It’s all too common to hear entrepreneurs — especially Black founders — talk about losing out on funding, just when they thought they were close to securing an investor. Plenty of investors talk about wanting to help, but not enough take action.
I’d like to provide some guidance on how to best support Black founders now. But before we jump into strategies, allow me to set the stage. Investing in Black businesses is not just a moral imperative but an economic one as well. Black women are starting businesses faster than any other racial group. There are 2.6 million Black-owned businesses, which represents around 9% of all firms in the U.S. These firms generate $150 billion in annual revenue, supporting 3.6 million jobs. It seems preposterous that these business owners don’t get more support from investors.
It’s estimated that if people of color were proportionally represented among business owners, there would be an additional 1.1 million businesses in this country. That’s 9 million more jobs and $300 billion more in workers’ income.
So, what can investors do to support Black founders? Here are some strategies for consideration when prospecting Black founders:
ASK QUESTIONS WITHOUT JUDGMENT
To determine your level of investment, start by asking questions with the right tone. White entrepreneurs have different journeys than their Black peers. Allow the entrepreneurs to speak, and listen without interference from your own stereotypes or preconceived notions.
DIVERSIFY OUTREACH COMMITTEES
Once you decide to invest in Black entrepreneurs, it is helpful to recruit committee members who understand them, their businesses, and their communities. Just as you seek sector expertise, we recommend that you seek diversity of thought, race, ethnicity, and age to expand the aperture of companies you can review and support.
UNDERSTAND STRUCTURAL RACISM
Acknowledging racism in America can be challenging for those who have not experienced it. Trust us: It exists. Take time to do research and learn. Understand the implications of structural racism on Black entrepreneurship. This includes researching bias in employment, education, housing, and the like.
When you’re actively investing in Black founders, keep the following in mind:
BLACK ENTREPRENEURS SPEND MORE TO START A BUSINESS
Research shows that a Black entrepreneur spends up to $250,000 more than their white peer 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. It also includes indirect costs from being excluded from traditional accelerators and churning through professional service support three to four times more than their white peers.
USE AN ASSETS-BASED APPROACH
While national data does not always show the positives that exist within the Black community, it is important to know that our communities house tremendous assets. Our social capital, our commitment to a greater good beyond ourselves, and our dedication to caring for our communities through jobs and education are just a few. Be sure to pivot your mindset to understand that Black founders possess a tremendous amount of assets that are not all capital-driven or quantifiable by mainstream standards.
BE FLEXIBLE IN TERMS AND TIMELINES, BUT NOT RETURNS
Investors shouldn’t expect less return from Black entrepreneurs. However, due to the social and economic impediments constructed by society, you should be flexible about time and terms. It is not better or worse, just different. Black entrepreneurs desire wealth creation as much as their white peers do.
SEEK OUT CULTURALLY COMPETENT ADVISORS
In order to truly be diverse, there must be diversity in your DNA. Invite Black investors and those who are culturally competent to provide insight on the journey and economics of Black businesses. Understand the social, economic, and personal goals of Black entrepreneurs to provide the appropriate context in creating an ideal portfolio mix.
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 mainstream expectation of successful social capital. Take the time to bridge the gap and help make introductions to other investors and entrepreneurs who can be supportive. During your portfolio calls, go beyond the numbers to check on their well-being because it is inextricably linked to the success of the business.
MAKE MEANINGFUL CONNECTIONS
Black entrepreneurs need more than just connections — they need industry and sector “signal effects” that increase the trust and belief in this overlooked set of entrepreneurs. Go beyond the press and PR to become a part of the “new narrative” and share your experiences supporting Black entrepreneurs. Be transparent about learnings, challenges, and fears experienced by all parties. We need to disrupt the current structures, processes, and narratives to better support the long-term success of Black entrepreneurs.
It behooves all of us in the entrepreneurial ecosystem to understand how to support this large swath of emerging entrepreneurs — for our own wealth and for the wealth of this country. Investing in Black founders is an opportunity that investors can’t afford to miss.
Melissa Bradley is a co-founder of Ureeka and founder & general partner of 1863 Ventures