invest, via the BDC, in startup companies. Many BDCs are listed on the NYSE, AMEX, and Nasdaq (see the list below).

American BDCs are required to invest at least 70% of assets in private U.S. companies. Most BDCs have regulated investment company status, which means they must distribute at least 90% of their taxable income to shareholders each year. This also means a BDC can't put more than 5% of assets in any single investment or buy more than 10% of another company's voting stock, or put more than 25% of assets into a business they control or into businesses in the same industry.

The establishment of business development companies allowed retail investors to participate in and benefit from investing in private businesses by allowing them to buy shares of closed end funds that invested in these businesses. The term business development company was defined in the Investment Company Act of 1940, section 2(a)(48). To qualify as a BDC, a company must comply with Section 54 of this same act. The Investment Company Act set standards by which investment companies should be regulated, including mutual funds.

Examples of publicly-traded business development companies include:

• American Capital Strategies (ACAS)
• Apollo Investment (AINV)
• Allied Capital (ALD)
• Ares Capital (ARCC)
• Blackstone Group (BX)
• Capital Southwest (CSWC)
• Equus Total Return (EQS)
• Gladstone Investment (GAIN)
• Gladstone Capital (GLAD)
• Kayne Anderson Energy Development Company (KED)
• MCG Capital (MCGC)
• MVC Capital (MVC)
• NGP Capital Resources Company (NGPC)
• Patriot Capital Funding (PCAP)
• Prospect Capital Corp (PSEC)
• Medallion Financial (TAXI)
• Technology Investment Capital (TICC)
• Harris & Harris Group (TINY)