SBIC

Only rich people used to be able to ante up the venture capital that got new companies going. But you can invest in beginning businesses too, and you don't have to be a millionaire to do it. One way to get in on the ground floor is to find a promising firm that is just starting out and put money directly into it. In exchange you will be given some of that company's stock, and you can call yourself a venture capitalist.

Trouble is, you have to search hard for these opportunities because they are rarely publicized. Your best leads will come from local bankers. Ask them what ventures are just beginning and need some cash.

Look for companies in businesses you know something about. It is also wise to start with ventures that are near your home so that you can maintain close contact with the people running the company.

But let's face it: most people who sink their money directly into start ups will lose at least part of it. Even successful ventures rarely show a payoff within five years. Arthur Lipper III, chairman of Venture magazine, recommends that you place no more than 20% of your investment cash in such companies.

You can improve your odds by buying shares in small business investment companies, or SBICs, that are open to public investment. These companies raise capital and invest it in businesses with a net worth of $6 million or less. There are 282 all purpose small business investment companies and another 127 that specialize in minority enterprises. Most are owned by banks or groups of private individuals, but a few have public shares that can be bought or sold over the counter or on the American Stock Exchange. Among them are First Connecticut and Allied Capital.

SBICs concentrate on small business that creates jobs. They are licensed by the Small Business Administration, which guarantees repayment of up to 90% of their loans. Some of the money is invested in start ups that offer little more than potentially workable concepts. The rest is in second and third round financings to help spur the growth of companies that are already marketing a product or have moved solidly into the black.

A number of SBICs prefer to cut out as much risk as possible. They invest only in companies that are mature enough to provide them with some current income, which they in turn pay out to their shareholders in dividends.

What kind of SBIC you invest in depends on whether you want immediate income or longer term capital gains. But whatever kind you select, ask yourself two questions: Do you think that the companies supported by the SBIC are sound businesses? And what is the investment record of the SBIC's manager? You can draw much of this information from the SBIC's quarterly and annual reports.

Another way to get in on start up businesses is through a venture capital company. This is essentially a mutual fund that invests in nonpublic concerns. Venture capital firms tend to put their money in riskier enterprises. But some of them have produced big winners. For example, Boston's Nautilus Fund is best known for its investment in Apple Computer back in 1979. Apple soared and made many shareholders happy notably those who took their profits near the peak before it eventually plunged. Venture capital companies are traded over the counter or on the American Exchange.

Before you buy shares in a venture capital company, read the annual and quarterly reports carefully. You want to know what new companies they are financing and how well or poorly the investment manager has performed in the past.

You also can try to buy the shares of new companies when they first go public. It is not easy to get in on a popular new issue. And the price may shoot to the stratosphere when all the people who could not buy it try to pick it up from those who could. Within a year, however, many new issues slip back to their offering price or go even lower. Investors who wait for such a decline usually have gains as big as those who got in early.

If you want to buy a company that is going public, ask a broker for a prospectus. See who is doing the selling. If all the original backers are now backing out, beware. The public offering of stock may be rescuing them from a bad investment. But if the original investors are hanging on to their shares that could be a sign the company has a very bright future.