March 13, 2018
The Honorable Assembly Member Autumn Burke
California State Assembly
State Capitol, Room 5150 Sacramento, CA 95814
Re: AB 2758 (Burke) – SUPPORT
Dear Assemblywoman Burke:
On behalf of the Los Angeles County Economic Development Corporation (LAEDC), an organization whose purpose is to advance opportunity and prosperity for all, I am pleased to offer our support for Assembly Bill (AB) 2758 —a bill that would increase access to capital for entrepreneurs, especially those from underrepresented populations, who are starting small businesses in California.
The formation and capitalization of new businesses and innovative products/services is essential to maintain California’s cycle of increased productivity, output and investment that fuels economic growth. Moreover, small businesses comprise over 99 percent of all California businesses and account for almost 50 percent of all non-farm employment in the state. In 2017, small businesses were responsible for 197,532 net new jobs across the state.
Unfortunately, access to capital is often a key hurdle thwarting a good many entrepreneurs and commercially-viable businesses, especially in Los Angeles where “pre-seed” and “seed”-stage equity and debt funding are limited for smaller projects that imply higher risks. To address this, AB 2758 would provide “angel” investors a 5 percent tax credit on an investment made in a small business, as defined as having $2 million or less in annual gross receipts, helping entrepreneurs not only to gain access to growth capital but overcome the so-called “valley of death” between the time when the business receives initial capital to when it generates annual recurring revenue.
Financing is often an even greater challenge for minority-owned small businesses. A Hamilton Project report cited that the average loan amount for a minority-owned small business was $9,300 compared to $20,500 for non-minority owned businesses. Additionally, while California receives 53.5 percent of all U.S.-directed venture capital, a miniscule 1 percent of those funds go to African-American and Hispanic-owned businesses. AB 2758 tackles this inequity in financing and opportunity by prioritizing investments directed towards businesses that are majority-owned by individuals who are members of a group that has been historically disenfranchised from the private capital markets and underrepresented in securing investor dollars.
For all of these reasons, the LAEDC supports AB 2758.