AI Startups Can Get $2 Million In Free Funds From Google And US Amid Credit Crunch And Bank Crisis

During a tense opening weekend at SXSW, following the sudden collapse of Silicon Valley Bank which banked 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 the 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, 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 said 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 would be increased another quarter point to 4.75% to 5%, up from nearly zero a year ago. With the rapid rise in rates nearly breaking the banks, Powell said the Fed would pivot from ongoing hikes to possible hikes, which could mean a pause at the next meeting (May 2-3), but no rate cuts.

With tightening credit making it harder to land private equity, tech founders who have been left scrambling for cash are turning to alternative sources of funding.

US government here to help

At SXSW, Cuban took the stage with US SBA Administrator Isabella Guzman who talked about funding and other resources available from the Small Business Administration available for startups.

She said the Small Business Administration offers grants, loans, mentors and accreditation to do business with the US government at sba.gov and that she considers small businesses “too small to fail” as giants in our economy generating two-thirds of net job creation.

She also talked about the National Science Foundation’s American Seed Fund which startups can apply for up to $2 million in grants. The program has funded more than 400 startups to date, including Massachusetts-based Righthand Robotics which launched in 2014 with nearly a $1 million NSF grant and now is backed by Google Ventures, SoftBank and Menlo Ventures.

SBA is also trying to level the playing field for underrepresented entrepreneurs, and especially for female-only founded startups which get just 2% of venture capital, according to Pitchbook, despite being more than half the US population, according to the US Census Bureau. She told me the SBA has specific programs to support female founders as well as veterans and underserved communities in 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.

The session was hosted by ZenBusiness, an Austin-based Series C startup which is a one-stop shop for legal and banking services to help entrepreneurs launch their startups. Founded in 2017, they now have nearly half a million users on the platform according to the company which is valued at $1.7 billion with backing by Breyer Capital, SoftBank, Greycroft, Oak, Cathay — and Mark Cuban.

Cuban advised the audience to hold onto equity for as long as possible by funding operations with sales and slowing growth to mitigate risk. He also encouraged applications to Shark Tank, now in its 14th year, which he said is still receiving 40,000 to 50,000 applications a season.

Google offering money too

Google for Startups has non-dilutive capital for founders and takes a zero equity stake. 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 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 has been able to create 130,000 jobs and $6.7 billion in funding, it apologetically has only 23% women-led companies in its portfolio, according to its website. But a company spokesperson confirmed its Black Founders Fund is more balanced with 41% of recipients women.

But this begs the question: If even the best-intentioned investors are falling short of DEI targets, how will we ever get to parity? Women are more than half the US population, why aren’t they getting half the funding?

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 making investments traditional VCs won’t. “It has to be changed from the top. We have to have more women writing the checks,” she said.

_{Updated with additional data from Google in paragraph 16, additional Cuban comments in paragraph 13, and ZenBusiness data in paragraph 12.}