Bloomberg Businessweek June 29, 2020 pp28-32. Economics “A Reset for Entrepreneurship”. “Silicon Valley hijacked the concept of the privilege of a few. The present crisis affords an opportunity to redefine it so it’s more inclusive” By David Sax
Interesting piece noting that since the Reagan years and especially after the 2007-2009 financial crisis entrepreneurship has fallen dramatically. Meanwhile Angel Investors (AI) and Venture Capital (VC) have increasingly paid homage to their own skyrocketing successes that in reality constitute only 1% of all businesses yet capture 50% of press coverage. Today the VC deals are fewer but larger-this is the VC playbook of supporting dozens of promising start-ups while seeking a breakout company in each VC’s portfolio. These deals too are mostly situated in Silicon Valley, New York and Massachusetts with the mantras of "Survival of the fittest" and “competition is for losers”. Not surprisingly, while minority small businesses have been increasing in number they account for negligible funding by VC. “In 2019, according to Pitchfork, less than 3% of all investments went to women-led companies-an all-time high ladies!-while a report by Diversity VC found that just 1% of VC-backed founders were Black and 1.8% were Latino”.
What to do?
1) Education. Entrepreneurship education, should largely forget about the Unicorn models of Silicon Valley (Those skyrocking start-ups "valued" at >$1B), and rather “focus on a wider range of paths for starting a business, including small and midsize companies, multigenerational ownership, and even lifestyle businesses (those set up to support a founder’s living expenses and pursuits without growing exponentially)…”. See Interise Streetwise MBA program (Boston University)-teaches real-world strategies-students of the seven-month program, focused on helping existing small businesses, have seen revenue increases and job creation improvements in the start-ups.
2) Access to financing for smaller start-ups should be a key focus. Big banks favor deals of >$1M while small companies don’t request or require as much. The smaller loans typically come from what is a diminishing pool of community banks (5,600 in 2017 down from 10,700 in 1997). A caveat of these small banks are CDFIs (Community Development Financial Institutions “a federally certified form of private financial institutions created in 1994 to support underserved communities. There are a scant 1,000 across the country”.)
3) Small-business owners need community. They will benefit from having “peers they can talk with, who can give them advice and guidance”. See 1 Million Cups, Zebras Unite as examples.
Closing Notes
Some see the Pandemic, whether out of necessity or not, as a “once-in-a-generation opportunity to transform American entrepreneurship”. “This isn’t one of those survival-of-the-fittest moments, It’s not competitive. We have to come together”. “…we need to restore the belief…that [American] entrepreneurship remains desirable and attainable”.