RURAL ENTREPRENEURSHIP AND THE 

CHALLENGES ACCESSING FINANCIAL CAPITAL:

AN OVERVIEW OF FUNDING IN RURAL AMERICA

BY ALICIA ROBB, PH.D.

PRESENTATION TO SMALL BUSINESS CAPITAL FORMATION ADVISORY COMMITTEE, NOVEMBER 16TH, 2021
A FOCUS ON ENTREPRENEURSHIP

 Rural areas are more remote to markets, infrastructure, and other resources, such as human capital and 

financial capital, starting a business in a more rural area can be more challenging than doing so in an urban 

one.

 Recognition of entrepreneurship’s important role in job creation and wealth creation. 

 More attention has been paid to how communities can proactively begin to build more dynamic ecosystems 

in their areas to foster entrepreneurship, mobilize investment, and create jobs and wealth in their 

communities. 

 Rural America is home to around 46 million people. 

 Rural population grew by 0.02 percent in 2018-19, well below the urban growth rate of 0.6 percent. 

 Rural job creation is half the rate of their urban counterparts. 

 Rural poverty rates are dropping, but the rural rate of 16.1 percent in 2018 was still substantially higher 

than the urban poverty rate of 12.6 percent (USDA 2021).

 Data from the U.S. Census Bureau indicate that approximately 15 percent of firms are located in rural 

areas. 
RESEARCHERS HAVE HIGHLIGHTED A NUMBER OF ESSENTIAL POLICY 

INPUTS/CONTRIBUTORS THAT ARE CLOSELY ASSOCIATED WITH ROBUST 

AND EFFECTIVE REGIONAL ECOSYSTEMS.

 Market Access: Helping entrepreneurs identify and access markets 

 Capital: Providing diverse sources of capital to help firms both start and grow 

 Workforce/Human Capital: Building a regional talent base for hiring needs 

 Business Assistance: Providing easy access to technical assistance 

 Community Culture: Honoring and embracing entrepreneurship 

 Effective Regulation: Cutting red tape and promoting flexibility

 In a study of successful rural communities, researchers found that eight critical factors—recruitment 

and entrepreneurship, manufacturing and services, progressive firms, ongoing local economic 

development efforts, a “pro-growth” attitude, finances and infrastructure, local leadership, and support 

from outside the community—explain the majority of the success (Dewitt et al. 2014).

https://www.arc.gov/wp-content/uploads/2018/09/EntrepreneurialEcosystemsLiteratureReview2018.09.pdf
THE FOCUS OF THE REPORT

 Sources of financial capital for rural businesses

 Challenges they face in obtaining the capital they need in ways that work for them. 

 While the report briefly addresses grants and debt financing, it is focused on a subset 

of firms, early-stage growth-oriented-companies accessing investment capital through 

crowdfunding, angel investment, and venture capital. 

 The report includes several real world examples of funders who are successfully 

mobilizing capital in underserved areas, as well as entrepreneurs in rural areas who 

have successfully raised capital from investors. 

 Finally, some policy implications for supporting rural entrepreneurs concludes the 

report.
A FOCUS ON CAPITAL: OUTLINE FOR TODAY

 Types and Sources of Funding Available and Utilized by Entrepreneurs in Rural 

Communities (grants (SBIR/STTR ($3.2B), etc.), debt (briefly review data from SBCS)

 Focus on:

 Crowdfunding

 Angel Investment

 Venture Capital

 Conclusions

 Policy Recommendations
- More alike than not

- Smaller firms

- Smaller amounts of 

funding

- Small Banks/Credit 

Unions-- Local
CREDIT
- Rural 

businesses 

were more 

likely to not 

seek 

financing 

because 

they didn’t 

need it. Less 

discouraged 

as well.
0

10

20

30

40

50

60

70

80

90

100

Dissatisfied Neutral Satisfied Dissatisfied Neutral Satisfied Dissatisfied Neutral Satisfied

Satisfaction with primary financial services provider Satisfaction with large bank Satisfaction with small bank

Chart 2: Business Satisfaction with Financial Service Providers

URBAN RURAL

Source: 2020 Small Business Credit Survey, Federal Reserve System. 

CROWDFUNDING

 Crowdfunding has become a frequent route to 

raising capital for entrepreneurs with ideas and 

companies looking to scale. Crowdfunding is a 

way to democratize access to the capital needed 

to commercialize and distribute innovation. 

There are several types of crowdfunding 

REWARDS BASED, DEBT, EQUITY

 Indiegogo, which started in 2008, has had more 

than nine million backers and more than $1 

Billion raised. Since starting on April 28th, 2009, 

Kickstarter boasts more than 20 million backers, 

nearly seven million repeat backers. As of August 

2021, they’ve had 206,317 successfully funded 

projects totally more than $5.4 Billion raised. 
EQUITY CROWDFUNDING

 There are currently 65 FINRA fundingportal members. 

 Most of the early entrants continue to 

dominate the marketplace. 

 About 90% of the industry volume being 

conducted on the top five platforms: 

Wefunder, StartEngine, Republic, Net 

Capital Funding, and SeedInvest .





ANGEL CAPITAL

 Data– Sources are wildly different in terms of numbers of investors, deals, and funding, but they all 

indicate that very little goes to rural areas

 Center for Venture Research

 Pitchbook

 Angel Capital Association (Angel Funders Report)

 Angel Resource Institute (Halo Report)

 Locally oriented

 Average distance from investor to portfolio company was 37 miles

 Investors tend to invest within region/city--- mentoring/HK along with FK for early stage 

companies


ANGEL CAPITAL ASSOCIATION

 Angel Capital 

Association, the main 

trade association for 

angel investors in the 

United States. In their 

2019 Angel Funders 

report, they presented 

data from 68 angel 

groups and 1,170 

investments in 905 

companies totaling 

$228 million dollars.

Source: 2020 Halo Report, Angel Resource Institute
Preliminary data for the 2021 report 

showed from the 96 ACA member 

groups who submitted data for at 

least one year between 2018 and 

2020

• 14 of them (15%) funded at least 

one rural company. 

• On average, seven percent of the 

deals for these groups involved at 

least one rural investment, ranging 

from a high of 89 percent to a low 

of one percent. 

• Only two of the groups were 

principally rural investors, one 

group with 89 percent of their 

investments in rural companies and 

one that had 50 percent of their 

investments in rural companies. 

• The other 94 groups either did 

zero investing or it was a minority 

of their investing.
VENTURE CAPITAL

 Information asymmetry between new companies and venture capital firms can be a challenge for both 

venture capital companies as they vet investment opportunities and monitor investments and the 

geographic distance between them and their investees can exacerbate that challenge.

 Frequent face-to face meetings both before and after the investment are often required and the larger 

the physical distance, the more difficult it can be to adequately due diligence a potential investment, 

monitor a company post investment, and conduct activities that support the company, such as taking a 

board seat (Gompers and Lerner, 1999; Lerner, 1995; Cumming and Dai, 2010). 

 More precise estimates come from:

 Cummings and Dai (2010), who found about 50% of the new ventures are located within 233 miles from their 

VCs;

 An analysis by Pitchbook found that in 2019 the median distance between a target company and 

lead investor was about 400 miles, while the median distance for seed deals was about 100 miles;

 Sorenson and Stuart (2001) who found that venture capitalists invest in companies 10 miles from 

their offices at twice the rate of ones situated 100 miles away.
VENTURE CAPITAL IS VERY CONCENTRATED

The 2 MSAs that make 

up Silicon Valley 

account for 22.5% of the 

deals and 38.1% of the 

dollars in 2020
-Investing more outside of 

local area 

- Attracting investors from 

out of state (by necessity?)
Total 

Amounts:

2017: 

$1.7 Trillion

2020: 

$3 Trillion

Rural:

2017:

$3.2 Billion 

2021:

$42.5 Billion
Only about 2.5% of 

deals and dollars in 

2021



COMMUNITY DEVELOPMENT VENTURE CAPITAL

 Businesses in rural areas are much less likely to attract traditional venture capital, which is very 

concentrated in urban areas generally and in specifically a select group of geographies that have a 

critical mass of potential investment opportunities and the supporting infrastructure in the form of 

technological, managerial, legal and financial expertise necessary to take ideas to market (Rubin 2001, 

Lipper and Moncrief 2001) 

 Community development venture capital (CDVC) is one form of developmental venture capital that 

has evolved in rural areas where investors are evaluating a company’s potential for high-quality job 

creation and its likelihood of rapid economic growth. As a result of this dual-bottom-line, CDVCs are 

willing to invest in companies in numerous industries, stages of development, and locations (Rubin 

2001).

 There is a role for government (Farm Bill 2002, Small Business Jobs Act of 2010 established the State 

Small Business Credit Initiative (SSBCI), American Rescue Plan (2021) reauthorized $10 billion in 

funding for SSBCI 2.0 ) 
THE 2002 FARM BILL CREATED THE RURAL BUSINESS INVESTMENT PROGRAM (RBIP), DESIGNED 

TO PROMOTE DEVELOPMENTAL VENTURE CAPITAL INVESTMENTS IN SMALLER ENTERPRISES 

LOCATED IN RURAL AREAS.
GROWING LOCAL INVESTOR NETWORKS

 While many investors, especially later stage, frequently invest across state lines, early stage companies are more 

likely to rely on investors closer to home. Thus, they benefit immensely from growth in local capital availability. 

But even at the later stage, companies in the three regions that dominate venture capital activity benefit from 

being near these areas. 

 The median distance between the lead investor and target company in the Bay Area, Boston, and New York from 

2015-2019 was just 32 miles, while for the other ecosystems it was about ten times that at 323 miles. 

 If the goal is to grow less prominent ecosystems, especially rural areas, a growth in the local 

investor networks as well as wrap around support services and mentoring for businesses in these 

areas will be needed as well, especially for businesses at the earliest stages. 

 Venture capital firms based in locales that are venture capital centers outperform. This outperformance arises 

from outsized performance outside of the venture capital firms’ office locations, including in peripheral locations. 

(Chen et al 2009). This suggests that one pathway to ‘better’ venture capital investment in underserved areas, 

especially rural ones, would be for policy makers to mitigate costs associated with established venture 

capitalists investing in their geographies rather than encouraging the establishment of new venture 

capital firms.
CONCLUSIONS

 There are many benefits of having a thriving entrepreneurial ecosystem for rural communities and there 

is increased attention being paid to how communities can proactively build more dynamic ecosystems in 

their areas to foster entrepreneurship, mobilize investment, and create jobs and wealth in their 

communities.

 With the technological innovations that have occurred over the last couple decades, there are more 

opportunities for companies to locate in rural areas, as well as hire more employees that can 

telecommute and live anywhere. 

 Quality of life benefits in rural areas, such as cleaner air, less traffic, more space, outdoor recreational 

opportunities, and lower costs of living are attracting companies and workers to their communities.

 Access to capital is a very important key to the success of such efforts. Ensuring that a diverse set of 

capital resources are available to entrepreneurs who wish to start and/or scale business ventures has 

become a priority for the government and the private sector
POLICY RECOMMENDATIONS

 The case studies highlighted some particularly successful programs and partnerships that have provided 

support and mobilized investment into companies with high growth potential. However, as the data in this 

report have shown, more work is necessary, especially in terms of equity capital. 

There are a number of policies that the government could undertake and the national, state, or local level.

 Providing incentives for community development groups and funders to increase their presence and efforts in 

more rural areas could mobilize more capital, both financial and human, to support rural entrepreneurial 

ecosystems. 

 The government could support and encourage different stakeholders: crowdfunding platforms could provide 

additional support and guidance to rural entrepreneurs; high net worth individuals and family offices could 

create new local angel groups and provide training and education for new angel investors, as well as investor 

readiness training for high growth potential startups; 

 Venture capital investments in rural areas could be encouraged through reducing risk and information 

asymmetries by providing education, training, and mentorship to their local entrepreneurs and building a 

pipeline of investable opportunities to showcase to investors 
THANK YOU!

ALICIA@NEXTWAVEIMPACT.COM