My name is Ginger Lew and I am the CEO and Managing Partner of the Telecommunications Development Fund (TDF), a private, non-profit corporation based in Washington, DC that provides education and training for entrepreneurs in the communications industries, and makes equity investments in small, early stage communications businesses.

I thank you for the opportunity to testify today regarding your important topic, "Digital Dividends and Other Proposals to Leverage Investments in Technology." Because TDF has been intensely involved in promoting the growth of technology in the communications sector since our inception, I would like to tell you about our background and mission, and describe our goals for the future and how they may be affected positively by currently proposed legislation, H.R. 747.

The Telecommunications Development Fund (TDF) was established by Congress with bi-partisan support as part of the Telecommunications Act of 1996. It was the brainchild of Congressman Edolphus Towns of New York. Congressman Towns conceived TDF as a means of expanding the reach of our telecommunications system for the benefit of all Americans, and as a way to assist new entrepreneurs who have the talent to develop brilliant technology but are hampered by a lack of access to capital and the management tools they need to succeed.

As defined by Congress, TDF's mission is to act as a catalyst for the creation and enhancement of a first-class communications system for all Americans, by

• · Promoting access to capital for small businesses;
• · Strengthening competition in the telecommunications industry;
• · Stimulating new technological growth and development;
• · Promoting universal service; and
• · Enhancing the delivery of telecommunications services to rural and underserved areas.

In accordance with its statute, TDF has a seven member Board of Directors appointed by the Chairman of the Federal Communications Commission (FCC). The statute specifies that the Board consists of seven members, four from the private sector and three from the public sector, with one representative each from the FCC, the Small Business Administration (SBA) and the Department of the Treasury (Treasury). Members of the Board serve for a term of five (5) years.

The Board of Directors was empowered by statute to determine the best ways to carry out TDF's mission. In furtherance of the mission, the Board formed TDF, Inc., a 501(c)(4) corporation that would provide education and outreach to emerging entrepreneurs. To fulfill the funding side of its mission, the Board thoroughly reviewed a number of options and concluded that making equity investments in early stage communications companies would be the best course to follow. Therefore, the Board created an investment entity, TDFund, LP, an early stage venture capital firm, wholly owned by TDF, Inc., that makes equity investments in small telecommunications businesses and provides them with ongoing management guidance. TDFund, LP is an "evergreen" fund, which means the return on its investments comes back to TDF, Inc. and to be reinvested in new companies.

Our Board provides guidance to TDF in matters of corporate governance, financial and investment policies and general industry expertise. The Board members provide guidance about overall investment policies of TDF. However, in order to ensure that no actual or perceived conflicts of interest or compromise of regulatory independence occur, the representatives of the FCC, Treasury, and SBA do not receive any investment-specific information. TDF continues to be very fortunate to have dedicated Board members who give freely of their industry and corporate expertise. All TDF Board members serve without compensation, and have declined any reimbursement for out-of-pocket expenses.

The members of the Board and the dates on which their terms expire are listed below.

Private-Sector Members

W. Don Cornwell, Chairman, Chairman and Chief Executive Officer, Granite Broadcasting Corporation, New York, NY.

Thomas A. Hart, Jr., Vice-Chairman, Partner, Shook, Hardy & Bacon, Washington, DC.

Richard L. Fields, Managing Director, Allen & Company, Incorporated, New York, NY.

Debra L. Lee, President and Chief Operating Officer, BET Holdings, Inc., Washington, DC.

Public-Sector Members

Michael Powell, Chairman, Federal Communications Commission, Washington, DC.

Melanie Sabelhaus, Deputy Administrator, U.S. Small Business Administration, Washington, DC.

U.S. Department of the Treasury, Washington, DC, vacant.

Congress created a unique funding mechanism for TDF. Section 309(j)(8) of 47 U.S.C. was amended to state:

(C) Deposit and Use of Auction Escrow Accounts - Any deposits the Commission may require for the qualification of any person to bid in a system of competitive bidding shall be deposited into an interest bearing account at a financial institution.."

Despite the statutory language and the intent of the authors of the legislation, the FCC chose to interpret the phrase "deposit" to apply only to the "up front" money portion of the deposit moneys.

The upfront payments are those initial bids that private companies submit, along with their spectrum auction applications. The funds are placed in an interest-bearing account in a private banking institution and the interest is passed on to TDF after the winners are named. Previously, this "up front" money was placed with the U.S. Treasury Department and earned no interest.

This is how the bid process works:

The FCC announces a Spectrum License Auction. Companies that wish to bid submit an application that states the amount they intend to bid. Included with the application is 5% of the amount of money they intend to bid as an "up-front" payment. These up front payments are placed in an interest-bearing custodial account in a private financial institution.

Within 45 days of the closing of the auction, the up-front payments of unsuccessful bidders are returned to them. The up-front deposits of successful bidders are transferred to the US Treasury and no further interest is earned. All the interest accrued on the up-front payments held during the auction process is transferred by the private financial institution to TDF.

Successful bidders are required to make an additional down payment on their winning bid for a spectrum license to the US Treasury, for a total of 20% of the successful price. At this stage the initial up front deposit and the additional down payment are held by the US Treasury in a non-interest bearing account.

TDF does not receive any interest from money held at this stage. There is no interest on these deposits.

Pursuant to negotiations, successful bidders are required to pay the full price of the spectrum pursuant to the terms of an agreement reached with the FCC. Once agreement is reached on payment terms, licenses may be issued.

Since 1996, TDF has received a total of $49.9 million in contributions from the interest earned on the upfront payments for spectrum license auctions.

Contributions breakdown:

1996 6,515,700.00

1997 14,457,285.00

1998 3,314,995.11

1999 2,557,584.47

2000 3,052,324.34

2001 19,710,639.27

2002 267,647.77

2003 9,249.06

TOTAL: 49,885,425.06

TDF officially began its operations in 1998 by undertaking certain organizational and start-up activities such as leasing office space and hiring staff. When these basics were completed, we embarked on working to fulfill our mission through entrepreneurial outreach and education, investments and portfolio management. Our first investment closed on December 31, 1999, and TDF is therefore characterized as a vintage 2000 fund.

Investments And Portfolio Management

TDF's investment activities are guided by the statutory mission of the Fund, by the size of the Fund and by established investment industry management principles. Consistent with its mission to promote competition in the communications industry and catalyze the development of new communications products and services for consumers and businesses of all sizes, the Fund strictly limits its investment activities to the communications sector. Within this sector, however, the Fund seeks to operate broadly, entertaining investment opportunities related to the transmission of voice, data and/or video in wireline, wireless or "casting" environments through software, hardware or services mediums.

Also consistent with its mission, TDF casts a wide net in search of high quality entrepreneurs and businesses. As a result, the Fund seeks investment opportunities from a highly diverse group of entrepreneurs with widely varying degrees of past entrepreneurial experiences, including first time entrepreneurs.

These emerging business leaders operate enterprises headquartered in urban, suburban, ex-urban and rural areas. In addition to providing capital, TDF commits valuable advisory services that assist new entrepreneurs in building the corporate infrastructure necessary to operate successfully.

Because of the early-stage characteristics of investment opportunities in this sector, the Fund invests its capital in exchange for equity in the portfolio company. Before such an investment is made, each opportunity is subjected to extensive and rigorous review. Initially, the Fund establishes that the opportunity matches TDF's overall investment criteria and that an investment in the company is consistent with TDF's mission. Before funding is forthcoming, TDF pursues in-depth due diligence review on many decision factors. These factors include, but are by no means limited to, the background of the management team, the strength of the company's core technology, the end user value proposition, the size and segmentation of the market, the relative strength of current and potential competitors, and characteristics of the distribution channel. Overall, the Fund seeks to create a portfolio of communications investments consistent with prudent investment principles. As a result, the amount of capital committed to any single portfolio company is generally limited to 10% of the funds under management. Given the current size of the Fund this translates to a maximum of $5 million. The Fund typically invests this capital in stages as the portfolio company progresses in its development.

The Investment Team, which consists of the CEO, Chief Investment Officer, a Vice-President, two Associates and a Market Analyst, conducts the due diligence and business plan review. TDF's investment criteria and the review process are described through the Website homepage, creating transparency and offering guidance.

TDF has continued to be very active in its deal-sourcing efforts through the economic downturn of the past few years, which saw a steep decline in overall private equity investing, and especially in early stage investing.

To date, TDF has invested approximately $12 million in 12 start-up communications companies and $25 million is available for investment.

Telecommunications Development Fund

Geographic Diversity of Portfolio

Northeast 2

Mid-Atlantic 4

Southwest 1

Midwest 3

Southeast 0

Pacific 2

Telecommunications Development Fund

Portfolio Distribution by Communications Sector

Wireless 4

Wireline 3

Internet 2

Media 3

Entrepreneur Assistance and Outreach

Virtual Educational Courses

Consistent with its mission, TDF provides technical and management assistance to entrepreneurs. In an effort to reach a wider range and larger numbers of entrepreneurs, TDF has designed online, virtual courses accessible 24 hours a day, seven days a week via the Internet. The online educational courses continue to be a highly accessed section of the TDF Homepage.

Basic Venture Capital Process

After conducting a review of available training materials and coursework on equity financing and finding very few quality resources, TDF created a virtual Equity Financing Course that may be taken by an entrepreneur at any time, anywhere. In order to maximize its outreach, TDF partnered with the Small Business Administration (SBA) as a co-host through SBA's online or virtual classrooms because the SBA classroom model already was tested and established. TDF provided the expertise on a new subject, equity financing, to complement the materials already available on other means of financing small businesses.

The Equity Financing Course, available since late 2000 on the TDF homepage (www.tdfund.com) and the SBA web site (www.sba.gov), presents basic information on equity financing, the types of investors (angels and venture capitalists), and suggestions for working with investors. The course includes a description of the elements of a business plan written for investors and an example of a plan and executive summary. An extensive glossary of venture capital terminology is included as well as numerous links to other useful information sites and resources. Throughout the course are brief audio introductions to each section reflecting the diversity of successful entrepreneurs and investors working with TDF.

This is a self-paced, easily accessible virtual classroom that provides extensive information on equity funding consolidated in one location that may be accessed from any location and at any time of the day or night. The course is available in both English and Spanish, and TDF remains open to inquiries for translations into other languages. TDF continues to receive positive feedback from entrepreneurs and resource providers about the Equity Financing Course.

Corporate Governance

In 2002, TDF completed development of additional educational content for entrepreneurs that focused on basic facts and practices relating to corporate governance for young companies. This important text, Building Your Board: A Corporate Governance Guide for Entrepreneurs, was previously unavailable in any format. This significant course content was posted on the TDF website and has been available at no charge since the fall of 2002.

TDF collaborated with the National Association of Corporate Directors, knowledgeable legal experts, experienced corporate directors and successful entrepreneurs for the development and review of the content. Building Your Board has also received endorsements and online hyper links to the course from many venture capital and corporate governance focused associations. Wide distribution and endorsements demonstrate the value of such information and the need for this ground-breaking material.

As a result of the interest raised with the national press coverage of the posting of the course, TDF staff has spoken at many meetings, forums, and seminars on the basics of developing sound corporate governance within early stage companies. Additionally, the content has been incorporated into appropriate materials for additional "training the trainers" courses and seminars.

Website

The TDF Website is continually revised and refreshed as a dynamic information source for the general public. A Library Section containing helpful articles has been added, and the online, searchable database, which includes links to business advisors throughout the United States, has been expanded and refined to help entrepreneurs find useful professional resources in their geographic location. The database contains approximately 5,000 entries and is continually updated and expanded. By migrating to a web-enabled database, TDF utilizes the latest technology allowing instantaneous changes to be incorporated into the system. Keeping in mind that some entrepreneurs may be accessing the Internet at public facilities such as schools and libraries, TDF's Website was designed to be accessible via most computer and dial-up systems.

Outreach

Our activities last year present an accurate example of outreach efforts. In 2002 alone, TDF participated in more than 400 events in more than 22 states that reached an estimated 10,000 entrepreneurs and would-be entrepreneurs from traditional and non-traditional communities. TDF reached entrepreneurs through a number of different forums.

TDF was the first investment fund recruited as a continuing sponsor for the third year of Springboard Enterprises venture capital forums because TDF recognizes the growing economic impact of women-led businesses. Springboard Enterprises leads a series of venture capital forums that has showcased over 250 women-led companies to date including three sites during 2002; the Southwest Forum was held in Dallas in mid-March hosted at the Fidelity Investments Campus, the Southeast Forum on the campus of the University of North Carolina at Chapel Hill held in September, and the New England forum held in November at the Massachusetts Institute of Technology. Organized as regional events, each of the forums recruited women-led businesses from rural areas as well as urban environments to present their companies to hundreds of private and corporate investors in a daylong event.

After ten venture forums to date, over 3,000 companies submitted applications, more than 250 women entrepreneurs presented to more than 2,000 investors, and involved many more investors, financiers and business development professionals in screening, selection and coaching. The presenting companies have secured over $1 billion in equity financing, one company has had a successful Initial Public Offering (IPO), and many of the companies have completed mergers or acquisitions. Over 40% of the presenting companies received funding during a declining market period and over 80% of the presenting companies remain viable, operating companies.

Recognizing the importance of developing a pipeline of companies preparing for high growth and the need for equity capital, TDF has worked closely with Springboard Enterprises to launch additional 'products' for developing entrepreneurs and their companies, particularly in second and third tier markets. The VC Tune-Up programs were launched in Kansas City, Missouri to assist very early-stage entrepreneurs. For slightly more mature companies, Springboard Boot Camps were designed to provide intensive interaction with investors and learning through interactive case studies. TDF actively sponsored and participated in Boot Camps held in Washington, DC (at George Washington University), New York City (at Goldman Sachs Headquarters) and Los Angeles, California (at the Milken Institute).

Since recognizing the success of the Springboard model, TDF has worked closely with the Emerging Venture Network and the Emerging Business Forum as well as the National Science Foundation to incorporate lessons learned and best practices helpful for minority led companies and those commercializing technologies funded under the federal Small Business Innovative Research (SBIR) programs.

In fulfilling the mission of TDF, we seek ways to assist new and emerging telecommunications businesses access to technical and management assistance. To that end, TDF has identified key resource providers throughout the United States, established a dialogue and working relationships to raise awareness of the needs of the business owners, examined key factors in obtaining capital infusion for entrepreneurs, and made that information readily available to entrepreneurs across the U. S. TDF staff continued to expand the training course presentations targeting groups of resource providers who can, in turn, expand and enhance information provided to entrepreneurs investigating equity financing in local business centers. The TDF 'training of the trainers' seminars resumed in 2002 and have been recognized as a strong training and resource component by business advisors throughout the United States.

TDF continues to build beneficial relationships with the expanding network of business specialists assisting small business owners. Informal public-private partnering relationships have been identified and fostered. Small Business Development Centers (SBDCs) and the Angel Capital Electronic Network (ACE-Net) Operators, originally under the auspices of the Office of the Chief Advocate at SBA, provide the backbone of the network in all fifty states and U. S. territories. Additional federal resources such as Small Business Investment Companies (SBICs), the Minority Business Development Agency (MBDA), National Telecommunications and Information Agency (NTIA), college and university entrepreneurial centers as well as resources on the state and local level are working with business and investment specialists from the private sector to assist and train entrepreneurs.

Although many entities in the business resource network have been affected by the downturn in the economy, TDF continued to work with remaining business incubators and accelerators, professional and trade associations, women's business centers, online assistance sites and professional services providers in order to expand our outreach across the United States. TDF has also fostered working relationships with colleges and universities as they expand their interest and course offerings in entrepreneurship. As with federal research laboratories and the SBIR grantees program, the university relationships have extended into preliminary work on technology transfer and commercialization of research technologies.

Either via telephone or through the TDF Inquiries electronic mail system, general requests for information or a review of a company's financial needs average about 250 per month. TDF receives many business plans that do not meet the Fund's published investment criteria and, therefore, the entrepreneurs are sent letters declining the opportunity to provide investment financing to a particular company. As much as possible, TDF provides feedback to those applicants, often detailing TDF's specific suggestions for improving the company's presentation or other key components needed to interest an investor. When appropriate, a localized, targeted list of assistance sites is provided so that those entrepreneurs receive an outline of suggested next steps for that business in finding capital.

In building a network of resources, TDF reaches outside the organization to develop collegial and productive relationships within the venture investment community. Accordingly, TDF representatives work with a number of organizations such as the National Venture Capital Association, the Baltimore-Washington Venture Group, The Private Investors Network, George Mason University's Grubstake Breakfast Series, the Mid-Atlantic Venture Association, the Illinois Venture Capital Association, the National Association of Investment Companies, the National Association of Small Business Investment Companies, the National Association of Seed and Venture Funds, WomenAngels.Net, and other angel and industry groups. These forums enable TDF to meet other private investors with whom it could co-invest and leverage its funds while expanding resources for entrepreneurs. TDF staff members have taken an active leadership role particularly in coaching and mentoring those entrepreneurs presenting their companies to investors in a variety of 'forum' settings.

TDF reaches underserved audiences of entrepreneurs through organizations such as Springboard Enterprises, the Forum for Women Entrepreneurs, the Center for Women Entrepreneurs, the Capital Telecom Professionals, the Minority Media & Telecommunications Council. TDF has identified resources such as the Ewing F. Kauffman Foundation, the Ford Foundation, the National Commission on Entrepreneurship, the Northern Virginia Technology Council, Capital Venue as well as many entrepreneurial centers operating close to major colleges and universities. These relationships enable TDF to leverage its advisory services by forming a network of resource and technical advisors. TDF staff members have participated as moderators and panel participants often throughout the year sharing views on the telecommunications industry outlook, the venture capital climate, corporate governance for early stage companies, and advising entrepreneurs on a wide range of topics.

TDF works closely with significant private sector resource providers and industry analysts to expand the resource network available to entrepreneurs competing in new telecommunications businesses. Talented and prestigious legal, accounting and consulting firms have established small business practices, often working at reduced rates for new businesses, to ensure well structured and sound establishment of young businesses. TDF has worked with established telecommunications and small business practices in the leading consulting organizations such as Legg Mason, KPMG, Deloitte & Touche, Grant Thornton, McKinsey & Company, PriceWaterhouseCoopers and now International Business Machines (IBM).

Additionally, TDF worked with many non-profit groups that mentor or nurture new businesses such as the MIT Enterprise Forum, the Center for Innovative Technology, the National Congress for Community Economic Development, and the National Association of Seed and Venture Funds. Technology resource relationships have been developed through the extensive federal research lab commercialization offices and the Small Business Innovation Research (SBIR) program. TDF has worked closely with the National Science Foundation (NSF) on the SBIR/STTR advisory board. Through that relationship, TDF and NSF developed the Match Maker project to introduce grantees to outside investors that launched in early 2002.

Continuing to Fulfill TDF's Mission

TDF's role in contributing to the creation of a first class communications system for all Americans was given added urgency with the events of September 11, 2001. Communications technology is especially needed for the military and for homeland security and these technologies are often developed by the kind of emerging communications companies in which TDF invests. Also, there are still many underserved areas that desire broadband services and other new communications technologies that are needed to enhance their safety.

Additionally, by increasing investments in early-stage communications industries, TDF will play an important role in creating the next level of technology that will stimulate our country's economic growth.

Congressman Edolphus Towns, the originator of the legislation that created TDF, has said that it was his intention that not only the "up-front" money paid by bidders in spectrum auctions but also the "down payment money" would be put in interest-bearing accounts, with TDF receiving the interest payments at the conclusion of the auctions. However, because of a regulatory misunderstanding, the funding mechanism was set up so that only "up-front" payments were deposited in interest-bearing accounts. Because of this error, it is estimated that TDF was denied approximately $100 million.

To correct this inequity, Congressman Towns, along with Chairman Upton and Congresswoman Heather Wilson, have introduced H. R. 747. This legislation would mandate that down payments made by winning bidders in spectrum auctions held after H.R. 747 is enacted would be deposited in interest-bearing accounts. This interest earned on these accounts would be passed on to TDF at the conclusion of the auctions.

We at TDF thank you, Chairman Upton, as well as Congressman Towns and Congresswoman Wilson, for the confidence you have demonstrated in our ability to continue to fulfill our important mission. We urge your colleagues to join you in supporting H.R. 747.