Star Mountain Capital, an employee-owned U.S. lower middle-market investment firm with approximately $4.5 billion in assets under management, announced the final close of its second Small Business Investment Company fund at $286 million in investible capital, exceeding its target. The fund size was structured to optimize access to the maximum amount of U.S. Small Business Administration debentures available under the SBIC program.
As part of the SBIC program, SBIC Fund II benefits from the full $175 million of SBA debentures per fund, similar to the firm’s first SBIC vehicle. The new fund shares the same investment strategy as its predecessor and will invest alongside Star Mountain’s other direct investment funds, leveraging the scale and resources of the firm’s more than 130 professionals across over 20 U.S. cities.
SBIC Fund II will focus on strategic debt and equity investments in established, recession-resilient and low market-correlated service-oriented U.S. small and medium-sized businesses. Investments will be supported by strong legal agreements and maintenance covenants. The firm said it expanded its strategic commercial bank partnerships for this fund, adding several new bank limited partners.
Star Mountain’s investment approach includes its “Enterprise Value Optimization Program” and “Getting Middle-Market Ready” process, designed to help private businesses access the firm’s operational resources and relationships to drive growth. The firm emphasizes alignment with investors, noting that 100% of its full-time employees share in investment profits.
The company pointed to several supportive market trends for its strategy, including an aging demographic of business owners seeking strategic capital partners, valuation gaps between smaller and larger businesses, a fragmented universe of approximately 200,000 established smaller U.S. private companies, and limited availability of sophisticated capital solutions tailored to smaller enterprises.
The SBIC structure also offers advantages for bank investors. As a Volcker-exempt vehicle, SBIC funds allow banks to invest as limited partners, potentially receive Community Reinvestment Act credits and pursue additional banking relationships with portfolio companies. SBIC funds may also help bank corporate clients address financing needs.
Founded in 2010, the firm has completed more than 100 direct platform investments and over 50 secondary or fund investments in the North American lower middle-market. And its investors include public and private pensions, insurance companies, commercial banks, endowments, foundations, family offices and high-net-worth individuals.
Support: Star Mountain was advised on the fund by Winston & Strawn and Stifel, Nicolaus & Co.
KEY QUOTES
“We are grateful for the partnership with the SBA, our investors, our team and our portfolio companies, and we remain highly aligned and committed to continue to grow the value we can bring to all stakeholders. We are proud to work with the SBA in our aligned missions of supporting high quality small and medium-sized private businesses which are the backbone of the U.S. economy.”
Brett Hickey, Founder & CEO, Star Mountain Capital
“We are honored by the trust that the sophisticated group of commercial banks, family offices and individual investors have placed in us, and we are excited about the continued opportunities ahead for our funds, our portfolio companies and our valued LPs.”
Ryan McGovern, Managing Director & Investment Committee Member, Star Mountain Capital
