It’s all too common to hear entrepreneurs – especially black founders – talk about losing funding, just when they thought they were about to find an investor. Many investors talk about wanting to help, but not enough to act.
I would like to give some advice on how best to support black founders now. But before we jump into strategies, let me set the scene. Investing in black businesses is not only a moral imperative, but also an economic one. Black women start businesses faster than any other racial group. There are 2.6 million Black-owned businesses, which account for about 9% of all businesses in the United States These businesses generate 150 billion dollars annual turnover, supporting 3.6 million jobs. It seems absurd that these business owners aren’t getting more support from investors.
It is valued that if people of color were proportionately represented among business owners, there would be 1.1 million more businesses in this country. That’s 9 million more jobs and $ 300 billion more in income for workers.
So what can investors do to support black founders? Here are some strategies to consider when prospecting for black founders:
ASK QUESTIONS WITHOUT JUDGMENT
To determine your level of investment, start by asking questions in the right tone. White entrepreneurs have different backgrounds than their black peers. Let the entrepreneurs do the talking and listen without interference to your own stereotypes or preconceptions.
DIVERSIFY THE AWARENESS COMMITTEES
Once you decide to invest in black entrepreneurs, it helps to recruit committee members who understand them, their businesses and their communities. Just as you are looking for industry expertise, we recommend that you seek diversity of thought, race, ethnicity and age to broaden the openness of businesses that you can assess and support.
UNDERSTANDING STRUCTURAL RACISM
Acknowledging racism in America can be difficult for those who haven’t experienced it. Trust us: it exists. Take the time to research and learn. Understand the implications of structural racism on black entrepreneurship. This includes looking for bias in employment, education, housing, etc.
When investing actively in black founders, keep the following points in mind:
BLACK ENTREPRENEURS SPEND MORE TO START A BUSINESS
Research shows that a black entrepreneur spends up to $ 250,000 more than his white counterpart to start the same business. These additional costs are direct and indirect. Direct costs include higher interest rates for loans compared to their white peers. This also includes the indirect costs of excluding traditional accelerators and rolling through professional support service three to four times that of their white peers.
USE AN ASSET-BASED APPROACH
While national data does not always show the positive aspects that exist within the black community, it is important to know that our communities are home to enormous assets. Our social capital, our commitment to a greater good beyond ourselves, and our dedication to caring for our communities through employment and education are just a few. Be sure to rotate your mindset to understand that black founders have a huge amount of assets, not all of which are capital-driven or quantifiable by traditional standards.
BE FLEXIBLE IN TERMS AND DEADLINES, BUT NOT RETURNS
Investors shouldn’t expect less performance from black entrepreneurs. However, due to the social and economic barriers built by the company, you need to be flexible about the time and conditions. It’s not better or worse, just different. Black entrepreneurs desire wealth creation as much as their white peers.
LOOK FOR CULTURALLY COMPETENT ADVISORS
To be truly diverse, there has to be diversity in your DNA. Invite black investors and those who are culturally competent to provide insight into the journey and economics of black businesses. Understand the social, economic and personal goals of black entrepreneurs to provide the right context for creating an ideal portfolio.
Here’s what you need to know about post-investment support:
GO BEYOND TRADITIONAL PORTFOLIO WORK
Black people have social capital, although it differs from the traditional expectation of successful social capital. Take the time to bridge the gap and help make presentations to other investors and entrepreneurs who can support you. When making your portfolio calls, go beyond the numbers to check their well-being as it is inseparable from the success of the business.
MAKING SIGNIFICANT CONNECTIONS
Black entrepreneurs need more than just relationships – they need industry and sector “signal effects” that increase trust and confidence in this neglected set of entrepreneurs. Go beyond press and public relations to be a part of the ‘new narrative’ and share your experiences in supporting black entrepreneurs. Be transparent about the learnings, challenges and fears experienced by all parties. We need to disrupt current structures, processes, and narratives to better support the long-term success of black entrepreneurs.
It is incumbent on all of us in the entrepreneurial ecosystem to understand how to support this wide range of emerging entrepreneurs – for our own wealth and for the wealth of this country. Investing in black founders is an opportunity that investors cannot afford to miss.
Melissa Bradley is co-founder of Ureeka and founder and general partner of 1863 Ventures