Assistant Secretary Castillo talks federal investment in entrepreneurial ecosystems and capital access

$2.4 trillion.

U.S. Assistant Secretary of Commerce for Economic Development Alejandra Y. Castillo emphasized the federal government’s investment in economic development and opportunities to leverage this legislation to support communities.

“If I haven’t at least made a compelling argument that you should consider how to engage with the federal government, let me just say this: $2.4 trillion between the bipartisan infrastructure law, the American Rescue Plan, the CHIPS and Science Act, and the Inflation Reduction Act,” Castillo said. “$2.4 trillion are being invested into communities.”

Castillo joined Kauffman Vice President of Entrepreneurship Philip Gaskin for a “fireside chat” during the Capital Innovation Summit, hosted by the Foundation. The Summit brought together stakeholders from financial institutions as well as civic, nonprofit, philanthropic, and for-profit organizations to address how the capital ecosystem can work together to take action to close the gap in access to capital.

“I believe that all of us in this room are truly the architects of what the future economy of this nation is going to be,” she said. “Not only are you participating in what the future economy is, but you’re also participating in the economic dignity of communities.”

She directly addressed the demographic and geographic barriers to the flow of capital.

“We’re trying to bring entrepreneurs of color into a paradigm that wasn’t designed for them,” she said. “So, whatever role I can play in that, whatever small role I can play with that, I want to have more partners to do some good trouble together because that’s what I think life is all about.”

Read highlights from Castillo’s Capital Innovation Summit fireside chat below.

Gaskin: We’re seen an influx of funding into communities from the Economic Development Administration (EDA), including Kansas City. What should people know about?

Castillo: The Economic Development Administration is possibly the only agency within the federal government truly focused on economic development.

We actually invested here in Wichita, Kansas, $51 million for additive manufacturing. We also invested $17.1 million in workforce development. All of these programs have a key ingredient and that is baking in the equity component to all of these grants.

The way that we do it is we changed our investment priorities. As I’m sure you all know, when you have investment priorities, that tends to rule the day and our top investment priority is equity. Both in the Build Back Better Regional Challenge and the Good Jobs Challenge, which was part of the American Rescue Plan, EDA had $3 billion to push out the door to communities across the country.

We are looking at investing in communities through a non-traditional lens. We are also looking at investing in communities through a variety of vehicles. One, it could be through the traditional public works, water pipeline, sewage. As well as building business incubators, but also creating an ecosystem that is equitable and inclusive. The way that the federal government is doing it is making sure that we bring in coalitions. It’s not one entity that’s going after EDA dollars, it is a coalition.

The beauty of this moment in time is that for the first time, at least in my experience and I’ve worked in Washington for three decades, government is not saying, “You have to do ‘X’.” We are telling you, “Tell us your best ideas.” Give us your best proposals and let us review it. We are partnering; we’re working through that.

Gaskin: What’s coming up from EDA?

Castillo: I want to invite you to look at two particular programs that are going to truly be transformational. One is tech hubs.

We think about Silicon Valley as this model. I don’t think it’s the model, it is a model, but not the only model. What we’re trying to do is democratize technology and innovation. This is a $10 billion program. We’re looking at places around the country, regions across the country that have a particular technology or industry that they want to hone in on and really building an ecosystem to support that.

I submit to you that in the next five to 10 years, the American economy is going to be drastically transformed. What keeps me up at night, is how do we make sure that, as we transform the economy, we’re ensuring that communities of all walks of life are involved and engaged? How do we make sure that we’re not just talking about workforce, because that’s great and we need it, but I just want to make sure that entrepreneurs are at the forefront of this, not at the tail end. Because as many of you know, we start to play contortion, right? We try to refit ourselves into it. I want our entrepreneurs of color to be at the forefront designing – being the architects of the future.

Gaskin: How does EDA keep entrepreneurs and stakeholders, who benefit from EDA’s investments in nonprofit organizations and public entities, in the know about the programs and opportunities offered by the EDA?

Castillo: We create the ecosystem for these entrepreneurs to come in. What I’m seeing is an opportunity to peak over the horizon. To be able to see, where is the U.S. government spending its dollars? What are the industries of tomorrow that are being created as we speak? We can work together to help these entrepreneurs who may need to evolve from one industry to the other and be able to provide them with those tools and support.

Let me give you a concrete example. An hour-and-a-half away from here, in Wichita, Kansas, there is a legacy aerospace industry, which we have invested $51 million. That ecosystem is now going to evolve into additive manufacturing and is going to enter into space commerce.

What I’m suggesting is let’s start working together, so that those small businesses around Wichita that were suppliers to the aerospace industry are able to have the support, technical assistance, the dollars to make that evolution. This is a long-game play. I know it doesn’t solve for the challenges that we have today, but it can start to help. What I’m also saying is leverage us. I know government is not for the faint of heart, and I’m not going to belabor that point, but there are ways to engage, and I would be delighted to do that.

Gaskin: What I’m hearing is government as an ecosystem builder. The innovation I’m hearing is thinking of government and government agency as having as close to an intimate relationship as with that ecosystem as possible. I’m getting that right?

Castillo: We’re talking about economic development, we’re talking about our national economy, and we’re also talking about our global competitiveness. What I’m witnessing with all of these legislations that I spoke about at the beginning is an attempt to not just build our regional economies, but also tie them together to ensure our global competitiveness.

I would also submit to you that this is about our democracy. Because as the U.S. economy transforms, if we continue to leave communities behind, that erodes our democracy. I’m very passionate about that because I see it. I mean, I live on trains, planes, and automobiles, so I see communities that are fraying because they have been left out, and they cannot see themselves into that future. This is about really working together, but also hacking how government deploys capital.

Gaskin: What are some of the challenges you hear in talking to entrepreneur support organizations, or their agents, when you’re out in the communities of what they’re going through, and what are their stories related to not getting capital and how your programs are helping?

Castillo: The Build to Scale program has a venture challenge, which is to help on the technology innovation and commercialization and, also, has a capital challenge to help with capital access. That grant is live. We are looking for applicants. Please consider it and think about it.

EDA’s Revolving Loan Fund program provides loans to entrepreneurs as well. We also have, again, as I mentioned, the tech hubs program. The next one that I would also say is the Recompete Pilot Program, which is focusing on highly-distressed areas where prime-age employment (25 to 54 years) significantly trails the national average, with the goal to close this gap through large, flexible investments. Again, these are all grants that build out on the ecosystem, but also support on the access to capital.

What we’re seeing right now is that the federal government is putting in the seed money to support these ecosystems, but we’re going to need the private sector. We’re going to need philanthropy. We’re going to need the universities and the community colleges, and the nonprofits to really come in and continue to support. It’s an exciting time. It’s not easy because economic development is not a linear formula. It requires multiple entry points, and that’s what we want to make sure people are excited about.