The ability to turn a great idea into a business should not be tied to your zip code.
The story goes like this: an investor and an entrepreneur, both natives of St. Louis, meet on the same plane headed to Silicon Valley. The investor is on his way to meet with companies who can fill his portfolio; the entrepreneur has set up exploratory meetings with venture capitalists in the Bay Area. They both think they can find what they are looking for in the gold rush out West, meanwhile they ignore the relationships and opportunities for collaboration back home.
This story emerged from a roundtable that Village Capital co-hosted in June with the Economic Innovation Group. The conversation gathered over a dozen leaders — from government, VC, foundations and finance — to discuss the challenge of fostering place based-investment in distressed communities: how can the public and private sectors work together to incentivize and improve access to capital for entrepreneurs and small businesses around the country?
The roundtable was inspired by the Economic Innovation Group’s groundbreaking Distressed Communities Index, which took an economic temperature check of every zip code in the United States and came to a startling conclusion: the gap between the richest and poorest communities is not only large, but has grown significantly since the Great Recession. Although several large American cities are years into economic recovery, many parts of the country are still mired in their own recessions, with 50.4 million people living in distressed communities.
As EIG has written, “ZIP codes mere miles apart occupy vastly different planes of community well-being… It is little surprise that many Americans feel they have been truly left behind.”
Entrepreneurship is fundamental to this problem. According to the Kauffman Foundation, entrepreneurs have created nearly 100% of net new jobs in the past 30 years, and new businesses remain a core part of any community’s economic identity. But while entrepreneurship has never been more front of mind in American culture — from Shark Tank to Elon Musk — the reality is that for many people, finding the capital they need to get a business off the ground is harder than ever.
First, the rise of venture capital has also led to a greater concentration of where money flows, with 78% of VC funds going to just three US states (California, Massachusetts and New York), 5% going to women founders, and less than 3% to people of color. At the same time, other macro trends have contributed to a tightening of resources for early-stage entrepreneurs: from the shrinking of small-town and community banks, to rising student debt and falling home-ownership rates that make initial “friends and family” rounds more difficult. These factors add up: despite the popular perception, new firm creation has been declining for 30 years.
Our roundtable with the Economic Innovation Group was one piece of a larger national conversation about how private and public-sector leaders can address this problem together. How can policymakers on the local, state and federal levels incentivize wealthy individuals and institutions to consider the needs of their hometowns before casting their sights elsewhere — or remove unnecessary restraints on local investment? How can entrepreneur support organizations and foundations help founders from all backgrounds with the soft skills and exposure they need to get that first meeting with a bank or a VC? How can we make sure that the investor in St. Louis has all the information he needs about opportunities in his community, before buying a ticket for the plane?
We’re optimistic because this conversation is already happening, and experiments are already taking place. In cities across the country, local VC’s like Access Ventures in Louisville, KY and 757 Angels in Hampton Roads, VA are approaching investing from a place-based perspective. A wide range of incubators, accelerators and seed funds, from the Start:ME program in Atlanta to Groundwork Ventures in Washington, DC, are providing mentorship and financial backing to entrepreneurs from underserved communities. And in Congress, the Investing in Opportunity Act has bipartisan support to facilitate a national network of geographically targeted funds and new incentives for investments in economically distressed communities.
Meanwhile, Village Capital will continue working through VilCap Communities to enable entrepreneurs everywhere to help communities across the country and across the world build peer-driven entrepreneurial ecosystems.
Place matters. In our globalized, interconnected world, we need to find solutions that work city-by-city and neighborhood-by-neighborhood to make sure that anyone with a great idea can have the opportunity to see that idea through.