On Wednesday, economic development professionals from Eastern Kentucky came together to discuss local investment in Eastern Kentucky's economy as part of the Unviersity of Kentucky Appalachian Center's Growing Local Economies Network. They were joined by Ray Daffner, Entrepreneurship Initiative Manager at the Appalachian Regional Commission, and Michael Shuman, author and director of Economic Development and Research for BALLE (Business Alliance for Local Living Economies), who both discussed the challenges of finding capital in Appalachia. Some interesting, and distressing, facts: 15% fewer business loans are made in Appalachia compared to the rest of the country. In ARC-designated "distressed" counties, loans are at one-third the national average. Eastern Kentucky has the lowest loan participation rate from traditional banks in the country. In 2010, venture capitalists invested $22 billion in new enterprises; only 1.3% of that went to Appalachia (only 0.7% if you exclude Pittsburgh).
It's difficult to start a new business if you don't have access to money to do it. Michael Shuman discussed locally-focused ideas for community investing. How can folks like you and me be investors without having to navigate the complicated, restrictive world of securities laws? Shuman gave numerous ideas, including local loan funds, whereby the community provides collateral for loans by pu
rchasing CDs at local banks; internet sponsorships and loans like kickstarter.com and profounder.com; business cooperatives; local stock exchanges; and investment clubs. Each of these keep investment money in a community and out of the hands of multinational corporations.
To address the more traditional means of acquiring loans, the ARC began the Appalachian Capital Policy Initiative to address the challenges of getting a loan in Appalachia, focusing on three areas: increasing bank lending, bringing new capital into the region, and building "entrereneurial ecosystems" to help folks understand how to utilize their loans and build a support infrastructure to increase their chances of success.
Entrepreneurial ecosystems were a topic of discussion later in the afternoon, as participants wondered how we can foster self-starters who are eager to open their own businesses, and how we can give them the tools they need to succeed. One successful initiative has been the E-Discovery Challenge, a project of the Kentucky Entrepreneurial Coaches Institute. This project equips elementary- and middle-school teachers to weave entrepreneurial lessons into their classes, and provides small amounts of "seed money" to students to start their own small businesses. The kids work together to develop a product (like jewelry, birdhouses, or cleaning services), and then sell it to their classmates, friends and family. In the first year of the project, students started nearly 400 small businesses, and 95% were able to pay back their seed money. More than that, the project opened kids' eyes to the possibility of being a small-business owner themselves one day. (You can read the full report of E-Discovery Challenge's first year here.)
Entrepreneurship isn't a new idea to Appalachia. Kentucky Highlands Investment Corporation estimates that there are 42,000 microenterprises in their service area. But in order for these businesses to thrive, grow and create even more of an economic impact on the region, we need to ensure they have the tools, skills, and capital they need. And a big part of that is encouraging the next generation to think like entrepreneurs as well.