About a year ago, I had the wonderful opportunity to participate in a gathering of various stakeholders interested in how to support more businesses led by Black and Latinx entrepreneurs who live in a mid-sized midwestern city. The gathering included community foundations, financing organizations, foundations, and family offices as well as community organizations like the local NAACP chapter. The problem on the table was the noticeable absence of Black and Latinx businesses that had locations in the newly redeveloped downtown city center. How do millions of dollars of both private and public capital get spent to build a “re-imagined” downtown that seemed to exclude communities of color? This fact seemed to be counterintuitive given the increasing numbers of Black and Latinx residents living and working in the city. Were no entrepreneurs of color interested in expansion opportunities? Was it due to commercial “redlining”?

As the conversation of stakeholders progressed, it became clear that some startups and sole proprietorships run by entrepreneurs of color did exist in their communities. They were even Black and Latinx chambers of commerce groups and incubators that were offering tremendous amounts of technical assistance to early-stage businesses led by entrepreneurs of color. Still, however, there were almost no mid-size businesses owned by people of color that were large enough to afford space in the beautifully redesigned downtown center. How was that possible in the second-largest metropolitan area in the state?

Upon further investigation, we came to the realization that one of the chokeholds was the lack of access to both start-up and growth capital. It takes some wealth in terms of both dollars and social and political connections to initiate a business idea. It takes even more to grow a concern. From my past work in racial justice and finance, I was familiar with the statistics concerning the tremendous racial wealth divide in the nation. I knew about the more than 20-fold difference between the wealth of a Black and a white household in this country. I also knew that the traditional banking, private equity and venture capital system continue to have embedded elements that make it more difficult for disadvantaged entrepreneurs on the beginning and middle rungs of the economic ladder to get a strong toehold. Something different had to be the answer to support these entrepreneurs and to change the outcomes.

One answer was to provide flexible, patient, inexpensive capital to these same entrepreneurs to start and scale their business, and to deploy it in a more equitable manner. Instead of credit algorithms and heavy collateralization requirements, why not instead focus on the integrity of the business model and the entrepreneur’s commitment to reinforce the community? Why not focus on distributed ownership models to create individual and community wealth within the enterprises themselves?

These ideas were spurred on by my chance meeting with one of the members in the conversation. He was an entrepreneur who started the only full-service sit down African American-owned restaurant in the entire city. He was sourcing from Black-owned farms, paying living wages and trying to become part of the economic fabric of the city. His recent success was fueling an increased capital need and he was having trouble accessing the growth capital required despite growing a business to approximately $ 1.3 million in revenues in just two years! I was so impressed, I took his number and promised I would do what I could to provide some more solutions. Several months later, I had the opportunity to assume the helm of the Fair Food Fund as the Managing Director and I called him up and slotted him in to present to our Investment Committee. We collectively agreed to not only provide some flexible, inexpensive working capital but we also agreed to pay for a nationally recognized business consultant to give him one-on-one customized support. It is the beginning of a relationship that I hope will become a long-term advisory partnership as he replicates his model and maybe even decides to locate a restaurant “downtown.”

This is how change occurs…entrepreneur by entrepreneur. My hope is that if we all can lean in to support talented entrepreneurs of color to start and scale their ideas, the “downtowns” of many cities across the country will better reflect the diversity of entrepreneurial talent that already exists in this country.

Mark Watson is the Managing Director of the Fair Food Network’s impact investing arm, which supports entrepreneurs growing community health and wealth through food. He was previously at the Boston Impact Initiative, an impact investing fund with the mission of addressing economic injustice and the growing wealth gap in eastern Massachusetts.

CapShift originally published this article in their email circulation for users and their greater network. To read more articles on the intersection of impact investing and philanthropy, visit CapShift’s Medium page.

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