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Report

Reimagining Impact Investing for Small Businesses in the Age of AI

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Kristen Fanarakis

Associate Director, Small Business, Entrepreneurship, and Economic Growth
Kristen Fanarakis leads the small business policy, entrepreneurship, and innovation initiative within the Milken Institute’s Finance pillar. She focuses on the macroeconomic and systemic trends affecting American small businesses and startups, and the implications for the economy and innovation.
Topics
Finance
Impact Investing
Small Business Strategies
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Small businesses are responsible for nearly half of all private-sector jobs and economic growth. They, along with startups, serve as the dual engines driving both innovation and economic expansion. These businesses are essential to the health of the overall economy—yet entrepreneurship has been in a structural decline for decades, and the influence of small businesses has diminished as fewer new businesses are launched.

The majority of these small businesses are solopreneurs or microbusinesses with fewer than ten employees. As a result, business owners often wear many, if not all, of the hats required to run their operations. Time is a small business owner’s most valuable asset. With the explosive launch of ChatGPT in 2022, artificial intelligence (AI) has become accessible to the masses. It has democratized technology, providing time- and resource-strapped small businesses with access to AI in ways previously not possible.

This technological revolution also offers impact investors new ways to expand their reach. By investing in AI solutions that address small-business challenges and inefficiencies, impact investors can redefine what impact looks like. If developed with the needs of small businesses in mind, AI can help tackle the root causes of their challenges and enable more small businesses and startups not just to survive, but to thrive.

This paper introduces two frameworks to guide impact investors in making strategic decisions about where to invest and how to approach AI investments within their overall impact strategy.

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