Liberty Partners, a New York leveraged-buyout firm that operates a $750 million fund, wants to expand its venture capital financing to small businesses.
Carl E. Ring, a managing director at Liberty, said prices for equity stakes in midsize businesses have become so high that the fund must focus on smaller companies.
"We're looking at moving further down the food chain," Mr. Ring said. "We have to work harder to find deals of a comparable quality."
Liberty offers equity financing, mezzanine financing, and term loans. Mr. Ring said the fund would be interested in equity investments in companies with high growth potential and managers who have worked for profitable companies.
The firm was founded in 1992 by former Merrill Lynch and Kidder Peabody & Co. executives.
Its sole investor is the Florida state pension plan.
Venture capital financing for small businesses has become an increasingly popular business.
The amount invested in small businesses grew to $10 billion at the end of 1996, from $3.4 billion in 1991, according to the Small Business Administration.
Banks, which operate more than 70 small-business investment company subsidiaries, control about 10% of the market.
Despite the increased competition, Glenn Yago, director of capital studies for the Santa Monica, Calif.-based Milken Institute, said start-ups are getting less venture capital than older businesses.
"Early-stage companies are largely underserved," he said.
Mr. Ring said he would be interested in deals similar to the fund's equity stake in Padcom, a Pennsylvania company that develops products for the booming wireless communications market.
Liberty competed with a bank for that deal. Padcom owner David Blake said he also applied for financing from Canadian Imperial Bank of Commerce's small-business investment company.