A Commentary on Inequity for Black Entrepreneurs
By Rachel Major, Ari Ochoa, & the NuLeaf Tech Team
As Americans, we’re taught that the US is a great country because of “The American Dream.” It’s a phrase touted time and time again to describe the act of pulling oneself up by one’s bootstraps and succeeding through providence and grit. This phrase is frequently used to refer to the experience of newcomers who want to start a new life, but the American Dream is often a falsehood even for many who were born here. It engenders a sense that anyone who does succeed does so by virtue of their own hard work, and anyone who fails has failed through laziness. To most people the American Dream Means “no matter our background we all have an equal chance of improving in life” but this has never been true for many who call America their home, especially when it comes to building a business.
Decatur police punch and arrest Black business owner who called to report a robbery. March 2020.
Enterprise, the ability to create our own wealth, is often seen as a great equalizer. The data, however, tells a very different story. Let’s start with some intrinsic data on what it “takes” to be an entrepreneur.
The most common shared trait among entrepreneurs is access to family wealth.
At least 77% of small business rely on personal savings for their initial funds.
Many investors expect entrepreneurs to raise “love rounds” of hundreds of thousands of dollars by raising money through friends and family.
The stark reality of wealth distribution in the US is that access to “family money” is a privilege that the Black community doesn’t have.
A tweet by Kima Jones, founder of Jack Jones Literary Arts and Virgo Coffee.
Here’s some data from 2018:
The median net worth of white households was about $140,000*
The median net worth of Black households was just under $13,000*
25% of Black families have a net worth of $0 or less, while this demographic only accounts for 10% of white Americans
*It is worth noting that the poverty threshold for a single person living in the US is $12,760. The reasons for this gap in wealth are too big a topic for us to cover.
It is not hard to see that Black entrepreneurs are much less likely to be able to rely on accumulated wealth or family money than their white counterparts. The statistics on bank loans are similarly bleak, with Black-owned businesses being more than twice as likely to be denied loans. Because of this, it seems that Black founders must often rely on venture backing to fund their enterprise, but significant barriers to entry exist here too.
VC racially profiles Black entrepreneurs at the gym in an office building where they are both tenants. When we see videos like this, we wonder how many Black entrepreneurs this man has turned down for small reasons like “they didn't feel like a good fit” or he didn't have confidence they would succeed.
Despite these systematic barriers, Black Americans, particularly Black women, are some of the fastest-growing entrepreneurial groups in the US. Black women are also the only entrepreneurial demographic where they outnumber their male counterparts. However, many businesses owned by Black women and Black Americans tend to be micro-businesses. There are many different reasons for this, but access to capital and credit is certainly one of the limiting factors.
It’s important to put this into context because the under-representation of these groups in venture-backed startups is not really a “pipeline problem.” There isn’t a lack of black entrepreneurs, they’re just often overlooked, particularly by VCs. Venture-backed startups are revered in the sense that they are given additional capital for growth beyond the revenue these businesses generate themselves. These startups are often funded with the hope of selling their business for a big multi-million dollar exit check or moving forward with an IPO or reaching “unicorn status” (being valued at over one billion dollars). Black entrepreneurs aren’t exactly likely to reach “unicorn status” when systematic barriers are routinely placed in their path.
Despite making up 14% of entrepreneurs, less than 1% of funding goes to startups with Black founders. The level of investment in companies with Black founders is often well below the average as well. While the average seed round for startups is somewhere in the neighborhood of $1.1 million, in 2017 only 34 Black women were able to break the $1 million dollar fundraising barrier. For companies founded by Black women, the average seed round under $1 million is a comparatively meager $42,000.
Jasmine Crowe, CEO and founder of The Goodr Company, tweets regarding her experiences fundraising as a Black Entrepreneur. See the full thread here.
The issue with putting trust in the American Dream is that it can provoke the very prejudices that it purports to invalidate. When we are taught that everyone has the same opportunities, even when empirical evidence suggests otherwise, we begin to believe that any under-representation of specific groups must come from the inherent deficiencies of those groups. For the American Dream to ever be fully realized, we must deconstruct it and wake up to face these internalized falsehoods. Instead of passing judgment, we must actively work to disassemble the inner workings that allowed these notions to propagate in society (and ourselves) in the first place. It is important that we fight for better representation of Black enterprise, but it is more important that we first recognize that lack of representation is a function of our broken American Dream.