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The Need for Capital for Black-led Ventures

Cyril Loum
February 26, 2021

As entrepreneurs, the curiosity of why Black-led ventures receive less capital to start their businesses should pry our creative minds in developing innovative ideas to solve this plague that affects our nation. Capital is a crucial aspect for all ventures; its usage is to strengthen leadership and management in new ventures, employ or acquire technical expertise, and invest in business resilience like backup systems. An inability to invest in these areas could tremendously hinder the success of the venture. Yet, we find that Black-led ventures are far less likely to receive capital than ventures led by other races. 

Therefore, we find Black entrepreneurs relying mainly on personal credit cards as a source of startup capital. Having this as a primary source means that most Black-led ventures are going into business with fewer cash resources and more debt than Caucasian and Asian venture leads. Other racial backgrounds tend to rely on personal and family savings and business loans as a primary source for startup capital. Once again, this puts Black-led ventures at a disadvantage because of the lack of capital. (Data from The Kauffman Foundation report "Startups Financing Trends by Race: How Access to Capital Impacts Profitability").

The lack of access to capital disproportionately affects Black entrepreneurs. It has created fear in Black-led ventures where over half of the Black-led ventures avoid financing because they believe lenders will reject their business. The decision to avoid financing is made by Black-led ventures, even though business loans from banks or financial institutions are among the top three most-used sources for startup capital or initial acquisition capital. Henceforth, the need for capital for Black-led ventures continues to plagues our nation. Lack of access to capital has crippled a segment of our society from using their creative minds to develop innovative ventures that solve the world’s problems.

Black entrepreneurs have been historically underrepresented because of the lack of access to financial capital. Data from The Center for Global Policy solution that notes that between 2007 and 2012, minority-owned small businesses added 1.3 million jobs to the U.S. economy. Therefore, we see the capability and output of what Black businesses can and have done to stimulate the U.S. economy. Thus, the need for capital for black-led ventures is vital for the further development of the economy. If we as a society begin to consider that bias against Black-led ventures is hurting the growth of our economy, perhaps our communities can work towards addressing this plague.

A few solutions that I would like to prescribe to solve this plague are encouraging Black entrepreneurs to receive mentorship as they develop their idea; increase awareness of Community Development Financial Institutions (CDFI) available to Black-led ventures and help strengthen those relationships; and immediate investment in diverse entrepreneurial endeavors.

Black History Month is the perfect time to start changing the narrative of the need for capital for Black-led ventures. A great start is providing mentorship for Black-led ventures and creating networking opportunities to put Black entrepreneurs in a position to know the right people that will invest in their idea. However, perhaps more than just networking and mentorship, venture capitalists can start having more meetings with Black founders. As they begin to have these meetings, the realization that Black-led ventures are solving different problems will be an understanding that can help Black founders receive capital. 

WashU black-led student ventures highlighted for Black History Month:  Golden Roots Essentials, The Tylmen, Scholars Academy Toolbox, and Oystar.

Golden Roots Essentials - a natural, holistic, and luxurious lifestyle brand focused on personal care, beauty, and style. The venture utilizes overlooked centuries-old traditional African skincare rituals and ingredients to create innovative healthy skincare products.

Tylmen – Integrates technology, sustainability, and accessibility to create the best fitting, custom-tailored suits available on the market.

Scholars Academy Toolbox - provides a rigorous test prep program for high school students.

Oystar - an online platform that matches international students to college opportunities and also helps colleges find global talent.