Should a Small Business Administration Program Funding Startup Accelerators be Extended Thru FY2023? (H.R. 4387)

What is H.R. 4387?

(Updated November 4, 2019)

This bill would extend the Growth Accelerator Fund Competition within the Small Business Administration (SBA) for four years, at a cost of $2 million for each of fiscal years 2020 through 2023. The program allows accelerators, incubators, co-working start-up companies, and other entrepreneurs to compete for grants of $50,000 each.

Organizations that receive grants from the Fund would provide small business concerns with:

• Regular networking opportunities, including introductions to customers, partners, suppliers, and advisory boards; 
  
• Mentorship opportunities, including advice on strategy, technology, finances, and commercialization assistance;
  
• Sharing working spaces focused on building a strong community of similar small businesses;
  
• Resources and co-working arrangements;
  
• Opportunities to pitch ideas to investors and other capital formation opportunities;
  
• Small amounts of angel money, seed capital, or structured loans; and
  
• Assistance in securing funding under the Small Business Innovation Research (SBIR) or Small Business Tech Transfer (STTR) programs, where appropriate.

In approving applications for the Fund, applications that would serve the following groups would be prioritized: women, veterans, and socially and economically disadvantaged individuals. Additionally, of prizes awarded each fiscal year, no fewer than 20% must go to organizations that help women-owned businesses, and no fewer than 20% must go to organizations that help businesses owned by socially and economically disadvantaged individuals.

Once they receive a prize under this program, an organization would then use a selective process to identify small business concerns to provide assistance and advice to.

The SBA Administrator would be responsible for developing science-based, statistically driven metrics for the Growth Accelerator Fund Competition that reflect the SBA’s mission and include factors relating to the program’s economic impact.

Argument in favor

The Growth Accelerator Fund Competition provides important support to startup accelerators, which in turn support startups that contribute to the U.S. economy. Extending the Growth Accelerator Fund Competition is a no-brainer. Without federal intervention, it’s likely that startup funding will remain too concentrated in Silicon Valley and New York, leaving large swaths of the country behind.

Argument opposed

Given the amount of money private sector tech and startup investors have to invest, it’s unnecessary to spend taxpayer money on funding the Growth Accelerator Fund Competition. The federal government should step aside and let private sector investors and established accelerators, such as Y Combinator, fill in the gap.

Impact

Startups; accelerators; SBA; Growth Accelerator Fund Competition at the SBA.

Cost of H.R. 4387

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Adriano Espaillat (D-NY) introduced this bill to extend the Growth Accelerator Fund within the Small Business Administration (SBA) with original cosponsor Rep. Tony Balderson (R-OH), who said: 

“The Growth Accelerator Fund Competition aims to spur small businesses’ innovation and raise their presence in federal research and development efforts. That’s a win–win for both the private and public sectors by creating jobs, growing companies, and providing solutions to complex problems.”

Testifying at a May 2017 House Committee on Small Business hearing, “Empowering Small Businesses: The Accelerator Model,” Carolyn Rodz, founder of Circular Board, a virtual accelerator for high-growth female founders, explained why accelerators are necessary: 

“[T]he startup accelerator...  is, at its core, an advocacy group for founders with the inten- tion of connecting them with the experts, investors, media, and processes surrounding the art of the startup. Think of the accelerator as a liaison between the founder, who likely knows much about how to operate their business and succeed within their industry, but often little about how to raise capital, get covered by the media, build support within their local community, and get the endorsement of the most influential minds in the startup eco- system. As policymakers, there are significant opportunities to support these accelerators, not only through government-funded programs like the SBA’s Small Business Accelerator Fund, which we are grateful to be recipients of, but also by supporting trade agreements that open new markets for businesses of all sizes, streamlining the process of registering businesses and applying for government resources, particularly when working with strategic offices, such as the Patent and Trademark Office, Department of Commerce, Small Business Administration, and FDA.”

This legislation passed the House Committee on Small Business by voice vote with the support of four bipartisan cosponsors, including three Republicans and one Democrat.

Of Note: The Growth Accelerator Fund Competition was created in 2014. It provides founders of early-stage companies with education, mentorship, financing, cohort-based training, and technical assistance. It’s currently in its fifth round of funding, which is focused on accelerators that work with high tech entrepreneurs who are potential Small Business Innovation Research (SBIR) or Small Business Tech Transfer (STTR) program applicants.

In a May 2017 House Committee on Small Business hearing, “Empowering Small Businesses: The Accelerator Model,” the committee’s chairwoman, Rep. Nydia Velazquez (D-NY), said: 

“Business accelerators help high-growth startup enterprises develop their products, identify promising customer segments, and se- cure resources, including vital capital and potential employees. It is clear that they serve an important role in innovation, and I am very interested to learn more about their impact on small firms. Growth accelerators have long been a powerful tool for helping innovative entrepreneurs grow. Each year since their formation in 2005, accelerators have gained in popularity. In fact, a number of accelerators nearly doubled each year between 2008 and 2014, proving that this model has real potential to assist entrepreneurs. Accelerators are unique in that they provide the best of both worlds for both startups and investors. They serve as an all-inclu- sive, creative hub that provides technical assistance for growing businesses and a central location for investors to find vetted businesses. This arrangement reduces investor risk, while maximizing the capital network for high-growth companies.”

In 2015, 111 accelerators invested more than $90 million into nearly 3,000 startups in the U.S. and Canada. However, the capital was highly concentrated, with more than one-third of funds going to Silicon Valley firms and New York startups totaling about $9 million. With this in mind, accelerators are an important part of stabilizing innovative businesses and economic growth outside those two areas.

Media:

• Original Cosponsor Rep. Tony Balderson (R-OH) Press Release
  
• House Committee on Small Business Hearing (Context)