During a tense opening weekend at SXSW, following the sudden collapse of Silicon Valley Bank which served nearly half of US venture-backed startups, billionaire investor Mark Cuban sat down with me to discuss options for entrepreneurs trying to secure funds in the midst of unprecedented economic chaos.
“I would encourage people to do their homework,” he said. “This is a learning experience. It’s been a learning experience for me.”
Cuban, whose CostPlusDrugs.com had millions tied up at SVB, went on to say that the Federal Reserve, Treasury and FDIC making “all depositors whole” would go a long way to calm things down since a large percentage of the accounts were for operating expenses and too large to be insured. FDIC insurance only covers up to $250,000, a limit that was set in 2010, more than a decade ago.
“If you’re a company that does $2 million a year in sales, has four employees, and you’re in Dubuque, Iowa, between your inventory, your payroll and your vendors, there’s going to be times when you have maybe a million dollars in the bank and that’s going out the next day. And if for some reason, those dollars aren’t available, everything implodes,” Cuban said. The employees don’t get paid, the vendors don’t get paid, and there’s a devastating ripple effect that’s felt throughout the entire system.
Hours later Cuban got what he wanted. SVB was given a systemic risk exception to make all depositors whole. But a media frenzy over contagion had already started runs on other banks, and without a guarantee of blanket insurance, what had been a healthy financial system just days earlier started to tank on fear alone.
In his Mar. 22 remarks, Fed chair Jerome Powell acknowledged the crisis that had unfolded over the past weeks, stating the Fed would use all tools needed, including providing ample liquidity, to keep all depositors’ savings and the banking system safe.
But Powell also indicated that the Fed was staying the course to bring inflation down to 2% and since core inflation came in higher than expected for February, interest rates jumped another quarter point to 4.75% to 5%, up from nearly zero a year ago. With the rapid rise in rates nearly breaking banks, Powell said the Fed would pivot from ongoing hikes to possible hikes, which could me a possible pause at the next meeting (May 2-3). However, with credit tightening squeezing private equity, many tech founders have been scrambling to find alternative funding.
Enter the Small Business Administration
At SXSW, Cuban took the stage with US SBA Administrator Isabella Guzman to highlight resources available for people seeking to start their own business.
For his part, Cuban said Shark Tank is still receiving 40,000 to 50,000 applications and encouraged the audience to apply.
The session was hosted by ZenBusiness, an Austin-based Series C startup in which Cuban is an investor and a one-stop shop for legal and banking services to help people set up their company. The company reported 200,000 users in 2021 with a valuation of $1.7 billion backed by Breyer Capital, SoftBank, Greycroft, Oak, Cathay and others.
Guzman talked about the critical role small businesses play and that they’re too small to fail as giants in our economy generating two thirds of net job creation. She shared how budding entrepreneurs can find support to succeed at sba.gov, including access to mentors, grants, loans and the largest buyer in the world, the US government.
She also shared details about the National Science Foundation’s American Seed Fund where early stage startups working in artificial intelligence and other areas can apply for up to $2 million in non-dilutive funding, which means no equity stake is taken. The program has funded more than 400 startups including Massachusetts-based Righthand Robotics which makes warehouse picking robots and was granted nearly $1 million in 2014 to start the business. The company is now a Series C startup backed by Google Ventures, SoftBank and Menlo Ventures, according to Crunchbase.
In a backstage interview, I had a chance to ask Guzman about how the SBA was leveling the playing field for underrepresented entrepreneurs, specifically female-only founded startups which are still only getting about 2% of venture capital, according to Pitchbook. She told me the SBA has specific programs to support female founders as well as veterans and underserved communities that have been capital deserts. “We’re seeing that women and people of color are the ones starting businesses at the highest rates, and yet the underinvestment is really impacting our economy because they can’t create the jobs or grow their firms for the revenue output we need to be globally competitive,” she said. With a lens to equity, she added that the SBA is designing products, conducting outreach and developing partnerships to ensure women get a seat at the table, and working with fund managers to get more women writing the checks.
Big Tech has funding too
Google for Startups also offers non-dilutive capital for founders. I had a chance to talk with Google’s Chief Marketing Officer Lisa Gevelber who said that the program is similar to other accelerators in that it provides sales training, PR support, direct investor introductions and demo days for fundraising, but it also offers mental health care to help founders build resilience. “We started it a few years ago and now it’s the most universally used feature,” she said. Google for Startups has physical campuses around the world, in London, Madrid, San Paolo, Tokyo, Seoul and Tel Aviv, with virtual accelerators in North America and Canada focused on climate. “A lot of the startup physical space in Warsaw is now committed to helping Ukrainian startups as well,” she said.
Google’s Black Founders Fund which provides $150,000 in cash awards and $100,000 in Google Cloud credits is open for applications until March 26. And the Google Cloud Summit AI Startup Program, which provides $250,000 in Google Cloud credits, is open for applications until April 25. More details at startup.google.com/about-us.
Closing the funding gap
Although Google for Startups boasts the creation of 130,000 jobs and $6.7 billion in funding from its portfolio companies, only 23% were women-led, according to its website. If even the best-intentioned investors are falling short of DEI targets, how will we ever get to parity?
Female Quotient founder Shelley Zalis says she has the answer. As the host of FQ’s Equality Lounge at leading conferences including the World Economic Forum, CES, Cannes Lion and SXSW, she told me she’s been researching data on it for decades. “What you treasure, you measure,” she told me.
“World Economic Forum says it will take 132 years to close the gender gap, which means they don’t believe it’s a reality,” she said. “My goal is to close the gap in five years. I just need 10 Fortune 500 CEOs with a moonshot mindset to raise their hands and tell me they’re going to make this a priority and a choice. And once I have 10, the other 490 will follow.”
Echoing Guzman, Zalis added, “When you look at the biggest problem today it’s all about representation. And the biggest problem is at the GP level. It’s all about the share of decision makers.” She gave the example of how Melinda French Gates is changing the venture model with Pivotal Ventures by investing in high impact startups where social progress has stalled. Not the type of investment a traditional VC would make, she said. “It has to be changed from the top. We have to have more women writing the checks.”
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