With bank loans and venture capital unavailable to so many entrepreneurs, states and communities should develop innovative funding streams to promote entrepreneurship and help support new businesses in their jurisdictions. Capital should help entrepreneurs at different stages of starting a business, from having a new idea to opening doors to serving customers. There are a number of innovative models that could be scaled across America. States and localities should create competitive Entrepreneurial Capital Catalyst Grants to:

• Create “evergreen” community investment funds that support new businesses as they move through the early stages of proof-of-concept and product development. States and localities can look to successful models such as MassVentures in Massachusetts and JumpStart Evergreen Fund in northeast Ohio.
• Build collaborative investment funds that engage established businesses to work with emerging businesses for joint product development and supplier relationships. States and localities can gain lessons from the experiences of Cintrifuse and Renaissance Venture Capital, operating in Cincinnati and Michigan, respectively.
• Support investment funds that spur the growth of new financial intermediaries – entrepreneurs creating capital to invest in other entrepreneurs – particularly those with innovative models such as revenue-based investing and profit-sharing. States and localities can leverage domestic learnings from individual funds, such as Lighter Capital and the New Hampshire Community Loan Fund, and can borrow international lessons from “fund of fund” models, such as Yozma Group, IDB Lab, and Capria, on seeding and growing new investment categories.

POLICY IN PRACTICE: The Capital Access Lab is a national pilot initiative that aims to find, promote, and scale innovative investment managers, providing new kinds of capital to underserved entrepreneurs and communities in the United States. For this pilot, the Kauffman Foundation worked in conjunction with ImpactAssets to create a new vehicle for foundations and donors to aggregate and deploy charitable funding.The Foundation worked with experts to develop term sheets and tools to enable more of this activity outside of the pilot. The results from our efforts only continue to underscore the systemic inequity faced by business owners and entrepreneurs of color and those who are women. With proper capital, managed and distributed by people who look and live like them, entrepreneurs have a higher chance for success when they have access to institutions that understand their needs most intimately.

Kauffman’s investment of $3 million into six funds has catalyzed other investments, totaling $177 million that has been raised by the funds.

The funds have to date deployed more than $25 million in funding to entrepreneurs across 40 companies.

Across all six Capital Access Lab funds, 40 founders from diverse backgrounds received investment; including 97% underrepresented founders, 86% founders of color, 61% female founders, and 75% founders in cities outside major venture capital hubs such as New York City, Boston, and California.”

POLICY IN PRACTICE: JumpStart Evergreen Fund is a nonprofit seed fund operated by JumpStart, a venture development organization created in 2003 with support from Ohio’s Third Frontier program and civic and philanthropic leaders. JumpStart Evergreen Fund invests in technology businesses in the 21 counties of northeast Ohio. The financial returns from the fund are “recycled” to make more investments in additional companies.

JumpStart’s Evergreen Fund and its other investment funds together:

Have invested more than $61 million in 125 businesses, with 44% going to firms led by women and people of color.

Provide critical services beyond capital, including connections to the right people, operational assistance, and other sources of capital as a company grows.