An alarming new trend is 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 financially supporting BIPOC (Black, Indigenous, and other people of color) entrepreneurs. ing.
Just recently, the American Equal Rights Alliance, a conservative activist group that opposes affirmative action, filed a lawsuit against the Fearless Fund, which awards $20,000 Strivers grants to black women entrepreneurs. The lawsuit alleges that Fearless Fund violates a provision of the Civil Rights Act that prohibits racial discrimination in business contracts because other races are not considered for venture funding.
This new barrier to securing funding opportunities for BIPOC entrepreneurs is disconcerting. The situation is further complicated by the alarming statistic that of the $214 billion in venture capital funding allocated in 2022, only 1.1% went to companies with minority founders. Additionally, entrepreneurs of color seeking debt financing are still likely to be offered inferior loans, even if they are stronger applicants than white entrepreneurs, according to the Journal of Marketing Research. is said to be high.
In the face of these challenges, angel investors and investment groups that fund BIPOC entrepreneurs must remain committed to maintaining the flow of critical early-stage capital.
Founded in 2021 by the Center for Urban Entrepreneurship at Rutgers Business School, the Black and Latinx Angel Investment Fund is a group of individuals (including myself) who each contribute between $25,000 and $50,000 to invest in companies. Invests in promising startups owned by founders. color.
Based on my experience as a business school professor at Rutgers University and an angel investor in a fund, I can help ensure that talented, ambitious, and ready-to-succeed BIPOC entrepreneurs have the equity capital they need to grow. Here are three recommendations to help you earn.
Invest in crowdfunding campaigns that support BIPOC entrepreneurs
Crowdfunding provisions that allow early-stage companies to offer and sell securities were established in the Jumpstart Our Business Startup Act (JOBS Act), enacted by President Obama in 2012. This is a smart option that allows BIPOC founders to connect with potential funders who are willing to accept funding. Understand their entrepreneurial aspirations and recognize that their ideas will be considered in the context of their culture.
A notable benefit that crowdfunding offers to entrepreneurs is its democratic nature. This innate colorblindness removes the structural barriers that prevent minority investing within traditional venture capital fund structures.
Angel investors and investment groups that fund BIPOC entrepreneurs must remain committed to maintaining the flow of critical early-stage capital.
For example, Republic, an equity crowdfunding platform, sends 25% of its investments to companies founded by Black or Hispanic founders. 11% of all campaigns on the Honeycomb platform are run by Black founders, and on SeedInvest, 12% of campaigns are run by Black founders. This level of activity is roughly proportional to the percentage of Black people in the U.S. population (13.6% according to Census.gov as of July 2023).
A notable startup that turned to crowdfunding to secure initial funding is pocstock.
Founded in 2019, pocstock creates images of Black, Asian, Hispanic, Indigenous, LGBTQIA+, and people of color with various disabilities for advertising and marketing campaigns for Fortune 500 companies and global advertising agencies. We offer a curated media library featuring videos, illustrations.
In March 2023, pocstock raised $129,000 in crowdfunding via Wefunder. Capitalizing on this momentum, he further completed a $500,000 venture capital raise in July 2023. By the end of next year, Pocstock plans to increase his annual revenue from his $600,000 to more than $2 million. We expect to acquire an additional $500,000 in equity in 2024 to continue our growth.
Open your network to include passionate BIPOC entrepreneurs
When the Black and Latinx Angel Investment Fund was created, many of the first would-be investors were not only intrigued by the opportunity, but also attracted entrepreneurs with promising ideas. I wanted to be personally involved in providing support, guidance and advice. This participation could be replicated in similar programs across the United States. This also benefits BIPOC entrepreneurs by allowing dedicated individuals with deep business experience and wisdom to accelerate their learning curve and facilitate private sector investment capital through their personal networks.
Most cities and states offer a variety of accelerator programs and incubators for early-stage entrepreneurs. Join the underrepresented business ecosystem in your backyard and provide real-time guidance, including removing roadblocks and facilitating introductions to future investors and business partners.
Go Locker, a solution that provides safe and protected package delivery for shoppers and brands (clients like Amazon, Poshmark, and Thrive Market), has hired a logistics CEO turned leader to The company's business model has been refined. This unique relationship has enabled Go Locker to secure funding through traditional sources and raise more than $1 million to advance the business.
Founded by BIPOC entrepreneurs who immigrated to the US from Grenada, the company achieved great success in 2023 by partnering with the New York City Department of Transportation to provide secure sidewalk lockers for local residents to pick up their packages. .
To support BIPOC entrepreneurs as mentors, take a look at the initiatives available at the University of Chicago's Poleski Center, Atlanta's Russell Innovation Center for Entrepreneurship, and Rutgers' Center for Urban Entrepreneurship and Economic Development.
Intentionally Establish Comprehensive Investment Criteria
If you are considering starting a fund or joining a syndicate and are concerned about legal issues, intentionally establish inclusive investment criteria, typically associated with BIPOC-owned startups. These include entrepreneurs who attended or graduated from HBCUs (Historically Black Colleges and Universities); entrepreneurs who live in or grew up in low-income or moderate-income communities; or at least one member of the company's management team. Includes entrepreneurs whose founders or members are from minority backgrounds. .
Note that intentionally inclusive does not mean exclusive, narrow, or restrictive. This simply represents a transparent effort to provide patient and flexible funding to Black entrepreneurs and to block any suggestion that non-BIPOC entrepreneurs are being treated differently.
Intentionally defining inclusive criteria in a 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 match program that matches direct investments in early stage product-based technology companies with unsecured convertible debt of $100,000 to $500,000.
The legal endpoint of lawsuits from agenda-driven groups such as the American Equal Rights Alliance remains undetermined, but it is having a chilling effect. But funders who want to support BIPOC entrepreneurs should not sit on the sidelines and watch how things unfold. Efforts to provide critical equity capital must continue.
Achieving this goal requires persistence, ingenuity, and creativity. Ariane Simone, his CEO and co-founder of the Fearless Fund, demonstrated this tenacity in an interview with BET. But that doesn't change our mission. Work continues. ”
The three pathways listed above provide effective options for funders who are ready to move forward. Companies can quickly and efficiently provide business builders of color with the capital they need to advance their ideas, bring their work to market, and deliver returns to smart investors.