There’s a new and troubling trend for entrepreneurs of color.
Investment firms and funding organizations are subject to complaints, and in some cases, federal lawsuits, over the constitutionality of financial support for BIPOC (Black, Indigenous, and other people of color) entrepreneurs.
More recently, the American Coalition for Equal Rights was created – a conservative activist organization that opposes affirmative action Lawsuit against Fear Fund, which awards a $20,000 grant to Black women entrepreneurs. The lawsuit claims that the Fearless Fund violates the Civil Rights Act’s prohibition of racial discrimination in commercial contracts because other races are not considered for funding the project.
This new barrier to securing financing opportunities for BIPOC entrepreneurs is alarming. This is made even more complicated by the alarming statistic that $214 billion in venture capital funding will be allocated in 2022, which is a tiny amount. 1.1% went to companies with minority founders. Additionally, entrepreneurs of color seeking debt financing are still more likely to receive lower-quality loans, even when they are stronger applicants than their white peers, according to Journal of Marketing Research.
In the face of these challenges, angel investors and investment groups funding BIPOC entrepreneurs must remain committed to maintaining the flow of vital early-stage capital.
the Black and Latino Angel Investment Fundlaunched by the Center for Urban Entrepreneurship at Rutgers Business School in 2021, is a group of individuals (myself included) who have each committed $25,000 to $50,000 to invest in promising startups owned by founders of color.
Based on my experience as a professor at Rutgers University Business School as well as an angel investor in the fund, I have three recommendations to ensure that capable, ambitious, and ready-to-succeed BIPOC entrepreneurs have the capital they need to grow:
Invest in crowdfunding campaigns that support BIPOC entrepreneurs
Crowdfunding provisions that allow early-stage companies to offer and sell securities are established in the Jumpstart Our Business Startups Act (Jobs Law), launched by President Obama in 2012. It’s a smart choice that allows BIPOC founders to connect with potential funders who will embrace their entrepreneurial enthusiasm and know that their ideas will be considered in the context of their culture.
A notable advantage that crowdfunding offers to underrepresented entrepreneurs is its democratic nature. This inherent color blindness removes a structural barrier that prevents minority investment within the traditional venture capital fund structure.
Angel investors and investment groups funding BIPOC entrepreneurs must remain committed to maintaining the flow of vital early-stage capital.
For example, in equity crowdfunding platform Republic, 25% of investments I went to companies founded by black or Hispanic founders. Eleven percent of all campaigns On Honeycomb’s platform were run by Black founders, SeedInvest saw 12% of campaigns run by Black founders. This activity level is roughly proportional to the percentage of blacks in the US population (13.6% According to Census.gov as of July 2023).
One noteworthy startup that has turned to crowdfunding to secure seed funding is pocstock.
Launched in 2019, pocstock offers a curated media library of images, videos, and illustrations of Black, Asian, Hispanic, Indigenous, LGBTQIA+, and differently-abled people of color for advertising/marketing campaigns for Fortune 500 companies and global advertising agencies.
In March 2023, pocstock raised $129,000 via crowdfunding Wefunder. It has leveraged this momentum to close on an additional $500,000 in venture capital in July 2023. By the end of next year, pocstock is on track to increase annual revenue from $600,000 to more than $2 million. She expects to lock in another $500,000 in equity in 2024 as it continues to grow.
Open your network to include hardworking BIPOC entrepreneurs
When the Black and Latino Angel Investment Fund was created, many of the first people who committed to being investors were not only intrigued by the opportunity, but also wanted to be personally involved in helping, mentoring and advising entrepreneurs whose ideas showed promise. This participation could be replicated in similar programs across America. It enables committed individuals with deep business experience and wisdom to accelerate the learning curve – and catalyze private sector investment capital through their personal networks – for BIPOC entrepreneurs.
Most cities and states offer a variety of accelerator and incubator programs for early-stage entrepreneurs. Engage in minority business ecosystems in your own backyard – providing real-time guidance such as removing barriers and facilitating introductions to potential investors and business partners.
Go closet, a solution that provides safe and secure package delivery to shoppers and brands (its clients include Amazon, Poshmark, and Thrive Market), has tapped a logistics CEO-turned-mentor to help hone the company’s business model. This unique relationship led Go Locker to secure financing through traditional sources and raise over $1 million to move the business forward.
The company, founded by a BIPOC entrepreneur who immigrated to the U.S. from Grenada, scored a huge win in 2023 by partnering with the New York City Department of Transportation to provide… Safe dock lockers For parcel pickup by local residents.
To support BIPOC entrepreneurs as a mentor, look at the initiatives available at Polski Center At the University of Chicago, Russell Innovation Center for Entrepreneurs In Atlanta, W Center for Urban Entrepreneurship and Economic Development At Rutgers.
Deliberately establish comprehensive investment standards
If you’re looking to start a fund or participate in a syndicate and are concerned about legal challenges, intentionally set inclusive investment criteria that typically relate to BIPOC-owned startups. These include entrepreneurs who attended or graduated from HBCUs (historically black colleges and universities), live or grew up in a low- or middle-income community, or have at least one founder or member of company management from a minority background. .
Remember, intentional inclusion does not mean exclusive, narrowly defined, or restrictive. It simply represents a transparent effort to provide patient and flexible capital to Black entrepreneurs and insulate against suggestions that non-BIPOC entrepreneurs receive discriminatory treatment.
Intentionally setting inclusive standards in your fund/guild may also open the door to additional funding opportunities for BIPOC entrepreneurs. For example, New Jersey Economic Development Authority Angel Match offers a program that matches direct investment in early-stage product-based technology companies with unsecured convertible securities ranging in value from $100,000 to $500,000.
While the legal endpoint of lawsuits brought by actors with agendas like the American Alliance for Equal Rights has yet to be determined, they have had a chilling effect. However, funders who want to support BIPOC entrepreneurs should not sit on the sidelines to wait and see how things develop: efforts to provide critical critical capital must continue.
Perseverance, ingenuity and creativity are necessary to achieve this goal. Ariane Simon, CEO and Co-Founder of Fearless Fund, embodies this persistence in: Interview with BET: “We have to stop at some work. But it does not change or alter our mission. The work will continue.”
The above three paths provide viable options for financiers ready to move forward. Each can quickly and efficiently provide business creators of color with the capital needed to move their ideas forward, bring their deliverables to market, and generate returns for savvy investors.