Start Us Up Start Us Up logo

America’s New Business Plan: Funding

EQUAL ACCESS TO THE RIGHT KIND OF CAPITAL EVERYWHERE

Business owners believe that access to capital is the most important resource for starting a business (43%) and also the most significant barrier to entrepreneurship (55%). Furthermore, 33% of Americans cite funding as the number one reason they have not started a business.

However, capital doesn’t flow to all deserving entrepreneurs. At least 83% of entrepreneurs do not access bank loans or venture capital when launching a business, tilting the scales in favor of those who have the wealth to create new enterprises. Women, black, and Latinx entrepreneurs disproportionately struggle to raise the funds their businesses need. While 45% of men say that getting the money to start a new business is difficult, 63% of women report the same. On average, black entrepreneurs start with much less capital, have less family wealth to rely on, and are much less likely to get bank loans or other forms of investment than equivalent applicants who are white or of other racial identities.

Despite its ubiquitous media presence, venture capital — fuel for a small number of the fastest-growing new businesses — is not a fit for most startups. In fact, only 0.5% of entrepreneurs across all demographics access it. But for those entrepreneurs whose businesses need the extra jolt venture capital can provide, securing funding can still be difficult. Seventy-five percent of venture capital supports entrepreneurs in only three states: California, Massachusetts, and New York. Additionally, 27% of founders who receive venture capital attended an Ivy League university. Only 2% of venture capital flows to women-led firms, and just 1% to firms led by African-Americans.

These statistics all point to the untapped economic power that remains overlooked in underserved communities and populations across America. Capital must flow to empower entrepreneurs in every community and to ensure that populations too often left behind are given equal opportunities to turn their ideas into businesses.

What can government do?

RESOURCE: The Kauffman Foundation report Access to Capital for Entrepreneurs: Removing Barriers identifies barriers entrepreneurs face in accessing capital, surveys efforts to break down these barriers, and identifies possible responses. The report highlights that entrepreneurs face “geographic, demographic, and wealth barriers” when financing their businesses.