Public-Private Partnership Bring Billions To Diverse-Owned Businesses

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To promote equity and foster economic development, the Biden administration expanded the State Small Business Credit Initiative (SSBCI) with $10 billion in funding, 40% is focused on socially and economically disadvantaged businesses. Of that funding, $100 million was set aside for the Initiative for Equitable Entrepreneurship (IEE), which builds capacity among different types of funders, deploys capital to funds to finance entrepreneurs, fosters collaboration, and raises awareness of opportunities.

The IIE seeks to unlock massive funding with a 1:1 private investment match requirement, and private investors have stepped up. Hyphen Partnerships incubated the IIE program and is one of the lead organizations. Founders First Capital Partners is focused on supporting funders—providing debt and private equity—to small business government and corporate suppliers. JumpStart is focused on helping diverse emerging managers of venture capital funds and diverse founders find funding.

The SSBCI and IEE are among the most significant small business programs in the history of the U.S.

SSBCI’s IIE Program: Financing Growth For Diverse Small Businesses

Diverse small businesses have an urgent demand for more inclusive growth capital. Sadly, only a tiny percentage of diverse-owned businesses have access to traditional capital products, leading to higher interest rates for businesses owned by people of color.

The story is even worse when it comes to venture capital. The lack of diverse VCs results in a minuscule percentage of funding going to Black and Latino founders, and their share of capital is decreasing. These statistics highlight the pressing need for more significant efforts to ensure equitable access to funding opportunities for all entrepreneurs.

The IEE—a $100 million effort—aims to bridge the funding gap for diverse-owned businesses by leveraging public-private partnerships to maximize the impact of the Treasury Department’s $10 billion SSBCI program. With leverage as a built-in strategy, every SSBCI dollar deployed is designed to catalyze $10 in private investment, with a 1:1 match required.

Participating corporate and philanthropic investors include JPMorgan Chase, W.K. Kellogg Foundation, John D. and Catherine T. MacArthur Foundation, Mastercard Center for Inclusive Growth, Skoll Foundation, and Wells Fargo.

The SSBCI program was reauthorized by the American Rescue Plan Act of 2021. The reauthorization significantly boosted funding for the SSBCI program and emphasized helping underserved communities recover from the pandemic. This program includes increased funding for technical assistance programs and allowing Tribal governments to participate.

In addition to ARPA, other Biden legislation—the Infrastructure Investment and Jobs Act, Inflation Reduction Act, and CHIPS & Science Act—creates business opportunities for small businesses.

Matching Private With Public Funds

Hyphen brings together the public and private sectors to address social issues through co-investment and collaboration. For the past year and a half, Hyphen has been incubating the IIE, building its capacity, and sourcing matching capital. This initiative ensures diverse small business owners have the financing they need to grow.

“We have a goal of raising at least $250 million in private and philanthropic capital to leverage the federal funding for entrepreneurs of color,” said Archana Sahgal, founder and president.

The IIE also strengthens the competitiveness of the U.S. small business sector by promoting equity and fostering economic development. SSBCIs aim to create jobs and drive economic upward mobility, narrowing the wealth gap for people of color by providing financing. Two of IIE programs are explained.

Connecting To Capital: Financing for Government And Corporate Suppliers

It is a rare few small businesses that reach a million dollars or more in revenue annually. Government and corporate contracts increase the odds. But women-owned businesses—especially those run by Black women and Latinas—face roadblocks when securing government and corporate contracts, stymying their ability to grow beyond the $1 million marker. Unconscious bias against women entrepreneurs, limited access to capital, and lack of networks and mentorship hinder their chances.

Even when women-owned businesses win government and corporate contracts, they must navigate the complexities of securing the right financing. These entrepreneurs often encounter difficulties obtaining traditional loans and private equity. Favorable terms are hard to find when racial and gender biases influence funders’ decisions. These factors contribute to a situation where qualified women-owned businesses miss out on valuable contracting opportunities.

Founders First Capital Partners focuses on connecting businesses that supply governments and corporations to financing. Founders First collaborates with supplier councils that certify diverse-owned small businesses, matches supplier small businesses with financing options, helps suppliers scale while providing returns for investors through a “shared success capital” approach, and supports alternative capital providers in piloting new approaches.

Many resources exist, but Kim Folsom—founder, chairperson, and CEO of Founders First—emphasizes efficient and intentional access. “We have a platform called Passport to Funding Readiness that helps educate, and we do a funding requirements assessment,” she said.

Boosting Venture Capital for Diverse Fund Managers And Founders

The first five months of 2024 disappointed female founders seeking venture capital. Their share of VC has dropped to 18.6% from 24.1% at its peak in 2023, according to PitchBook’s U.S. VC Female Founder dashboard. Solely female-founded teams continue to get a pittance, just 2.1%, compared to their male counterparts, 79.3%.

JumpStart is the organization focused on increasing access to venture capital for diverse emerging managers and entrepreneurs of color on behalf of IIE. It is helping VCs of color raise $6 billion in assets under management by 2025. JumpStart is a hub for the IIE, promoting awareness and expanding opportunities for emerging fund managers in the VC, high-growth space and for potential investors in those funds. They achieve this by facilitating investment in emerging managers, securing additional funding, supporting emerging fund managers, and communicating SSBCI priorities.

“For example, the state of Ohio, where Jumpstart is headquartered, received approximately $283 million through SSBCI. A subset of those dollars are earmarked for venture capital investment,” said Teleangé Thomas, Chief Relationship Officer at JumpStart. It works with Ohio’s Department of Development, VCs, their investors, and others.

The SSBCI is a nationwide program, so Jumpstart works directly with 12 states. It is piloting a program to provide $50,000 grants for legal and compliance expenses associated with SSBCI participation. This initiative has attracted significant interest, with 180 applications from 29 states. These applicant funds have already raised $1 billion in assets under management, potentially reaching $6 billion.

How will you take advantage of new funding opportunities?

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