There’s a new, troubling trend for entrepreneurs of color.
Investment firms and financial institutions have received complaints, and in some cases, federal lawsuits, about the constitutionality of their financial support of BIPOC (Black, Indigenous, and Other People of Color) entrepreneurs.
More recently, the American Alliance for Equal Rights—a conservative activist group opposed to affirmative action—launched lawsuit against Fearless Fund, which awards $20,000 Strivers grants to Black women entrepreneurs. The lawsuit alleges that the Fearless Fund violates the Civil Rights Act’s ban on racial discrimination in business contracts because other races are not considered for business funding.
This new barrier to securing funding opportunities for BIPOC entrepreneurs is cause for concern. It is further complicated by the alarming statistic that of the $214 billion in venture capital funding available in 2022, a small amount 1.1% went to companies with minority founders. Additionally, entrepreneurs of color seeking debt financing are still likely to be offered lower loans, even when they are stronger applicants than their white peers, according to the Journal of Marketing Research.
Faced with these challenges, angel investors and investment groups that fund BIPOC entrepreneurs must remain committed to preserving vital early-stage capital.
The Black and Latino Angel Investment Fundwhich was launched by the Center for Urban Entrepreneurship at Rutgers Business School in 2021, is a group of people (myself included) who have committed between $25,000 and $50,000 to invest in promising startups owned by founders of color.
Based on my experience as a business school professor at Rutgers as well as an angel investor in the Fund, I have three recommendations to ensure that BIPOC’s capable, ambitious, and success-ready entrepreneurs get the same capital they need to grow:
Invest in crowdfunding campaigns that support BIPOC entrepreneurs
The crowdfunding provisions that allow early-stage businesses to offer and sell securities were enacted in the Jumpstart Our Business Startups Act (Law on jobs), launched by President Obama in 2012. It’s a smart choice that allows BIPOC founders to connect with potential funders who will embrace their entrepreneurial zeal and recognize that their ideas will be considered within their culture.
A notable advantage that crowdfunding offers to underrepresented entrepreneurs is its democratic nature. This inherent color blindness removes a structural barrier that prevents minority investment in the conventional venture capital structure.
Angel investors and investment groups that fund BIPOC entrepreneurs must remain committed to maintaining vital early-stage capital.
For example, on crowdfunding platform Republic, 25% of investments have gone to companies founded by black or Hispanic founders. Eleven percent of all campaigns on the Honeycomb platform have been created by Black founders and SeedInvest has seen 12% of campaigns run by Black founders. This level of activity is roughly proportional to the proportion of Blacks in the US population (13.6% according to Census.gov as of July 2023).
A notable startup that turned to crowdfunding to secure seed funding is Orange.
Launched in 2019, pocstock offers a curated media library of Black, Asian, Hispanic, Native, LGBTQIA+ and diverse able-bodied photos, videos and illustrations for the advertising/marketing campaigns of Fortune 500 companies and global ad agencies.
In March 2023, pocstock raised $129,000 in crowdfunding via Wefunder. It leveraged this momentum to close on an additional $500,000 in venture capital in July 2023. By the end of next year, pocstock is on track to grow from $600,000 in annual revenue to over $2 million. It expects to close with another $500,000 in equity in 2024 as it maintains its growth.
Open your network to include aspiring BIPOC entrepreneurs
When the Black and Latino Angel Investment Fund was founded, many of the first people who pledged to become investors were not only excited by the opportunity but also wanted to be personally involved in helping, mentoring and advising the entrepreneurs whose ideas showed promise. This participation could be replicated in similar programs across America. It enables dedicated individuals with deep business experience and wisdom to accelerate the learning curve – and catalyze private sector investment capital through their personal networks – for BIPOC entrepreneurs.
Most cities and states offer a variety of accelerator and incubator programs for early-stage entrepreneurs. Engage with minority business ecosystems in your own backyard — and provide real-time guidance such as removing barriers and facilitating onboarding to prospective investors and business partners.
Go Locker, a solution that offers safe and secure package delivery for shoppers and brands (customers include Amazon, Poshmark and Thrive Market), hired a logistics CEO-turned-mentor to help refine the company’s business model. This unique relationship led Go Locker to secure funding through traditional sources and raise over $1 million to take the business forward.
The company, which was founded by a BIPOC entrepreneur who immigrated to the United States from Grenada, scored a huge win in 2023 by partnering with the New York City Department of Transportation to provide safe curbside lockers; to receive parcels from local residents.
To support BIPOC entrepreneurs as a mentor, see the initiatives available at the Polesky Center at the University of Chicago, the Russell Innovation Center for Entrepreneurs in Atlanta, and the Center for Urban Entrepreneurship and Economic Development at Rutgers.
Deliberately establish inclusive criteria
If you want to start a fund or get involved in a syndicate and are worried about legal challenges, deliberately set investment criteria that typically apply to startups belonging to BIPOC. These would include entrepreneurs who attended or graduated from an HBCU (historically black colleges and universities), live or grew up in a low- or moderate-income community, or have at least one founder or board member of the company who is of minority descent.
Remember that intentional inclusiveness does not mean exclusive, narrowly defined, or restrictive. It simply represents a transparent attempt to provide patient and flexible capital to black entrepreneurs and insulate against allegations that non-BIPOC entrepreneurs are being discriminated against.
Deliberately setting inclusion criteria in your fund/syndicate can also open the door to additional funding opportunities for BIPOC entrepreneurs. For example, the New Jersey Economic Development Authority offers an Angel Match program that matches direct investments in early-stage product-based technology companies with unsecured convertible notes from $100,000 to $500,000.
While the legal bottom line of lawsuits by agenda-driven actors like the American Alliance for Equal Rights has yet to be determined, it has had a chilling effect. However, funders looking to support BIPOC entrepreneurs should not sit on the sidelines to see how things play out: Efforts to provide critical equity must endure.
Persistence, ingenuity and creativity are necessary to achieve this goal. Arian Simone, the CEO and co-founder of Fearless Fund, demonstrated this tenacity in interview with BET: “We have to take a break from some work. But it doesn’t change or change our mission. The work will continue.”
The three paths above offer effective options for funders who are ready to move forward. Anyone can quickly and efficiently provide businesses of color with the capital they need to advance their ideas, bring their products to market, and generate returns for savvy investors.
