There’s a disturbing new trend emerging for entrepreneurs of color.
Investment firms and funding organizations have been hit with complaints, and in some cases federal lawsuits, over the constitutionality of providing financial support to BIPOC (Black, Indigenous and other people of color) entrepreneurs.
Recently, the American Alliance for Equal Rights, a conservative activist group that opposes affirmative action, filed a lawsuit against the Fearless Fund, which provides $20,000 Striver Grants to black female entrepreneurs. The lawsuit alleges that Fearless Fund violated the Civil Rights Act’s prohibition on racial discrimination in business contracts because other races were not considered for venture capital.
Disturbing new barriers to financing for BIPOC entrepreneurs. The picture is further complicated by the shocking statistic that only 1.1% of the $214 billion in venture capital allocated in 2022 went to companies with minority founders. Additionally, entrepreneurs of color seeking debt financing may still receive inferior loans, even if they are better equipped to apply than their white counterparts, according to the Journal of Marketing Research.
In the face of these challenges, angel investors and investment groups that provide capital to BIPOC entrepreneurs must remain committed to maintaining critical early-stage capital flows.
Launched in 2021 by the Center for Urban Entrepreneurship at the Rutgers University Business School, the Black and Latino Angel Investment Fund consists of a group of individuals (including me) who have each committed $25,000 to $50,000 to invest in promising founder-owned startups enterprise. color.
Based on my experience as a professor at Rutgers Business School and an angel investor in this fund, I offer three recommendations to ensure that BIPOC entrepreneurs who are capable, ambitious, and ready to succeed receive the equity capital they need to grow:
Invest in a crowdfunding campaign to support BIPOC entrepreneurs
The Jumpstart Our Business Startups Act (JOBS Act) introduced by President Obama in 2012 provides for crowdfunding provisions that allow early-stage companies to issue and sell securities. This is a smart choice that allows BIPOC founders to connect with potential funders who are receptive. their entrepreneurial enthusiasm and recognition that their ideas will be considered within their cultural context.
One significant advantage that crowdfunding offers underrepresented entrepreneurs is its democratic nature. This inherent color blindness removes the structural barriers in traditional venture capital fund structures that hinder minority investment.
Angel investors and investment groups that provide capital to BIPOC entrepreneurs must remain committed to maintaining critical early-stage capital flows.
For example, on equity crowdfunding platform Republic, 25% of investments go to companies with black or Hispanic founders. Eleven percent of all activity on Honeycomb’s platform was initiated by Black founders, while SeedInvest found that 12% of activity was initiated by Black founders. This level of activity is almost proportional to the proportion of black people in the U.S. population (13.6%, according to Census.gov data as of July 2023).
pocstock is a noteworthy startup that used crowdfunding to obtain initial funding.
Launched in 2019, pocstock offers a curated media library of photos, videos, and illustrations of Black, Asian, Hispanic, Indigenous, LGBTQIA+, and differently-abled people of color, used by Fortune 500 companies and global advertising agencies advertising/marketing activities.
In March 2023, pocstock raised $129,000 through Wefunder crowdfunding. It used this momentum to close $500,000 in additional venture funding in July 2023. By the end of next year, pocstock’s annual revenue is expected to grow from $600,000 to more than $2 million. An additional $500,000 is expected in 2024 as the company continues to grow.
Open your network and engage struggling BIPOC entrepreneurs
When the Black and Latino Angel Fund was launched, many of the first people to commit to becoming investors were not only interested in the opportunity but wanted to be personally involved in helping, mentoring and advising entrepreneurs with promising ideas. This kind of engagement can be replicated in similar programs across the United States. It enables committed individuals with deep business experience and acumen to accelerate the learning curve of BIPOC entrepreneurs and facilitate private sector investment capital through their personal networks.
Most cities and states offer various accelerator programs and incubators for early-stage entrepreneurs. Engage the minority business ecosystem in your own backyard and provide immediate guidance, such as removing barriers and facilitating introductions to potential investors and business partners.
Go Locker, a solution that provides secure, protected package delivery for shoppers and brands (its clients include Amazon, Poshmark, and Thrive Market), has hired a logistics CEO-turned-mentor to help refine the company’s commerce model. This unique relationship allowed Go Locker to secure funding from traditional sources and raise over $1 million to grow the business.
The company, founded by a BIPOC entrepreneur who immigrated to the United States from Grenada, scored a big win in 2023 by partnering with the New York City Department of Transportation to provide local residents with secure sidewalk lockers to pick up packages.
To support BIPOC entrepreneurs as mentors, check out initiatives offered by the Polsky Center at the University of Chicago, the Russell Center for Entrepreneurial Innovation in Atlanta, and the Center for Urban Entrepreneurship and Economic Development at Rutgers University.
Establishing investment standards that are intentionally inclusive
If you want to set up a fund or participate in a syndicate and are concerned about legal challenges, be intentional about developing inclusive investment standards that are often associated with BIPOC-owned startups. These include entrepreneurs who attended or graduated from HBCUs (historically black colleges and universities), lived or grew up in low- or moderate-income communities, or have at least one founder or member of company management with a minority background entrepreneur.
Remember, being intentionally inclusive does not mean being exclusive, narrow, or restrictive. It simply represents a transparent effort to provide Black entrepreneurs with patient and flexible capital and avoid claims that non-BIPOC entrepreneurs receive discriminatory treatment.
Intentionally defining inclusion criteria within your fund/syndicate may also open the door to additional funding opportunities for BIPOC entrepreneurs. For example, the New Jersey Economic Development Authority offers an angel matching program that matches direct investments in early-stage product-based technology companies with unsecured convertible notes ranging from $100,000 to $500,000.
While the legal endpoint of the lawsuit filed by agenda-driven advocates like the American Alliance for Equal Rights has yet to be determined, it has already had a chilling effect. However, funders looking to support BIPOC entrepreneurs should not sit back and wait to see how things unfold: there must be an ongoing effort to provide critical equity capital.
To achieve this goal, persistence, ingenuity and creativity are necessary. Arian Simone, CEO and co-founder of Fearless Fund, embodied this tenacity in an interview with BET: “We did have to pause some work. But that doesn’t change or alter our mission. The work will continue.”
The three pathways above offer effective options for funders who are ready to move forward. Each can quickly and efficiently provide business builders of color with the capital they need to advance their ideas, bring their products to market, and generate returns for savvy investors.
