In my last post, I laid out the dismal economic situation the Black community in the United States faces on a daily basis. There is an immense racial wealth gap that continues to widen driven by unrelenting policies that are steeped in systemic bias and racism. The current data demonstrate that a lack of access to capital in multiple forms is what continues to drive this ever-widening chasm of White haves and Black Have-nots. Redlining and its residual impact have Black homeownership at its lowest level since the Fair Housing Act of 1968.
The Socioeconomic Realities of Being Black in America
African Americans make up 13% of the US population, but a staggering 38% of the prison population. In 2019, African Americans had the lowest college enrollment rate, and 72% of those students went into debt to pay for their education, compared to 56% of white students. Furthermore, at $171k, the median net worth of a white family in 2016 was almost ten times greater than that of a Black family. The racial pay gap continues to plague Black families across the United States. Many of these economic gaps could be closed with the growth of a Black business and investor class and Crowd Investing is one long-term solution.
The SBA Is Failing Black Businesses
The Small Business Administration has decreased its loans provided to Black-owned businesses by 84%. In 2019, Black businesses received 3% of the Small Business Administration’s $23.2 billion in loans. The country’s four largest banks combined funded 334 loans to Black-owned businesses in 2019, a 91% decrease compared to 2007. But in stark contrast, the crowd investing industry provides access to capital for Black business at a level that is on parity with our representation in the general population. During the process of researching the data points of what crowd investing has accomplished as a viable capital source for Black businesses I came across some very interesting information.
Regulation Is A Game-Changer
Having had the opportunity to engage with the Honeycomb credit on a one-on-one level in conversation about how investment crowdfunding can impact the local small businesses and build a much deeper relationship between business owners and their customers/investors. Their data demonstrate the fact that investment crowdfunding brings parity to access to capital for Black entrepreneurs. On the Honeycomb Credit, 11% of all the offers have been by Black Founders. Seedinvest, has seen 12% of campaigns run by Black founders, and the success rate for Black founders was 50% on Seedinvest, compared to a 69% average success rate on the platform overall. On the MainVest platform, 60% of companies with at least one African American founder have had successful raises on its platform compared to the platform’s average of 63% for non-Black founders. Minority founded/led companies raised on average about $415K [per company] through the SeedInvest network. A 2018 McKinsey study showed that ethnically/culturally diverse teams are 33% more likely to lead in profitability. 25% of investments in the Republic platform have gone to companies with underrepresented founders of color. versus 1% respectively, for the industry.
Crowdfunding And The True Democratization of Capital
Regulation Crowdfunding, crowd investing, democratizes access to capital for founders by allowing anyone to invest in businesses and real estate. Investment crowdfunding has the power to put real investment dollars into local Black-owned businesses, which will then be repaid through debt, equity, or future revenues. Investment crowdfunding is a driver of community-led economic development there are no gatekeepers. If the community sees a business or real estate need then they create an offer, promote the offer, and fund that offers. This allows small businesses and real estate developers to survive their current situation and gives community residents the ability to do good, while also getting a potential return on their investment.
Investment crowdfunding ensures that revenue created by black-owned businesses stays in the community, increasing the community’s strength, development, and diversity. This is why it is up to us to support our entrepreneurs and real estate developers to ensure their long-term viability. In order to drive equality on a socioeconomic level, and to create Black wealth through inclusive investing. As a community, we need to take an active role in investing in entrepreneurs in Black communities, especially as the systemic bias of institutional finance continues to be a barrier to access to capital. For more information on Regulation Crowdfunding and its impact on the Black community please subscribe to the Crowd-Max newsletter!