News & Update

1863 Ventures Seeks to Close the ‘Friends and Family’ Financing Gap for New Majority Entrepreneurs

Melissa Bradley understands how barriers to capital for entrepreneurs of color hurt our economy and our communities.

“There is clearly a cost if we do not invest in diversity,” said Bradley, founder of 1863 Ventures. “We miss out on great returns when we are not inclusive in our investment theses. There are opportunity costs for all of us.”

She cites a variety of research backing up these statements: Citi found that racial inequities cost our economy $16 trillion. If Black-owned businesses could reach employment parity with all firms, they would create nearly 600,000 new jobs and could reduce the rate of unemployment in the Black community to around 5%.

We are unable to harness these opportunities because of continued underinvestment in entrepreneurs and founders of color. Bradley, with her 1863 Ventures, is working to reverse this trend and create the necessary investment for a robust ecosystem that helps businesses owned by people of color thrive.

1863’s fund seeks to close the “friends and family” financing gap for high-growth, early-stage businesses founded by entrepreneurs of color

1863’s fund seeks to close the “friends and family” financing gap for high-growth, early-stage businesses founded by entrepreneurs of color by providing flexible, culturally competent, non-extractive capital. Their $10 million fund is a mix of equity and debt capital leveraging a revenue-based financing (RBF) model as a promising alternative to venture capital and bank loans.

The need for this type of fund came from 1863’s research of over 500 entrepreneurs they have worked with in the past, which showed that some founders were seeking out payday loans, which typically cost 8x the original loan amount once repaid.

Bradley and her team are not only providing appropriate capital that meets the needs of these entrepreneurs, but also coaching and connections to help those in their portfolio succeed. This requires greater investment, but is worth it, according to Bradley.

“From large construction firms to national banks to Fortune 500 companies, we have made connections for our members that have yielded new partnerships, contracts and supply chain access,” she said. “The cost of our work is quite high, higher than normal business development programs. However, the returns are worth it, with over $1 billion in revenue for our alumni over the past five years and over 2,000 new jobs created.”

Living Cities made an early-stage $1 million loan to 1863 through our Blended Catalyst Fund.

Living Cities made an early-stage $1 million loan to 1863 through our Blended Catalyst Fund. This helped the 1863 secure additional commitments:

“Living Cities provided critical capital that unlocked other investors…,” said Bradley. “The reputation of Living Cities signaled to other field leadership that we were a good investment.”

Bradley has also been an active participant and partner in Living Cities’ Builders and Benefactors network, which brings together founders and fund managers of color to identify and overcome barriers to capital.

“The community that Living Cities has led for so many years also provided…critical networking to my peers. The combination of capital and trust provided a much-needed boost to our fundraising efforts and allowed us to initiate key early investments to demonstrate our investment thesis in New Majority entrepreneurs.”

Bradley identified three main barriers to capital to individuals, like herself, looking to raise capital to support and grow Black businesses:

  1. Lack of data on Black funds or business performance, due to historical and current discomfort with collecting data on race. This limits awareness about inequities within industries.
  2. Smaller than average fund sizes, limiting investment opportunities. Black funds have an average size of $30 million, according to a Black VC report, compared to the overall average size of $57 million.
  3. A smaller top of funnel for potential portfolio companies. Due to the lack of access to capital for entrepreneurs of color, there are fewer opportunities for venture capital deals, especially in tech which has less than 20% Black founders, according to research from 1863.

Overcoming these barriers will not only unlock increased economic activity and investment in communities, but also, Bradley says, help support our country to thrive for years into the future:

“I truly believe that an investment in diversity and inclusion is an economic imperative to make our country great.”

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