With over 33 million small businesses in the United States, and another 5 million in process in any year, the range of needs among current and future entrepreneurs can be staggering. An enduring challenge reported among them is a need for more resources. Foremost among these are financial resources. Knowledge-based resources are also critical. Barriers to accessing these resources can be particularly challenging for BIPOC and women entrepreneurs.  

Increasing access to additional funding and funding types (e.g. experimentation funding, angel financing, venture capital, and person-to-person investment circles) for a broader range of entrepreneurs can provide critical support to startups and improve diversity in entrepreneurship, which in turn can produce positive benefits for all Americans. From tax policy to federal programs targeting entrepreneurs, policymakers can consider a variety of strategies to support the entrepreneurial ecosystem and help entrepreneurs learn, grow, and generate new products and services – which are essential to building a robust 21st century economy.  

Fostering Entrepreneurship Via Population-based Mentorship 

One of the greatest challenges potential entrepreneurs face, particularly BIPOC and women entrepreneurs, is a lack of identification with the concept of entrepreneurship. It is well known that young people often pursue occupations based upon those they observe and experience, and many do not observe business owners and/or self-employed individuals, especially in BIPOC communities. Thus, elevating the visibility of BIPOC business owners in their communities is a crucial first step to encouraging entrepreneurship among these populations. 

Mentorship enhances the awareness and possibility of entrepreneurship, in addition to providing access to lessons learned, support, and networks of resources that can save a new, or potential, entrepreneur critical time and money.  

• Mentorship within a racial or ethnic population is vital, as it increases confidence for the mentee and connections to population-specific resources, such as lenders who speak multiple languages or adhere to cultural norms. These mentors also provide critical empathy and support that can motivate and encourage mentees in their entrepreneurial journey, which is often otherwise fraught with difficulties and isolation.  
• Mentorship from outside of the racial or ethnic population is also important, as it provides access to a larger pool of resources beyond the racial or ethnic population, including but not limited to, financial capital, access to contracting, and an expanded customer base.  

Enabling Experimentation Opportunities to Improve Products / Services 

Another key to developing successful entrepreneurs is leveraging the power of experimentation, which gives entrepreneurs the opportunity to receive feedback from real customers without a large investment in inventory or equipment. Such feedback enables the business owner to modify their product or service to meet the needs and preferences of consumers and ensure the product or service really meets the needs for which it was designed. 

• Experimentation is the foundational step of the highly successful federal government programs known as Small Business Innovation Research (SBIR), Small Business Technology Transfer (STTR), and Innovation Corps (I-Corps) programs. This process allows government agencies to provide small amounts of money to small businesses to prototype and test their products (in Phase 1).  
• A private sector example is Heartland Forward’s Idea Accelerator, which provides “builders” (persons with an idea) $5,000 to experiment and test their idea. Many of the business owners interviewed for their Black Business Opportunity Strategies report mentioned that work restrictions stemming from the COVID-19 pandemic provided them – for the first time – the resources (e.g., extra time and financial resources, such as unemployment benefits and tax rebates) to reflect and experiment with their business ideas.  

Startup Acceleration: Increased access to financial resources and providing opportunities to expand entrepreneurs’ experimentation capacity may help explain why business startups accelerated during the COVID-19 pandemic. 

Improving Equity by Expanding Access to Angel Investment/VC Groups 

Angel and SBIR funding can be used by entrepreneurs to help startups survive, such as by addressing staffing costs (e.g., funds can be used to pay for past work performed for the firm or to underwrite future activities). Angel investment support policies are common at the state level, most often implemented as tax credits for angel investments. However, relatively few policies have targeted BIPOC, women, or veterans populations. Instead, these policies have historically targeted specified sectors (e.g. high-tech) or outcomes (e.g. exporting) and left a gap in real estate, hospitality, retail, and professional services industries, stemming in part from years of redlining practices.   

Despite the focus on high-potential firms, research on angel tax credit outcomes suggests tax credits are more likely to support smaller-scale investments (by as much as 32%), such as family and friends becoming “angels” to benefit from the tax credit. While “additional investment flows to older firms, to firms with lower employment growth, and to fewer serial entrepreneurs,” this does “not imply that the investments are not privately or socially valuable.” Professional angels tend to disregard tax credits (as they are focused on investment opportunities likely to produce exceptional financial outcomes). 

Policymakers have an especially timely opportunity to consider strategies to support BIPOC entrepreneurs (e.g., expanding access to venture capital and angel investments) in light of recent federal case law, which as it stands, may exacerbate BIPOC entrepreneurs’ challenges in accessing financial resources. Specifically, a U.S. District Court judge determined the Minority Business Development Agency (MBDA) can no longer use race-based presumptions to determine program eligibility. The MBDA was established as the “only federal agency solely dedicated to the growth and global competitiveness of minority business enterprises.” 

Mobilizing Local Resources Through Investment Circles 

Investment circles (also called funding circles), where members of a particular group come together to share funds for business purposes have a long history among immigrant communities. Examples include tanda (Mexico), esusu (West Africa), kameti (India), hui (China), menages (Scotland and northern England), and susu (West Indies). In the past 20 years, this approach has become generalized as peer-to-peer (P2P) lending. Though there is little existing research on best practices for investment circles, P2P lending has seen explosive growth through new elements, such as:  

• the sharing economy (e.g., Airbnb, Lyft, Uber),  
• online P2P lending and banking platforms (e.g., Kiva, Prosper, Upstart, LendingClub),  
• crowdfunding non-equity “investment” platforms (e.g., Kickstarter or IndieGoGo),  
• and nearly 300 outside-the-US firms on CrowdSpace.  

These online platforms are general in their appeal and bring people with a shared interest together, while providing a publicly visible space where entrepreneurs, or potential entrepreneurs, can seek funding. There are also online platforms which specialize in particular communities and have shown particular success for minority-owned businesses and women-owned businesses. StreetShares.com targeted veteran entrepreneurs, but the site merged into a more general platform, (MeridianLink.com). Meanwhile renewed interest in fintech is becoming apparent in the Latino community. 

Efforts to promote local community-based investment circles may help mobilize local resources, while facilitating investment circles’ emergence and development. In such cases, support could include providing advice and connections through the financial infrastructure, a dedicated P2P financial platform. Additional options could include offering tax credits to participants or sidecar or matching funds from government or private investors. With numerous online platforms, policies could target incentives for developing P2P investments in particular groups (e.g. minorities, women, veterans), geographic areas (inner cities, rural areas), or sectors (retailing, personal services, etc.) to maximize impact.  

Policy Considerations: Whether addressing emerging fintech solutions or longstanding funding practices, entrepreneurs – particularly BIPOC, women, & veteran entrepreneurs – can benefit from increased access to financial resources, e.g., Population-Based Mentorship | Experimentation | Angel Investments / VC Groups | Investment Circles 

Select Resources 

• Crews, J., Li,  J., Fowlkes, A., & Shideler, D. (2023, October 16). Black Business Opportunity Strategy: The Journey of Black Business Owners in Memphis. Heartland Forward. Retrieved February 24, 2024, from https://heartlandforward.org/case-study/black-business-opportunity/ 
• Denes, M., Howell, S. T., Menzzanotti, F., Wang, X., & Ting Xu. (2023, October). Investor Tax Credits and Entrepreneurship: Evidence from U.S. States. Journal of Finance, 78(5), 2621-2671. https://doi-org.ezp.slu.edu/10.1111/jofi.13267 
• Howell, S. (2022, December). Mechanisms and Impacts of Innovation Policy,. Mechanisms and Impacts of Innovation Policy, NBER Reporter, ISSN 0276-119X, (4), 8-11. https://www.econstor.eu/bitstream/10419/277829/1/2022number4-2.pdf 
• Virginia Joint Legislative Audit and Review Commission. (2022, June 13). Science and Technology Incentives Economic Development Incentives Evaluation Series – Appendix H: Incentives for private investors of startups by state. JLARC. Retrieved February 24, 2024, from https://jlarc.virginia.gov/pdfs/oversight/ED_initiatives/SciTech%20Appendix%20H.pdf