Funding the Future: The Skyrocketing Rates of African American Women Entrepreneurs

via Jopwell

It is no secret that starting a new business is hard. The process requires long hours of dedicated work, the need to establish a unique place within the industry, and the perseverance to advocate for yourself and your business, never mind the constant concerns of achieving growth and scale from peers and investors. On top of all of the struggles of any new business owner, African American women entrepreneurs face particularly steep and systemic hurdles that impede their ability to launch and grow their own enterprises.

Where the money isn’t coming from:

Venture capital is a critical source of money for startups and small businesses. Yet the landscape in which African American women entrepreneurs launch their enterprises does not provide access to sufficient funding options or opportunities. Between the years of 2012 and 2014, just 0.2 percent of businesses started by African American women received venture capital investment. In 2016, DigitalUndivided, an organization that invests in African American and Latina women tech founders released the Project Diane report, which found, on average, that $36,000 in venture funding goes to African American Women. Comparatively, $1.3 million goes to failed startups owned by white men. Investors tend to trust and ultimately invest in people that are similar to themselves. 92 percent of senior investment teams are made up of men, and less than one percent are African American. Hence, African American women are not given the advantage of simply looking like venture capital funders.

But the lack of capital isn’t due to the inaction of venture capitalists alone. African American women who are unable to obtain venture funding may turn to small business loans for financial support to launch and grow their businesses. But, according to 21st Century Barriers to Women’s Entrepreneurship, a report produced by the U.S Senate Committee on Small Business and Entrepreneurship, women account for only 16 percent of conventional small business loans. This statistic encompasses women as a whole group in the distinct minority; women of color represent an even smaller portion of the pool that receives these loans.

What economic growth and opportunity this money isn’t funding:

This lack of funding is having a clear effect on the number of women owned businesses that exist in the current work force. A report released by the Sage Policy Group found that the number of women owned businesses that should exist in Baltimore is short 5,036 businesses, based on the population and performance comparison metrics. This report attributes the existence of barriers in funding to: limited access to commercial credit, virtual exclusion of women-owned businesses, limited trainings, and lack of data on women-owned businesses. Though data points are not available to illustrate the financial impact of businesses founded and led by African American women specifically, the data on for-profit ventures led by African American men and women can be used as a proxy to understand social entrepreneurship’s nature and implications. Locally,

“Baltimore City would experience a renaissance — an economic renaissance — that would significantly alter [the] economy, workforce, and socioeconomic conditions… [and] produce several impacts:

• total income for all City residents would increase by over a quarter;
• over 30,000 new jobs would be created;
• housing values in the City would significantly increase; and City tax collections from income and property taxes would increase by over $270 million.”1

On a national scale, “if the number of people-of-color firms were proportional to their distribution in the labor force, people of color would own 1.1 million more businesses with employees. These firms would add about nine million jobs and about $300 billion in workers’ income to the U.S. economy.”2

Women own 30 percent of all business in the United States, 14 percent of which are owned by African American women which generates $52.6 billion in revenue per year according to the Center for American Progress. For the benefit of the overall financial market the current landscape in which African American women operate in needs to be restructured to support the creation of African American women run businesses. African American women are the fastest growing group of entrepreneurs in the nation, starting businesses at six times the national average according to Black Enterprise magazine. Despite the lack of funding, African American women are still leading the pack in terms of business launch and ownership rates; imagine their success if they were properly funded.

What’s not causing inequity:

The overall lack of funding could be for many reasons, but it is definitely not due to a gap in education. African American women founders are obtaining degrees at rates six times that of the U.S population, and these degrees are from top tier institutions. Despite the access to higher education, African American women are not benefiting from the access to the complex and well-connected web that is associated with students and professors at these institutions.

The lack of funding present is also not due to a lack of desire: the ambition African American women have to launch their own business is especially apparent:

“One of the most remarkable entrepreneurial trends in recent years is the phenomenal growth among black women. The number of firms skyrocketed.”

By the numbers:

• 30% of all U.S. businesses women now own
• 14% of all U.S. businesses controlled by black women
• 9.4 M Total number of firms owned by women
• 1.3 M Total number of firms owned by black women
• 297,500 Workers employed by black women-owned firms
• $52.6 B Revenues generated by black women-owned firms

African American women also cite the desire to create generational wealth as a reason for becoming an entrepreneur according to the Black Women Entrepreneurs report.

How to address the current landscape:

Due to the conditions in which African American women entrepreneurs work in there are extra actions that they must take to be competitive within the sector. The Black Women Entrepreneurs report provided a list of key recommendations that they believe will even the playing field for African American women business owners. Here are two examples from that list:

• Increase the number of Black women investors: Given the lack of angel investors who are both women and of color, qualified Black women should seek to become accredited angel investors for Black women-owned businesses. Since angel investors tend to fund those that look similar to themselves, there needs to be more investors of color. Increasing the number of African American women investors will ultimately lead to an increase in funding for African American women.
• Encourage entrepreneurship curricula at Historically Black Colleges and Universities (HBCU) and encourage universities and colleges that currently have entrepreneurship programing to expand and incorporate diverse curricula: The Historically Black Colleges and Universities present in the Baltimore community already have entrepreneurial skills worked into their curricula. Morgan State University has a degree in Entrepreneurship from the School of Business and Management with focus courses on social entrepreneurship and entrepreneurial opportunity recognition. Coppin State College of Business houses the Center for Strategic Ingepreneurship which aims to “ facilitate the development and dissemination of ingepreneurial knowledge and skills through research, teaching, and practice.”

via DigialUndivided

What funders can do:

• Place financial holdings in Community Development Financial Institutions (CDFIs). Lending products (especially for loan and venture funds) are flexible and often tailored to meet the specific needs of the borrower. CDFIs provide at least 60 percent of their basic financial services to the low and moderate income neighborhoods where they operate and are accountable to the communities they serve (residents and community leaders from their service areas hold positions on their boards). CDFIs provide financial literacy and education for all their clients, which is available free of charge. Despite operating in vulnerable communities, CDFIs have rates of default below five percent.
• Prioritize [social] entrepreneurship as a fundamental component of community economic development initiatives.
• Recognizing that entrepreneurship is critical to the long term health of the economy and that social entrepreneurs face a variety of demographic, socioeconomic and geographic barriers, institutional philanthropy can follow examples like that of the Kauffman Foundation, which has focused on reducing direct barriers to disadvantaged entrepreneurs, by prioritizing access to training, mentoring and capital, and the root causes of those barriers, such as bias, poverty, declining infrastructure, social isolation and demographic shifts.
• Expand the deployment of foundation assets: use mission related and program related investments to complement grantmaking.
• The Ford Foundation’s Board of Trustees recently authorized the allocation of up to $1 billion of their endowment, to be phased in over 10 years, for mission-related investments (MRIs).

We recently spoke to Sharayna Christmas, founder of Muse360 Arts. Sharayna is one of many African American woman founders that must overcome nearly insurmountable barriers to get their organizations off the ground. She told us about her experience being an African American Female founder in Baltimore:

“For me, entrepreneurship is just hustling, it’s making sure and making ends meet. It’s making sure you can do what you can for yourself: cross all the t’s, dot all the i’s. That’s what entrepreneurship is in my life. I didn’t have a pocket of money and say, ‘Oh- I’m going to be an entrepreneur’ and that’s the kind of background my students come from. In terms of my family and community, [entrepreneurship] is a foreign concept. It’s a foreign concept, but then again, it’s not, because what people don’t know is that in Baltimore, the largest growing population of entrepreneurs are Black women.”

Kachura, Matthew . Dashboard Report: Analysis and Metrics of Baltimore City’s African American Middle Class: Executive Summary. Associated Black Charities, Baltimore, MD,

Austin, Algernon. “The Color of Entrepreneurship: Why the Racial Gap among Firms Costs the U.S. Billions.” Center for Global Policy Solutions, Center for Global Policy Solutions, Apr. 2016, globalpolicysolutions.org/report/color-entrepreneurship-racial-gap-among-firms-costs-u-s-billions/. Accessed June 2017.