August 7, 2023
This 4-Point Call To Action Could Increase Capital For Black Women Entrepreneurs
Insufficient capital, scarce resources, and a low number of females in decision-making roles are often factors as to why Black women entrepreneurs can’t secure financing to start up or scale their businesses.
Those stunning headwinds exists today even as a report by JP Morgan reveals those women are the fastest-growing type of entrepreneurs, having launched 2.7 million businesses nationally. Furthermore, Black female founders have $24,000 in annual revenue, roughly six times less than all women-owned businesses. And data show a hefty 61% of Black women rely on their own capital to finance a new business.
Industry watchers question how long the run can continue, if Black women owners keep facing obstacles to access bank loans, venture capital, investor-backed aid and other capital stacks including credit-market financing. They contend more inclusive and viable support is needed to help change the existing capital gap for Black women entrepreneurs.
Turning the tide on the lack of financing Black women
Boosting capital channels for Black women owners as well as developing new initiatives and programs precisely geared to them could balance the scale on the capital front—and turn the lack of financing around
To help reverse the ongoing problem, the Fearless Fund will launch its third annual VC summit on August 18, 2023, in Atlanta. Calling itself the first VC firm for women of color, Fearless Fund comes as Black women have less access to venture capital for financing, education, and networking opportunities.
Since its launch in 2019, the Fearless Fund firm has raised $25.8 million in first-round financing. It hopes to double that in its current second fund round. The firm’s portfolio of 41 companies—including 32 Black or bi-racial women—has overall raised $20 million to $30 million. One of its clients, Slutty Vegan, is now valued around $100 million. Fearless Fund says Slutty Vegan plans to use some of the capital to expand from eight locations to more than 15 nationwide by late 2023.
“This summit serves as a gateway to learning, inspiration, and unparalleled opportunities for seasoned entrepreneurs and budding startup enthusiasts, all looking to be pushed toward excellence,” said Fearless Fund CEO Arian Simone.
Public and private sectors step up to help
The chair of the Senate Committee on Small Business and Entrepreneurship just issued a report, “Women’s Small Business Ownership and Entrepreneurship.” Among its content, the report proposes legislative solutions to provide women business owners with financing.
More efforts are emerging to supply the needed funding. The Hyphen team works with the Biden administration and partners to achieve the goals of the Initiative for Inclusive Entrepreneurship (IIE). The $100 million push aims to boost capital to entrepreneurs of color, including Black women entrepreneurs.
Hyphen founder and President Archana Sahgal pointed out the number of Black female-owned businesses grew by 18% between 2017 and 2020. Still, she says Black women are met with significant barriers to capital access, leading 61% to personally finance their businesses. That causes leading funders to perceive those businesses as “riskier.”
“Dismantling these barriers and increasing access to capital for historically marginalized communities will require public-private collaboration and buy-in from stakeholders spanning the federal government and corporate and philanthropic sectors.”
Hyphen’s efforts include raising and deploying $20 million in grants to build the capacity of capital providers, raising $50 million in philanthropic program- and mission-related investments, and unlocking $30 million in private capital to drive systemic change. One of its co-leads, Founders First Capital Partners, will be leading IIE’s actions to enable the growth and scale of BIPOC suppliers.
Founders First shared the firm has provided entrepreneurs with about $10 million directly, and $80 million its network of funders. Some 77% of entrepreneurs Founders First supports are people of color.
Founders First CEO Kim Folsom reflected, “As a 7-time entrepreneur myself, I know that a better way is possible. We are proud to be part of IIE to work with partners to scale innovative models we have pioneered at Founders First, shared success capital in the use of revenue-based financing methodology, to make capital more accessible to founders of color across the country.”
Small business owners can learn more about IIE and reach one of Hyphen’s partners: Founders First Capital Partners, JumpStart and Next Street. They can also contact their State Small Business Credit Initiative (SSBCI) to discover more capital programs and connect with approved lenders and equity firms.
Targeting the capital needs of Black women owners
William Michael Cunningham, an economist, banking expert, and owner of Creative Investment Research, says the 50% growth rate for Black women businesses from 2014 to 2019 is a testament to their determination and ability to overcome challenges.
Yet, observers say systemic barriers and other forces that limit their prospects for current and future growth must be addressed to reverse disparities to create more access to capital raising.
Cunningham says the IIE may want to focus on addressing the needs of Black women-owned businesses. He says IIE should utilize the U.S. Small Business Administration’s 7a program, projected to provide Black businesses with $1 billion in loans this year.
“Identifying Black women entrepreneurs in the participating states is the first step, followed by increasing awareness of tailored funding opportunities and resources.”
Further, the SBA has launched a new effort to potentially help entrepreneurs get loans up to $5 million to start and grow businesses. The program includes softening loan requirements, simplifying the loan process, and boosting the amount non-bankers have to issue SBA loans. The effort, which started August 1, 2023, will increase the number of entrepreneurs who can access SBA loans, including women.
Gender equality in the venture capital (VC) industry is an ongoing challenge. That stems from women still being largely underrepresented in positions with check-writing and decision-making ability, according to a new report from non-profit firm BLCK VC.
For instance, the reported showed that only 11% of venture capitalists are women and only 7 percent of venture firms have women partners. The figure is even less for Black women: 1 percent hold investor positions, with barely a fraction of those in partner roles. BLCK VC surveyed over 200 Black investors and used Crunchbase research and its data to assemble it second annual take on the state of Black representation in VC.
The finding is significant as “the lack of representation ultimately impacts the amount of funding allocated to Black women entrepreneurs.” Black women business owners collected merely 0.34% of U.S. venture capital in 2021, according to Crunchbase.
The BLCK VC report surmised, “By overlooking Black women in the venture ecosystem, venture capitalists are missing out on the next generation of successful start-ups, and ultimately, a less efficient and effective investment strategy.”
Self-financing alternative for some Black women owners
Another funding option Black women entrepreneurs might consider is bootstrapping. It is financing that allows an owner to run a company using personal finance or revenue instead of outside investment. Bootstrapping can help an owner keep more control, but it can boost financial pressure.
Bianca B. King, CEO of the coaching and matching firm Pretty Damn Ambitious, wrote what she learned about bootstrapping after spending eight weeks with Arlan Hamilton, founder of venture capital firm Backstage Capital. “Only some people need or even should take VC money,” King said.
King shared Hamilton insisted that bootstrapping versus having investors may be the best alternative for some businesses. The reason: It allows you to own 100% of your business even though it may take you longer to scale.
“It gives you the ability to stay agile and adapt to the changing market at your own pace while being able to make critical business decisions in alignment with your values instead of being beholden to investors.”
Hamilton says Backstage Capital has deployed more than $20 million since 2015 and about 30% of that to Black women-led companies. In terms of current funding, the firms invest an undisclosed amount in about 30 companies per year, including about 50% led by Black women.
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