New Report - Small Business Levers of Wealth Creation

Last fall, the ICA Fund team built the 5-year plan for organization towards achieving our mission to accelerate great businesses through mentorship and investments to catalyze value in missed markets and transform communities. Part of our strategy for this first year of our plan has been to test the effectiveness of our integrated advising and investment model on driving wealth creation in Bay Area communities. We partnered with an exceptional researcher, Lucy Odgie-Turley, from OT Consulting (OTC) to conduct this research. OTC led an extensive literature review, conducted qualitative interviews with our alumni, and surveyed local and state-level business owners.

Together, we sought answers to critical questions:

• Is there existing empirical evidence that small business advising and equity investment are associated with (1) wealth creation or (2) the factors that drive wealth creation?
• What are the strengths and limitations of existing programs that aim to drive wealth creation among traditionally underrepresented entrepreneurs?
• Have founders who have participated in ICA programs or received ICA investment shown better outcomes than other founders in the SF Bay Area? In California?

Literature review confirms our hypothesis: women and founders of color face barriers to accessing capital

Our comprehensive literature review compiled over 50 sources including peer-reviewed journals, industry reports, and policy papers, primarily looking at sources published since 2015. Research confirms what we already know, that women and founders of color face unique barriers in scaling businesses, that access to capital remains the strongest predictor of firm growth, and that firm growth is the most reliable predictor of wealth accumulation. The literature review also illuminated that, according to these sources, equity financing tends to result in more growth for companies than debt financing. We found that businesses who participated and received funding in accelerator programs were 20% more likely to survive than businesses that did not. Our research found that additional positive outcomes from accelerator programs included increased levels of confidence and feelings of support from women founders. Further, research shows that the arrival of an accelerator in a geographic region increases the amount of seed and early-stage VC funding in that area, suggesting that accelerators can have a spillover effect on a region’s entrepreneurial ecosystem.