Thought Leadership  •  May 24, 2023

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How to Start a Business Development Company

Starting a business development company can be rewarding and is a great way to make a positive contribution. A business development company (BDC) invests in smaller private or public companies to support business growth and help create jobs. If you don’t know how to start a business development company, there are certain steps you'll need to follow.

Read on for steps to starting a BDC, including BDC filing requirements.

1. Conduct Market Research & Choose Focus

Where will your BDC focus? What industry will you serve? Will you focus on companies in the startup phase or mature businesses in need of support?

These are essential questions to answer at the outset, so your BDC can make an impact. Don't skip the market research phase of BDC formation.

2. Choose a Legal Entity Type

Once you've established a focus, you'll need to form a legal entity. Will your BDC be structured as a sole proprietorship? Will it be a partnership, a limited liability corporation (LLC) or another entity?

There are legal and financial pros and cons to each of these entity types. If you're unsure which makes the most sense, check in with your advisers.

3. Acquire Professional Certifications

Part of the role of a BDC is to develop — or support — the businesses in which it invests. You'll need skills and credentials to properly support those businesses. There is a broad range of professional certifications that may be applicable, though you don't need to obtain them all at the outset. However, it's worth keeping a list of relevant professional certifications, so you can boost your skills and better support companies in your portfolio as you go along.

Some relevant professional certifications include:

  • Certified business development expert
  • Certified business consultant
  • Certified business coach
  • Certified business strategist
  • Certified business analyst

One more note on certifications: You don't need to personally go through these training sessions if you bring on a team of certified strategists and coaches to support the BDC and its clients. Investing in support staff with the right credentials should help you get your BDC off the ground faster.

4. Obtain and Submit Legal Documents

In order to launch your BDC, you'll need the right legal documents to operate. Leave yourself plenty of time to secure the following paperwork:

  • Business license
  • Federal tax ID
  • Business insurance
  • VAT registration
  • Consulting agreements and/or employment agreements

While it isn't documentation, per se, many BDC developers will need financing. Financers will want to see a business plan. A robust business plan will also help you move through the phases of development quicker and launch faster. Don't skip this step!

5. Filing With the SEC

BDCs are required to register with the SEC and abide by certain rules. Increasingly, these entities are subject to scrutiny regarding regulatory issues.

For these reasons, it's important to file the right paperwork with the SEC at the time of formation. You'll also want to invest in SEC filing software, so you can keep on top of all required SEC filing forms.

SEC forms required of BDCs include but are not limited to:

  • Form 54-A: This allows a fund to be registered as a BDC.
  • Form N-6: This form alerts the SEC that you plan to hold a BDC election.
  • Form N-2 (publicly traded BDC only): This form provides basic information about a BDC such as scope, policies, management, officers and risk evaluation.
  • Form 10 (private BDC only): Whenever existing assets are used to create a private BDC, this form must be filed.

In addition to these formative filings, a BDC must file periodic statements with the SEC. These include financial reports such as the SEC Form 10-K and Form 10-Q.

Get Started On Your BDC Journey

By now, it should be clear that starting a BDC requires a lot of work. Having a checklist and understanding the required SEC filing forms can help you avoid regulatory hassles and stay on track. As you continue on your BDC journey, identify partners and collaborators who can support company formation, from consulting with clients to streamlining the mandatory SEC filings.

Priya Shah

Priya Shah

Marketing Analyst, DFIN