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Closing Tech Innovation Divide and the Wealth Gap

Would you like a $100,000 grant to test an idea or implement an innovation you've developed? That's a question the federal government is asking -- but few minorities are responding.
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Would you like a $100,000 grant to test an idea or implement an innovation you've developed? That's a question the federal government is asking -- but few minorities are responding.

Each year, federal agencies dole out more than $2 billion in grants to startups, small businesses and universities under the programs of Small Business Innovation Research (SBIR) and Small Business Technology Transfer Research (STTR). These programs exist under the Small Business Administration (SBA) to provide funding to private sector businesses and university partners to conduct innovation research that often results in advancement and commercialization of marketable ideas. From 1983-2010, more than $7 billion in SBIR Phase I grants were awarded, at an average of $100,000 each. Women and minorities combined were awarded just 10 percent of more than 82,000 grants.

Minorities Need Apply

Despite $2 billion in free federal funding available annually, few minorities apply. Ironically, at the same time leaders in Congress complain about a lack of economic opportunities for minorities, and HBCU presidents struggle with keeping the doors of universities open, the federal government is practically begging minority small businesses and universities to apply for free funds.

At this year's SBIR | STTR Conference in Portland, Oregon (Nov. 13-15) federal, state and local leaders -- alongside small business, corporate and university leaders, startup founders and investors -- will engage in discussions, workshops, panels and networking events around the theme of "Cracking the Code" and "Increasing Diversity" in the SBIR and STTR grant process. The biggest question leading up to the conference (where nearly 1,000 are expected to attend) is whether minorities will show up.

Closing the Wealth Gap

This past summer, CNN Money published a Census report that revealed a widening wealth gap between whites and blacks, with white families' net worth on average 22 times the net worth of black families.

On Sept. 19, 2012 in Washington D.C., Senator Mary Landrieu held a summit on Closing the Wealth Gap. On the same day, another gathering was taking place a short cab ride from Capitol Hill at Union Station. It, too, was billed, Closing the Wealth Gap. The following day, at the Waldorf Astoria Hotel in New York City, the annual Private Equity Analyst (PEA) Conference was held, sponsored by Dow Jones.

Communications Gap

The discussions held in New York and D.C., just a day apart, were both about economic crises. In D.C., they focused on the lack of wealth and the crisis inherent in the expanding chasm between the haves and have-nots. In New York, they discussed the crisis in private equity and venture capital, and the impact presidential candidate Mitt Romney is having on an industry in tumult that has more money than it can spend, and is not accustomed to standing in the media spotlight of public scrutiny.

The folks in D.C. didn't show up at the discussions held by the private equity and venture capital industry, which beats a proud chest over its role in fueling startups and young small businesses that are responsible for creating all net new jobs in the nation since 1980, according to the Kauffman Foundation.

Yet, the unsustainable construct of the wealth-producing risk investment industry discussed by the folks in crisis management mode in New York is precisely the problem impacting the folks in D.C., who seemingly weren't aware of the crisis occurring in private equity and venture capital. Kauffman was aware, of course. It had released a scathing report earlier this year revealing its investments in nearly 100 VC funds over 22 years yielded a net zero return on investment, well below the expected 3 percent return above the market on long-term investments. To say Kauffman was not happy would be an understatement.

Meanwhile, public pensions, like CalPers, have cut back on investing in venture capital and mull pulling out altogether. The irony inherent in the rampant disregard for pension investing by the minority masses is in the fact that pensions derive their income from a multicultural landscape, and then invest billions of dollars into a largely homogeneous VC landscape, which in turn bets the overwhelming percentage of investments on a similar homogeneous landscape of startups and growth-stage businesses. When the yield over time turns out to be paltry, the folks who are impacted most are the unwitting original investors across the multicultural landscape whose dutiful payments into pension plans have lost value. And while these innocent investors tirelessly work their way toward a restful retirement, they may be in for a very rude awakening when they arrive at the age of eligibility.

Innovation & Entrepreneurship

Despite risk investment challenges, it is demonstrably clear that entrepreneurship is the pathway to wealth in 21st century America. A flood of immigrants from around the world have demonstrated they understand the "American Dream" better than millions of U.S.-born citizens. These foreigners arrive at our shores aware of the opportunity inherent in pooling their economic power and investing in one another.

In this age of knowledge-based, tech-driven innovation economics, the barriers to entry for tech entrepreneurs are substantially lowered. New laws have broadened investment opportunities. Networks have sprung up nationwide to accommodate education, mentoring and shepherding of new entrepreneurs to the Promised Land of success in the Innovation Economy.

Left Behind

Yet, while women flood new tech frontiers and immigrants help develop solid infrastructures for investments, Black and Hispanic Americans lag behind.

President Obama has pointed to the importance of STEM education (science, technology, engineering and math) as the gateway to a high-wage workforce in advanced manufacturing, energy, transportation, clean tech, biotech, information tech and even edutech careers. Still, most Black and Hispanic children are ill-prepared when they first enter the public education system, and by the fourth grade two-thirds will be officially identified as lacking proficiency in basic math and reading skills.

Ironically, black and Hispanic children are not the only ones being left behind in America's 21st century innovation economy. Most black and Hispanic journalists and elected leaders fail to inform the masses about the landscape of innovation. Most (not all) elected leaders, journalists, community leaders and pastors fail to convene technology and innovation discussions, and develop tech entrepreneur networks, events and investments in infrastructures that bridge to existing innovation ecosystems in their local regions. Even when 1,000 people gather in their backyard to discuss giving away $2 billion in grants for innovative ideas, few minorities will be among them.

If the wealth gap is to ever be closed, it will not be due to a "Get Out the Vote" campaign. Political leaders can open doors of opportunity and encourage collaboration and investment. But when those doors are open and folks gather to discuss ways to build economic bridges and develop investment-worthy infrastructures, it is incumbent upon those who are farthest behind in this capitalist competition to show up and be prepared to participate, if not lead the way forward.

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