Black Founders Keep Driving New Business Growth, But Funding Still Elusive

First, the positive news: The global pandemic, the effects of which were often brutal on communities of color, has left some silver linings, as in the number of Black founders and entrepreneurs who are building new businesses.

Here’s some even more encouraging news: While applications for new businesses have been surging across the U.S. over the past two years, it turns out Black and Hispanic counties are enjoying the establishment of new businesses at a rate 3.5 times higher than that of white-majority counties. By 2021, the number of new businesses had doubled in majority-Black counties compared to 2019, and majority-Hispanic counties saw business ownership rates rise by 58 percent. That 103 percent increase is almost double that of majority-white counties, concluded research by the Alliance for Entrepreneurial Equity.

The discouraging news? Black founders are scoring only 1.4 percent of all venture capital funds across the U.S.

Several underlying factors lie behind this spike in business activity. As the pandemic continued, Black business owners were less likely to be equipped with the tools needed to cope with mandated business closures, largely due to the lack of access to such financial relief as emergency loans that otherwise could have provided them a financial lifeline. After the murder of George Floyd in May 2020, many U.S. companies promised their solidarity with Black Americans and pledged billions of dollars in funds to tackle the inequities rampant across society and the economy, but those promises largely went unfulfilled. The dearth of funds and opportunities was an especially huge challenge for Black women founders. So, many of them, along with their male peers, simply found creative ways to strike out on their own.

Editor's note: Be sure to subscribe to our Brands Taking Stands newsletter, which comes out every Wednesday.

Black founders’ constant scrambling to seek funding is linked to one stubborn reality about the financial industry: Access to capital is a problem when only 3 percent of investors within the venture capital space are Black, a study led by the group BLCK VC found earlier this year. In its extensive survey of the funding ecosystem available to Black business founders, the study’s authors concluded:

“We believe the first step is to invite your partners and colleagues to have an open discussion and ask some difficult questions, including: Where do we recruit and source talent at junior and senior levels? What is the retention rate of Black investors at our firm? Do we think Black investors feel like they have a path to become a partner at our firm? Are we currently able to source Black founders through our existing networks? If another firm had a more diverse investment team and deal sourcing network, would that give them an advantage?”

Unfortunately, U.S. society and its institutions usually don’t move fast enough to respond unless there is a senseless tragedy. In any event, platitudes or promises of “standing with Black Americans” won’t move the needle.

However, the financial industry, as well as companies of all stripes, can do one thing to show true commitment to Black business founders. In a recent episode of the podcast Bloomberg Black Business Beat, Brandon Andrews, a senior impact strategist for Value Partnerships who heads diversity casting for the popular television series Shark Tank, said, “I believe in going where the entrepreneurs are versus making them come to us — going to the local coworking spaces, Black-owned coffee shops [and] Black-owned coworking spaces.”

Image credit: Emilio Garcia via Unsplash