Written by: Jill Goodwin
Activists, groups, and institutions are doing a powerful job of highlighting the social and other inequalities faced by people of color in America. It’s sad but hardly surprising that black entrepreneurs are underrepresented—and that’s down to a lack of funding, rather than a lack of entrepreneurs of color. Thankfully, there are investors, grant programs, venture capital firms, agencies, and institutions whose mission is to provide funding options for people of color.
Below, you’ll find out why these essential funding options are needed, get an overview of the different types of options, and discover programs, firms, and institutions that may help.
Why Funding Options Are Needed
Black people make up over 12% of the total U.S. labor force. However, according to the U.S. Chamber of Commerce, only 9.4% of business owners are entrepreneurs of color. The Congressional Black Caucus Foundation’s 2019 report on the State of Black Entrepreneurship in America identified several reasons for the low number of this demographic. One of them is that they are three times more likely to have low profitability and growth rates due to the absence of financial capital.
Another stark reality that highlights the need for funding options for people of color is found in the Federal Reserve Bank of New York’s report on the Experience of Nonemployer Small Businesses. According to the report, 76% of non-Hispanic black-owned firms experienced financial challenges in 2018-2019. Furthermore, of the 39% of nonemployer firms that said their funding needs had been met, only 17% of them were non-Hispanic black-owned. As you can see, it’s essential to have reliable, reputable funding options for this minority group.
Different Types Of Funding Options
There’s an increasing number of options available to American people of color who seek funding for their entrepreneurial projects and businesses. Those options fit into various categories, some of which are better suited to certain projects or business models than others.
Besides grants and funds, there are:
Small business loans—Available from alternative and traditional lenders, they can enable you to make various goals a reality, such as growing or expanding your business, or hiring more workers. There are different loans available, each with its own specific terms, so you would need to choose one that suits your business needs.
Angel financing—There’s a growing number of angel investors happy to invest in startups or early stage companies owned by people of color. They usually receive an equity ownership interest for their investments, which, according to Forbes, typically range in size between $25,000 and $100,000 per company. Passion, integrity, the potential for massive growth, a clear and rational business plan, and compelling intellectual property or technology are important to many angel investors.
Venture capital—Venture capital firms can provide more than capital for your business. They can offer networking opportunities with potential partners, workers, and customers, as well as assistance with business strategy, too. Obtaining funding from venture capitalists is difficult, as they usually invest in businesses that already have made a start, have the potential for significant growth, and are working toward big opportunities.
Crowdfunding—Using crowdfunding websites and other platforms offers opportunities to raise funds through multiple funders. Examples of sites include Crowdfunder, Kickstarter, Indiegogo, and GoFundMe. Their investments are usually in exchange for one of your services or products, a discount on a service or produce, another perk, profit share, or another type of equity.
An additional benefit of crowdfunding is that it can create a community of people who support your ideas, services, or products.
Grants And Funds
The following grant-making institutions and investment firms are among the essential funding options for people of color. They have not only voiced their support for entrepreneurs of color; they have also demonstrated it.
The Black Business Relief grant fund established by the Central San Diego Black Chamber of Commerce, provides funding for black-owned businesses based in San Diego. Applications can be submitted through its website.
Miami-based AXS Law Group’s AXS Roadmap Initiative offers free legal services to black entrepreneurs working in the hospitality industry. Lease negotiations, non-disclosure agreements, and filing trademarks are some services offered.
The Oakland Black Business Fund, based in Oakland, California, offers funding and technical advice to entrepreneurs of color based in the city. The fund also offered grants to black-owned businesses whose assets were damaged or looted during Black Lives Matter protests.
Inglewood, California-based brewers Crown & Hops teamed up with Scottish brewery BrewDog to create the $100,000 8 Trill Pils Initiative for brewers who bring greater diversity to the industry. The initiative aims to provide funds for development, growth, and sustainability of people of color-owned breweries.
Shea Moisture has a $1 million fund to support minority and women of color-owned small businesses in the e-commerce, hospitality, and wellness industries, especially those affected by COVID-19. The $10,000 grants that will be given to 10 business owners must be used to minimize costs and support their communities.
Collab Capital is a new fund that aims to invest in early stage startups owned by people of color. The start-ups, which could receive investments between $15,000 and $1 million, must be in the technology or tech-enabled industry.
Founded by Jamie Schmidt and Chris Cantino, Color is a fund that invests in entrepreneurs and early stage companies in the e-commerce, consumer product, and retail industries. The fund focuses on people of color, women, and others that society underestimates.
Harlem Capital Partners’ $25-million fund focuses on women and people of color, and it invests in their early stage companies, regardless of the industry. Two of the fund’s portfolio companies are the Shine self-care app and make-up brand Beauty Bakerie.
Established in 2015, Founders First Capital Partners has a $100 million fund that provides financing to growth-stage companies. The financing is based on revenue, and the fund focuses on military veterans and women of color in service-based industries.
Getting Ahead And Growing A Business
While there are many free start-up business tools that facilitate everything from social media marketing to the creation of invoice templates, often what’s really needed is an injection of capital. And this isn't always easy if you are part of a marginalized group.
However, the grants, funds, and other funding options mentioned above are a fraction of the growing number that focus on people of color. If you’re an entrepreneur who has had little luck with traditional avenues, don’t give up—as you can see, there are other options, and they’re genuine.
Related: Progress in Diversity and Inclusion in the Financial Services Industry
Jill Goodwin is a content champion for a variety of online publications. She often covers topics that care to business owners and entrepreneurs with a strong focus on finances, productivity, management, and a few other topics.