Direct Capital Ratio Formula
Direct Capital Ratio =
Direct grants to founders (IRS Form 990 Schedule I)
÷
Total state appropriations (Federal Audit Clearinghouse single audits)
Why Single Audits Are Essential
The Direct Capital Ratio cannot be accurately calculated from IRS Form 990 filings alone. While 990s report total government grants received, they do not break out state appropriations from federal pass-through funds. This creates ambiguity in the denominator.
Single audits — required under the Single Audit Act for organizations spending $750,000 or more in federal funds — provide the critical missing data:
- Schedule of Expenditures of Federal Awards (SEFA): Itemizes federal dollars by program
- State appropriation line items: Cleanly separates state innovation funding from federal pass-through
- Audit verification: Numbers are independently verified by external auditors
By using single audits for the denominator (state appropriations) and 990 Schedule I for the numerator (direct grants to founders), the Direct Capital Ratio becomes transparent, replicable, and audit-verified.
Data Sources
- Federal Audit Clearinghouse (facweb.census.gov) — single audits with state appropriation data
- ProPublica Nonprofit Explorer (projects.propublica.org/nonprofits) — IRS Form 990 filings, Schedule I (grants to organizations)
- State budget documents — supplementary verification of appropriation amounts
Exclusions
- Federal pass-through funds are excluded from the denominator to ensure apples-to-apples comparison of state innovation dollars only
- In-kind contributions and non-cash grants are excluded
Rust Belt Comparative Data
| State | Organization | Direct Capital Ratio | Source |
|---|---|---|---|
| Pennsylvania | Innovation Works | 25¢ (FY2025) 42¢ (FY2023) |
Single audit + 990 Schedule I |
| Ohio | JumpStart Inc. | ~21¢ | Single audit + 990 Schedule I |
| Michigan | TBD | PENDING | Single audit search in progress |
| Wisconsin | TBD | PENDING | Single audit search in progress |
| Indiana | TBD | PENDING | Single audit search in progress |
Why This Matters in an AI Era
The 1983 intermediary model bundled capital with business planning, mentorship, market research, and advisory services. These knowledge-worker services are now commoditized by AI tools available for ~$200/month.
Direct capital is the only scarce resource the state should be providing.
Efficient state funding (75% direct-to-founder) acts as catalytic capital: it signals quality, provides first-loss de-risking, and attracts private follow-on investment rather than substituting for it.
Methodological Note
For states where the relevant intermediary does not cross the $750K federal spending threshold (and therefore has no single audit), the fallback methodology is:
- State appropriation from legislative budget documents
- Direct grants from 990 Schedule I
- Manual calculation with full source citation
This approach maintains transparency but introduces minor variance due to differences in state budget reporting standards. All calculations and source documents are publicly available for independent verification.