Throughout the pandemic consumers were desperately searching for new market solutions—from online tutors for their children, to in-home fitness solutions, restaurant delivery services and eco-friendly cleaning products. Entrepreneurs around the U.S.—who had the opportunities and resources to do so—sprung to life in meeting the demands of consumers in this ‘new world’. While many entrepreneurs were forced to rethink their business models during a time of economic uncertainty, the monthly rate of new entrepreneurship was significantly higher (0.38%) in 2020 than it was in 2019 or in previous years.
This sounds like good news, but it doesn’t tell the full story. While the rate of entrepreneurship was up, fewer people started their businesses because they wanted to but rather because they had to. This is undoubtedly related to the record-breaking unemployment rates we saw during the peak of the pandemic. In 2019, 86.9% of new entrepreneurs started their business out of opportunity; that number plummeted to 69.8% in 2020. This “opportunity share,” as it is known, is at its lowest rate in 25 years.
As we continue to emerge in a post-pandemic world, Heartland states like Missouri, Iowa, Nebraska, and Kansas are building thriving entrepreneurial ecosystems. We need to increase the opportunity share—the number of people starting businesses out of opportunity, not necessity—for underserved entrepreneurs in the region by building more inclusive networks and support systems.
Talent and ideas are everywhere across the U.S., yet opportunity is not. While 78% of venture capital goes to New York, Massachusetts and California, research shows at least 83% of entrepreneurs do not have access to bank loans or venture capital at the time of startup. Despite the Midwest producing 33% of new entrepreneurial ventures and 35% of the country’s gross domestic product, the region receives a mere 10% of venture capital investment. Unsurprisingly, women and people of color in this area (and around the country) receive a sliver of that. Rural entrepreneurs have also experienced more systemic difficulties procuring bank loans than their urban counterparts. Relying on personal finances and the ability to secure loans presents a clear equity problem for budding and existing entrepreneurs.
To be clear, access to capital, while a traditional marker for success among entrepreneurs, is not the only resource entrepreneurs need. Entrepreneurship favors those with existing networks and access to capital, so access to the funding, knowledge, and support systems for new entrepreneurs and those from underserved communities is critical. Entrepreneurship support organizations (ESOs) around the country fill in these gaps, supplying access to networks for entrepreneurs to grow their business, share ideas, learn from their peers and experts, and access resources needed to scale.
Most people are not taught how to start or scale their own business or how to work around the common pitfalls that entrepreneurs can run into during their start up years. In addition to providing idea sharing and networking opportunities, ESO-funded partnerships that directly target underserved entrepreneurs can be critical for entrepreneurs struggling to access other revenue streams like bank loans and private funding.
These partnerships level the playing field for those who have historically been left out of the equation because of their background or geographic location. For example, WEPOWER STL in St. Louis is partnering with Kiva in San Francisco to establish a Kiva Hub in the Midwest to provide micro-lending capital access options to entrepreneurs from communities in the region that have been systemically left behind. The University of Iowa also recently partnered with the MIT Venture Mentoring Services in Cambridge to establish a statewide mentorship program for entrepreneurs operating in Iowa. The University will license the Venture Mentoring Services model developed by MIT and previously tested in Kansas City.
Entrepreneurship can play a critical role in reinvigorating rural economies. We need to address the challenges and barriers entrepreneurs face by ramping up funding for partnerships supporting the Midwest. As we rebuild and strengthen the nation’s economy in a post-pandemic world, let’s see the Heartland for what it is – a critical epicenter for thriving businesses and innovation that continues to push our nation forward.
Philip Gaskin is the vice president of entrepreneurship at the Ewing Marion Kauffman Foundation