This is the third column in a series by SBA Administrator Karen Mills for On Small Business. Check back to the site each Monday for the latest entry.
Entrepreneurship is America’s secret sauce.
It’s what built the greatest economy in the world and the strongest middle class. It’s what fuels American innovation, makes our industries more globally competitive and creates new jobs across our economy.
Over the past two decades, new establishments have created an average of more than four million new jobs per year. We need more entrepreneurs doing what they do best: turning innovative ideas into successful and growing businesses.
But look at the chart above: The average number of new establishment starts, while growing consistently in recent years, is still not where it needs to be.
So the questions become: What’s keeping America’s entrepreneurs on the sidelines, and what can the government and the private sector do to get more of them into the game?
Answering these questions has been our focus at the Small Business Administration.
The Valley of Death
We know that entrepreneurs in many areas of the country cannot access the financing they need to start, scale and expand their businesses. Today, 70 percent of venture capital goes to just three states: California, New York and Massachusetts.
Public-private partnerships can help fill these gaps. One of the ways we are driving capital into new firms is through our Small Business Investment Company program.
Through SBIC, the SBA can invest up to $3 billion annually in private sector funds that provide financing to entrepreneurs. We’ve cut the licensing times for new funds in this program by more than half and are attracting top-tier investors and fund managers to the program.
But we know that many entrepreneurs continue to face what is known as the “Valley of Death,” or a lack of early stage investment. So, we created a new $1 billion fund to help fill those gaps and make sure that more start-ups have access to vital early-stage investment.
We also know that in certain areas of the country and sectors of the economy it is difficult to access capital to grow, as opposed to start, a company. We recently created a second $1 billion fund, known as the Impact Fund, to address this additional gap in the capital market.
Our first Impact Fund investment was in the InvestMichigan Mezzanine Fund, a $130 million investment vehicle focused on promising businesses in Michigan. The fund has top-tier investors, including Dow Chemical and the state of Michigan, and a blue chip fund manager in Credit Suisse First Boston.
Turning innovation into job creation
Many new businesses start from research or the development of a new technology. Ensuring that entrepreneurs have the resources to commercialize their research is critical to creating a viable, growing business.
Our agency oversees the federal government’s Small Business Innovation Research (SBIR) program, which sets aside approximately $2.5 billion a year for federal R&D funding for small businesses. Companies like Qualcomm, Sonicare and Symantec all used the SBIR program when they were getting started.
A study by R&D Magazine showed that between 2002 and 2006, 25 percent of the top 100 innovations came from firms that received SBIR funding.
In fact, I was in Ames, Iowa, this year visiting a company that makes shrimp vaccines, and they are exporting these vaccines to markets as far away as Indonesia.
Why is a business in Iowa making shrimp vaccines? Because their research showed that a vaccine they developed for swine flu could be adapted for use in shrimp farming, and they used the SBIR program to help develop and commercialize the research.
This is a great example of how America’s entrepreneurs are innovating with world class solutions—and creating American jobs in the process. And it’s why we need to make sure the country’s entrepreneurial infrastructure is accessible to more businesses across the country.
Accelerating start-up growth
One important development in fueling new business formation outside of traditional start-up hubs is the emergence of business accelerators in these regions. These networks do exactly what their name suggests: accelerate the pace of start-ups.
The SBA has convened more than 100 accelerators from across the country and we are focused on developing best practices and connecting these networks to our SBIC and SBIR programs and to private sources of capital.
America has all the assets needed to spur new business formation – a thriving entrepreneurial spirit, an appetite to invest and a framework of laws that allows these entrepreneurs to compete on the merit of their ideas.
The key is to take an inclusive view of entrepreneurship and to make sure that access and opportunity reaches entrepreneurs in more areas, and more industries, across the country — because that’s how we unlock America’s full economic potential, by accelerating job creation and making our country more competitive.
Karen G. Mills is the Administrator of the U.S. Small Business Administration. Mills was appointed by President Obama in 2009 and has served on his cabinet since 2012.
Blog series part 1: America’s four most critical small business sectors
Blog series part 2: Do existing businesses hold the key to economic recovery?