Kerry Addresses the Hurdles for Underserved Entrepreneurs

Hearing Focuses on those Hit by Unequal Practices

WASHINGTON, D.C. – Sen. John Kerry, Chairman of the Senate Committee on Small Business and Entrepreneurship, held a hearing today to address the lack of access to credit and venture capital for underserved communities. Businesses in economically depressed inner-city and rural areas, along with minority and women-owned enterprises are also not receiving vital technical assistance to help their firms thrive. The hearing provided further evidence of the need for important provisions within the Small Business Administration Reauthorization and Improvement Act of 2008 (S. 2920).

“The disparities facing small business owners are shocking and disappointing,” Kerry said. “Women, minorities and business owners in poor areas aren’t getting the loans, venture capital, or counseling they deserve to succeed.”

Venture capital is a driving force for our overall economy. It aides in job creation and can help small businesses thrive, but many underserved communities have trouble accessing it. Increasing access to credit and networking opportunities is also important for underserved groups.

The small business reauthorization act, which is currently before the full-Senate, encourages investments in small businesses owned by underserved members of the community, expands the Small Business Investment Companies program and New Markets Venture Capital program to capture those who need help the most and creates a program in colleges and universities to encourage students to become entrepreneurs – giving them the tools to do so successfully.

“In our country, the American Dream belongs to everyone,” Kerry said. “Talented, driven individuals are facing unnecessary challenges, making it harder for them to improve their financial well-being and robbing our economy of much-needed growth.”

Download: Study: Examination-of-Private-Sector-Discrimination

Download: Analysis: Increasing-the-capacity-of-the-nations-Small Disadvantaged Businesses (SDBs)

Statement of Senator John F. Kerry “Business Start-up Hurdles in Underserved Communities: Access to Venture Capital and Entrepreneurship Training” 

Good morning and welcome. First, I’d like to thank all our witnesses today for taking time out of their busy schedules to testify on the importance of improving the entrepreneurial environment for women and minorities and other underserved communities in our nation.

From financial services and health care to construction and transportation, minority and women-owned enterprises reach across all industries and account for a majority of the two million new start-ups here in the United States. This is good news, but this does not mean that there is no longer a need for public-private partnerships and laws and government programs because these firms still remain under-represented compared to their population and lack of access to financing on reasonable, or any terms, still remains an impediment.

Let me share some truly alarming figures with you. African Americans make up over 12 percent of our population, but under 6 percent of our businesses and 1 percent of profits; Hispanics are over 13 percent of the population, but only 7 percent of businesses and fewer than 3 percent of profits; and women make up a majority of our population, but account for less than 30 percent of our businesses and just over 10 percent of profits.

These statistics are disappointing and troubling. But they’re certainly not due to any lack of motivation or determination on behalf of minorities and women. Instead, they’re due to the tremendous hurdles women and minorities must face each day to gain fair and adequate access to venture capital, credit and business and technical training.

As an example, look at the SBA’s numbers. While the Urban Institute has concluded that SBA’s loan and venture capital programs do meet their mission by serving a greater percentage of women-, minority-owned, and start-up firms than conventional small business loan and venture capital, there is work to be done at the SBA — the share of SBA loans to minorities and women has not significantly increased since 2001, and the share of SBA venture capital financings to women and minorities has decreased significantly since 1998.

For example, in the SBA’s two largest loan program, the share of dollars of loans to African Americans has been about 5 percent and 2 percent. For women, they’ve remained about 22 percent. In the SBA’s SBIC program, the share of financings to firms owned by all categories of minorities dropped 66 percent (from 26 percent to 8.81 percent).

The venture capital world is still 77 percent white and male. These men greatly owe their success to close networks of peers and mentors. Women and minorities lack such commanding networks. This shortfall is one of the reasons why they received less than 5 percent of the venture capital investments made over the past 40 years. Clearly, more must be done to get venture capital into the hands of women and minorities. Also problematic is a 2005 SBA report that found African-American and Hispanic firm owners faced higher loan denials.

Because of the hurdles faced by minority and women-owned small firms, we have attempted to incentivize investments for these firms in S.2920 the SBA Reauthorization Act. Two provisions within that bill would improve the business climate for these entrepreneurs. One provision creates additional leverage for venture capital firms that invest 51 percent of their portfolio with women or minorities. The other provision creates a grant program that would design entrepreneurship training programs to encourage the growth of small businesses among underserved populations.

The passage of these provisions is crucial because, as any small business owner knows, access to credit and venture capital can be the difference between success and failure. In today’s troubled economy, their success means our success and an economic boost for all Americans.

But women and minorities aren’t the only ones in the business world to face impediments to loans and venture capital and counseling. Businesses in urban and rural areas with high unemployment and high poverty need access to financing on reasonable terms.

The New Markets Venture Capital program targets the problem in low-income communities. Last June, we held a roundtable to discuss the importance of venture capital to our economy and the need for the SBA’s venture capital programs – the SBIC program and the New Markets Venture Capital program. According to Dr. Jeffrey Sohl and Dr. Julia Rubin, who participated in the roundtable, there is a dramatic need for deals that range from $50,000 to $3 million, as well as for deals in low-and moderate-income rural and urban areas and equity for seed money and startups.

Unlike traditional venture capital funds that are solely profit-driven, community development venture capital funds (CDVCs) are both mission-driven and profit-driven. The industry refers to this as a “double bottomline” – investments that show promise not only of a financial return, but also of a social return. Social returns range from creating sustainable local jobs with liveable wages to providing a much-needed service to the community. These public-private partnerships are proving successful, making a difference in the inner-city areas of Boston’s Roxbury or New York’s East Harlem, or the rural desolation of Kentucky’s Appalachia or Mississippi’s Delta region.

So we’re here today to continue to make the case that programs to help women and minorities and those in depressed rural and urban areas are still necessary, particularly through the SBA.

In this hearing we have two panels to discuss the challenges that women and minorities and the underserved are face when it comes to accessing venture capital, and we’ll also discuss the need for business training, and the power and promise of the New Markets Venture Capital program.

On the first panel we’ll have Marian Sabety who has pitched her business to over two hundred venture capital firms and come up short. We’ll also have Don O’Bannon, vice president of business diversity and development at Dallas/Ft. Worth Airport who will relate a number of stories from airport contractors who have faced challenges accessing venture capital and more traditional forms of capital.

We will also hear from Margaret Henningsen who is vice president and co-founder of Legacy Bank, a bank in Milwaukee that serves the minority and women’s business community. Finally, we will hear from Robert Rapoza who will discuss the New Markets Tax Credit and New Markets Venture Capital program and the value they bring to underserved communities.

Our second panel will consist of experts who will discuss their research into whether discrimination exists in the capital markets for minorities and women. We have Dr. Thomas Boston of Georgia Tech, Dr. Jon Wainwright of NERA Economic Consulting and Mr. Rodney Strong of Griffin & Strong who will cover that ground. Our final participant on that panel is Donald Wilson, the president and CEO of the Association of Small Business Development Centers, who will discuss the value provided by small business development centers to underserved communities and how we can best improve access to that assistance.

We also have experts who could not be with us today, but who have graciously agreed to submit testimony for the record. They include Dr. Sam Miers of the University of Minnesota and Dr. William Bradford of the University of Washington. We also have the latest study by Dr. Tim Bates submitted for the record. We hope to use all of their work to give us a better picture of how women and minorities have fared in accessing venture capital and more broadly – capital markets.

Thank you all for helping me to encourage others to see the importance of these provisions. I look forward to the testimony.

The record will be kept open for two weeks so that everyone who would like to can submit comments.

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