Last year I joined the Policy Council of the Economic Innovation Group, a bipartisan organization that advocates policies that will empower entrepreneurs and make the economy more dynamic. I was excited to do so, in part because I find Washington D.C. a very confusing place and I was glad that someone else was trying to make it work for entrepreneurs.
Earlier this year the EIG launched the Distressed Communities Index (DCI), which broke down economic prosperity and distress by using data from more than 25,000 zip codes and over 99% of the population. If you like data presented visually you’ll love this thing. The big takeaway – more than 50 million Americans live in economically distressed communities, and many areas continue to struggle in recession even as more prosperous zip codes enjoy booming job growth. The data highlights how economic opportunity is increasingly concentrated and that there’s a tale of two countries.
I’ve traveled throughout the U.S. to Detroit, Baltimore, New Orleans, St. Louis, San Antonio, Cleveland, Providence and many other cities these past several years. I’ve repeatedly been blown away by the differences between communities. In many parts of the country, starting a business is beyond the realistic aspiration of most young people, in part because opportunities are receding rather than growing. One entrepreneur said to me, “Change is a four-letter word around here, because all of the change people have seen around here has been bad.” While we can convince ourselves that entrepreneurs embrace adversity, the reality is that taking risks becomes more difficult in an environment of scarce resources.
Thus, I was thrilled when the EIG informed me of a new law that they are proposing that could help make it more possible for entrepreneurs to start and grow businesses in distressed parts of the country. The Investing in Opportunity Act of 2016 would do three things:
- Establish “Opportunity Zones” in each state in which investors would be incentivized to deploy capital in new and small businesses;
- Make it easier for investors to roll existing capital into “Opportunity Funds” that could be invested in early-stage businesses; and
- Encourage long-term investor commitments by eliminating capital gains for certain types of investments.
Basically, there’s a lot of money out there that’s being held for investment and tax purposes that is not being conveyed to entrepreneurs in struggling parts of the country. If we create a system of financial incentives to make it more appealing to invest in early-stage businesses, it can only help move the needle.
Broadly speaking, early-stage businesses need 3 things to succeed:
- Team and Talent. With the right people, you can build anything.
- Financial capital. At some point, businesses almost always need money (you can bootstrap some things but not others).
- Product/Service Market Fit. You have to determine what you’re selling and who’s buying.
Here at Venture for America, we focus on Team and Talent by recruiting college grads who want to be entrepreneurs and sending them to startups in Detroit, New Orleans, Providence and other cities. We think the human capital is the most important thing. With the right people, you can figure the rest out.
But close behind people is money. Businesses need money to start and expand. And entrepreneurs are attracted to money.
Money often moves around like a high school kid with no personality – it goes with the crowd. It could only benefit from encouragement to try something new.
So I’m hoping the Investing in Opportunity Act passes later this year. It makes sense and will get more money to entrepreneurs in places that need it. If you think this sounds like a good idea, write your Congressman and let him or her know. Entrepreneurs in tough places have it hard enough – let’s make starting businesses in places that need it a little easier.
This article originally appeared on Forbes.