On April 13th, the Next Street Chicago office hosted an intimate round table lunch discussion focused on “Investing Equity Capital in Communities of Color.” The goal was two-fold: (1) to connect the dots among a diverse set of stakeholders around a current issue, and (2) to provide an opportunity to brainstorm innovative solutions. In addition to our Next Street team, we hosted ten guests, representing a cross-section of small business owners, community-based organizations, investors, and representatives from the City.
Prior to the lunch, Next Street asked attendees to read the following topical articles, all of which served to heighten the discussion:
- Closing the “Friends and Family” Capital Gap for Entrepreneurs of Color
- SCALE UP – The Enterprise Center helps minority businesses get over their startup slump
- Thiel-Backed 1517 Fund Is Stalking the Next Zuckerberg
We also asked attendees to consider a series of questions:
- What is your definition of “communities of color”, and what comes to mind when we say “equity capital”?
- Do you believe that the lack of equity investment capital in communities of color is a major deterrent to growth?
- What can we do to improve the current situation?
At the beginning of the lunch, our group committed to having an honest conversation about a very complex topic. The candor of the conversation allowed us respect divergent opinions while embracing a certain level of discomfort and vulnerability in discussing race and equity. As an example, each attendee had a different definition of “community of color.” On one end, a community of color represented an African-American female. On the other end, a community of color represented a Latino male. We also acknowledged that certain broad-stroked terms, such as “communities of color,” tend to be defined and used by communities of non-color, which can be problematic.
Part of our discussion also focused on the imbalances of overall capital (debt and equity) into businesses started by particular ethnic groups. Minority-owned firms face two to three times the rate of loan denials as their majority-owned counterparts. At the same time, black women-owned firms are the fastest growing segment of new businesses, but only 2.5% of these firms have employees besides the owner, compared with 20% of U.S. firms overall.
To wrap up our conversation, participants put forth their innovative ideas and solutions for how we can bring more equity capital into communities of color, including:
- It is critical that we improve infrastructure in inner cities—investing in the physical communities will attract financial investment in other areas, such as business development
- We need to serve as the leaders—if we are the first to make riskier investments, others will follow
- The underwriting process needs to change to take these unique communities into account
- People who “own” the money need to relinquish decision-making power to those that really know what their own communities need
- We need to create better networks of potential customers to grow sales channels – people are more likely to invest if a business has a strong pipeline of customers
- We need to lead by example, and change the hearts and minds of Silicon Valley
- Revenue is the cheapest form of capital; therefore, we need to encourage investors to consider utilizing their networks to help businesses find contingent contracting commitments in parallel to making equity capital decisions
- We need to build the new generation of Black wealth – we have to support Generation X and Millennials in their pursuit of wealth creation so that money can flow through them into communities
We look forward to tackling a new issue or engaging topic at our next round table discussion in the summer. If you have any hot topics that you want to discuss or want to be invited to a future intimate discussion, please let us know.