UA report marks funding disparities among Arkansas entrepreneurs

The University of Arkansas has released the second edition of a report that examines the funding options available to startups and small businesses in Arkansas. Amid a nationwide surge in investments in 2021, equity-based investments in Arkansas significantly eclipsed 2020 levels across all stages, including seed, angel, early-stage venture capital and late-stage venture capital.

The new report, 2021 Arkansas Capital Scan, shows the number of venture capital deals in Arkansas doubled to 12, and their value rose by 674.9% to $127.4 million from 2020. Meanwhile, seed and angel investments increased by 130% to $55.31 million. And 19 federal grants were awarded to 13 Arkansas small businesses and entrepreneurs totaling $6.99 million in investment.

The report also shows that white male founders received about 90% of seed funding, while roughly the remainder went to businesses started by those who were both women and people of color. The most significant angel and seed investment was $9.7 million, which went to medical marijuana manufacturer Good Day Farm in Pine Bluff. The business also raised the second-largest round of venture capital funding of $31.2 million later in the year. Fayetteville-based farmland investment firm AcreTrader raised $52 million in venture capital funding in 2021.

According to a Tuesday (Feb. 7) news release, the UA’s Office of Entrepreneurship and Innovation developed the report in partnership with the Department of Finance in the Sam M. Walton College of Business. The report shows that the demographic disparities in Arkansas were also seen in neighboring states, such as Missouri, Oklahoma and Tennessee.

Among the 11 Arkansas businesses that received venture capital funding in 2021, all but one were owned by white men. The other was established and owned by a man of color. No women-owned business received venture capital funding that year.

The report also noted geographic disparities, with Northwest Arkansas businesses receiving the most venture capital funding. Only two businesses in cities outside the region received venture capital deals.

According to the release, the demographic and geographic disparities in venture capital might have “long-term repercussions on the building of wealth and overall vitality of Arkansas’ economy.” A study by McKinsey Institute for Black Economic Mobility shows that racial and gender wealth gaps could cost the United States between 4% and 6% of projected GDP by 2028.

“We endeavored to develop a landscape scan in an effort to understand deal flow and identify gaps and opportunities for new programs and policies to attract investment to Arkansas businesses,” said Tiffany Henry, instructional designer of training and workshops in the Office of Entrepreneurship and Innovation, who supported the development of the report.

Following are other report insights:

• Crowdfunding investment in Arkansas rose by 450% to $1.47 million in 2021 from $268,210 in 2020. Bentonville-based outdoor apparel company LIVSN Designs accounted for 34.9% of the 2021 total and achieved the biggest single crowdfunding raise in Arkansas.
• Arkansas companies received $53.22 million in federal grants related to COVID-19 relief in 2021. The 118 total grants averaged $451,027 each.
• Payroll Protection Program (PPP) loans in Arkansas fell to $1.69 billion in 2021 from $3.3 billion in 2020. Over the two years in Arkansas, 102,041 PPP loans totaled $4.99 billion.
• Total angel and seed funding going to central Arkansas businesses more than tripled.
• The average angel/seed deal size surpassed the neighboring states of Missouri, Oklahoma and Tennessee.
• Black women in Arkansas outpace other demographic groups in business creation but face a significant wealth gap compared to companies of white men.
• Angel/seed deals for women of color in Arkansas rose from five to 14.

The Arkansas Capital Scan is expected to be an annual report. The initial report was released in 2021.