The Small Business Administration has shifted more of its resources of late to bolster high-growth upstarts. But does that complement of come at the expense of its support for traditional small firms?
The Small Business Administration continues to shift more attention and resources to supporting a specific subset of small businesses — that is, new and innovative companies that don’t intend to stay small for long.
In the past couple weeks, the agency has made a series of moves aimed at least in part at widening its support of promising upstarts, starting with the expansion of a program that provides financial backing to investment funds and followed by the dispersal of millions of dollars in grants intended to accelerate the development of regional entrepreneurship and innovation hubs around the country.
None of the initiatives come as much of a surprise, considering SBA Administrator Maria Contreras-Sweet’s emphasis on pursuing bold initiatives that will help the department remain a useful resource for entrepreneurs in the 21st century. However, they run the risk of drawing fresh criticism from those who feel the agency has shifted too much focus to helping innovative, high-growth start-ups at the expense of traditional mom-and-pop businesses.
Under one of the grant programs, called ScaleUp America, the agency awarded funds to nonprofits, universities and private firms in eight communities to help develop or strengthen what it refers to as “entrepreneurship ecosystems.” Grant recipients are expected to build connections between local investors, entrepreneurs and public officials so as to give start-ups the greatest opportunity for success.
Communities selected for this first round of grants include rural areas like Roanoke, Va., and Northern Ohio, as well as metropolitan hubs, such as Kansas City, Mo.; Jacksonville, Fla.; and Tucson, Ariz. Contreras-Sweet said in a statement that the funding was meant to “help scalable small firms grow and create jobs.”
On the same day, the agency awarded half-million-dollar grants to four public-private partnerships under a new Regional Innovation Clusters program. Similar to the ScaleUp America initiative but centered around advancing technology in a given industry, like manufacturing or energy production, the clusters program is meant to help “entrepreneurs who are developing cutting-edge products and processes that will help ensure American global competitiveness,” Contreras-Sweet said.
A few days earlier, SBA officials announced plans to expand the agency’s Impact Investment Fund, an outgrowth of the longstanding Small Business Investment Company program, under which the department provides financial support to venture capital groups and other investment funds that back small but quickly growing firms, often in underserved areas. Some of the country’s first venture capital firms were born out of SBICs.
“As head of the SBA, my main goal is to increase access to capital for our nation’s entrepreneurs,” Contreras-Sweet said in making the latter announcement.
Question is, to what extend does the agency mean “small business owners” when alluding to entrepreneurs, as opposed to, the founders of new and often technology-driven ventures, who have no intent to stay small?
Under Karen Mills, who preceded Contreras-Sweet, the agency attempted to pull back on funding for the department’s longstanding network of Small Business Development Centers and SCORE centers, both of which provide counseling to small business owners. At the same time, she experimented with several new initiatives meant to either help would-be entrepreneurs get started or help mid-sized firms grow larger.
Contreras-Sweet, who is now in the second half of her first year in office, has largely picked up where Mills left off, launching additional programs aimed at upstarts and other expansion-minded firms. In May, for example, she announced a competition to fund 50 local ventures that specialize in helping start-ups launch. She unveiled the program, appropriately, while speaking at Twitter’s headquarters in San Francisco.
“We’re exporting the Silicon Valley model to Middle America to fund business incubators and growth accelerators in underserved communities,” Contreras-Sweet said during a speech this summer in Washington. Speaking about the program launched in May, she later said the goal is to help “start-ups go from zero to 60 in record time.”
So why the shift toward a “Silicon Valley” mentality? In large part, that’s how the agency believes it can get the most economic output from its limited financial resources.
“Ninety-two percent of new jobs come from the expansion of existing businesses,” Contreras-Sweet said in a statement announcing the expansion of the ScaleUp America initiative. Meanwhile, research shows that among those existing firms, it’s generally young, innovative companies that create most of the country’s new jobs, rather than your on-the-corner, mom-and-pop shops.
Helping those existing firms grow larger, as well as helping would-be entrepreneurs with big growth plans get started, have therefore climbed up the priority list for the agency.
But have they climbed too high? During the past few years, some members of Congress have criticized the agency for straying too far from its mission to support more traditional small businesses in favor of providing financial resources and new training programs tailored to new and mid-sized firms with high-growth potential.
Mills, for example, took fire from lawmakers for pulling back on funding requests for the SBDCs and SCORE. More recently, Contreras-Sweet has been questioned about a sharp drop in the agency’s share of loans flowing to small businesses owned by traditionally underserved groups like women and minorities.
Striking the right balance between helping Main Street firms survive and helping Silicon Valley firms start and grow will be critical for the agency moving forward. Data released earlier this year shows that the rate of new business formation in the U.S. is falling, while at the same time, business closures are accelerating. In fact, for the first time in three decades, the pace of business deaths is currently outpacing that of business births.
