When Private Meets Public
10 quick thoughts on SSBCI, a $10B federal program from the U.S. Department of the Treasury
Note: This blog is not intended to speak on behalf of any organizations or entities and the views expressed herein are entirely my own.
Corporations and governments have a shared love for one thing, and one thing only: acronyms.
In all seriousness, I’d never heard of one acronym in particular that would become the focal point of my work this past year and a half — SSBCI, or the ‘State Small Business Credit Initiative’. Either you’ve heard of SSBCI or you haven’t, and either way will likely struggle to remember how to say it and what it stands for.
Yet this program represents the largest federal participation in equity investment in history. Let that sink in for a minute.
To directly cite U.S. Department of the Treasury from the SSBCI landing page, “The American Rescue Plan Act reauthorized and expanded the State Small Business Credit Initiative (SSBCI) to provide $10 billion to support small businesses and empower them to access the capital needed to invest in job-creating opportunities as the country emerges from the pandemic. SSBCI provides funds to states, the District of Columbia, territories, and Tribal governments to promote American entrepreneurship, support small business ownership, and democratize access to capital across the country, including in underserved communities.”
As an early-stage venture capitalist who jumped into SSBCI from the private sector, I set out to perform a grand experiment — what would happen if institutional best practices from venture capital were applied to government funding?
Along the way, I happened upon several discoveries through conversations with government officials, program administrators, entrepreneurs, and investors. One in particular I would like to call out is the following affirmation: ROI is economic development. I’ve often been asked, ‘so you aren’t really looking for a return on investment but rather pure economic development’ to which I would answer, ‘no - they are one in the same’.
When we invest in companies that grow, and in turn create jobs and generate income and wealth for more people, and that company succeeds in the long-term—this achieves economic development in spades. More on this later.
For now, here is a quick, consolidated list of personal lessons learned and observations made. I hope this provides helpful context to startups, venture capital funds, and ecosystem supporters interested in SSBCI capital across the U.S. and territories.
SSBCI’s $10 Billion is creating economic stimulus in the private markets at a critical time.
I believe now is the precise time to build and innovate. With venture capital pulling back just as talent dispersed across the U.S., we run the risk of underfunding entrepreneurs building what we need this coming decade while further concentrating wealth in traditional hubs like San Francisco. With SSBCI, $10B can significantly advance entrepreneurship and innovation while VC sorts itself out.
No two state programs operating under the federal program umbrella are the same due to varying state resources, creating added layers of complexity to navigate.
There are 56 jurisdictions (states, territories, and D.C.) managing capital programs under SSBCI, and therefore 56 different mechanisms for entrepreneurs and venture capital investors to access capital. Meanwhile, each ‘jurisdiction’ has its own elected officials and governance, differing access to additional resources to support the implementation of these capital programs, and more. Each time an entrepreneur or VC fund manager engages with a given program, they will encounter different frameworks to access capital. No two are exactly alike.
SSBCI programmatic guidelines vary widely from vague to overly specific, often leading to confusion.
If you are confused by SSBCI, you are not alone! State program managers overseeing capital investment for jurisdictions are navigating multi-layered program guidelines, compliance matters arising as states and territories deploy capital, and retooling along the way. Be patient as this program gets up and running, and know you are in good company if you find yourself with unanswered questions. Answers eventually make their way around.
In the end, success is measured differently by government and venture capital.
The end goal of venture capital as an alternative, high-risk asset class put simply is generating a return on investment (ROI). SSBCI is about meeting programmatic compliance requirements and capital deployment creating ‘leverage’ dependent on a recipient’s propensity to raise more investment capital in the future. The leverage target for SSBCI is 10:1 — for every dollar of SSBCI capital invested, the goal is for an additional 10 dollars to be raised from private capital sources. If history tells us anything, not every company that raises outside funding will be a success and generate ROI, though for SSBCI this is the north star of generating economic activity.
SSBCI equity investment programs create a more level playing field for startups than the traditional underwriting process of loan programs.
Many entrepreneurs do not qualify for bank loans due to structural inefficiencies and potentially exclusionary processes. Depending on how a given equity investment fund is structured, there can be fewer hurdles to receive investment. While VC remains deeply entrenched and limited by networks, there are many people, myself included, committed to making VC more equitable. From the SSBCI equity investment side, the investment process is established by each jurisdiction (state, territory, D.C.) and can create a more level playing field for entrepreneurs seeking capital. Meanwhile, SSBCI loan programs are still reliant on the matching capital (banks) underwriting a given loan to qualify for funding.
There is no shortage of people looking to exploit government programs.
Generally speaking, entrepreneurs are unfamiliar with seeking and accepting equity investment dollars from the government. While both federal and state government programs have provided capital in various forms to entrepreneurs for decades, there is more familiarity with non-dilutive grants, low-interest loans, and a ‘first-come, first-serve’ format. When dealing with tax payer dollars, there is a notion of, ‘well, this is my money, so hand it over’. As such, programs are forced to educate the general public on the difference between SSBCI and other government funding, and the approved investment process set by a jurisdiction to ensure equitable access to capital.
Startups and small businesses generally struggle with deciphering which types of capital best align with their business goals.
This is not unique to SSBCI, though SSBCI capital programs, requirements, and the path to investment require further educating entrepreneurs and investors. For some businesses, equity investment could be the right fit, while for others the loan programs may be best. One is not better than the other.
Ongoing reporting requirements are not as burdensome as one might expect.
Hooray! Some good news here. Once an entrepreneur makes it through the initial set of questionnaires and certifications at the time of accepting investment, ongoing reporting requirements are minimal. I would argue they are lighter than traditional reporting to private investors.
Government funding programs need a marketing ‘glow-up’ to reach applicants and avoid adverse selection. And, a UX/UI overhaul, too.
It pays to improve the user experience for startups and venture capital funds seeking capital. Like any marketplace and in this case social contract, there needs to be a.) a well-designed product and b.) an educated audience who knows how to access and leverage said product. This remains a problem and would benefit from marketing expertise and UX/UI optimization to match capital with the best possible recipients. Otherwise, the same people looking to exploit government programs and line their own pockets will be the first in line.
Guardrails are necessary, though if not careful, they can become dead ends.
To put it simply, more restrictions do not necessarily equate with more productivity or outcomes generated. Striking a healthy balance should always be the goal to align incentives and create appropriate momentum.
To learn more about SSBCI, I recommend going straight to the source — U.S. Department of the Treasury’s SSBCI website — and reading through the guidance yourself. One of the other many benefits of government programs is the public nature of the program materials as opposed to more mysterious VC fund websites.
In a future blog, I will do a side-by-side comparison of SSBCI and SBIC (administered by the U.S. Small Business Administration, so entirely different), as I’ve received quite a few questions from investors on this topic.
Until next time, I am eager to hear your thoughts/questions on SSBCI in the comments section. Thank you for reading.
Fantastic overview, Monique!