People of color are reported to be on track to become the country’s new majority by 2045. Knowing this, government leaders, private investors and philanthropic funders need to have a more comprehensive understanding of the challenge ahead: For people of color, starting a business, though a risky endeavor–especially compared to the experience of white entrepreneurs–is only the beginning of the struggle. Ensuring business profitability and performance over time is a longer-term battle and the key to building generational wealth.
Beyond 5 is the latest study by 1863 Ventures, in partnership with Living Cities, Surdna Foundation, Wells Fargo, M&T Bank, Capital One and Georgetown University. The report provides an assessment of small business survivability, emphasizes the urgency to address racial disparities, and sets forth data-informed recommendations for government leaders, investors and ecosystem builders on how to use their power to increase the growth and longevity of firms owned by people of color.
BIPOC owned businesses continue to lack equitable access to the necessary capital, contextual technical assistance, and professional networks to maintain performance, grow and build wealth. Despite navigating compounding barriers to starting and sustaining their businesses, the report found that Black and brown businesses survive at least 8.5 years, compared to the median of six years. As BIPOC founders work to secure the capital necessary to start and sustain their businesses, they face the false notion that investing in their businesses is “riskier” than investing in white-owned businesses. Despite this perception and other barriers to their growth, the Beyond 5 research found that BIPOC businesses are more resilient than white owned businesses–thus less risky investments–even throughout the Covid-19 pandemic.
The socioeconomic aftermath of the Covid-19 pandemic and the looming recession, the decreasing private equity and venture capital investments in startups owned by people of color, as well as the rising residential and commercial real estate prices have all deepened the asymmetrical business conditions that advantage white-owned businesses and widen the country’s racial wealth gap. A lack of access to capital is a persistent challenge that BIPOC business owners are navigating, and the Beyond 5 report produced several findings related to access to capital for BIPOC businesses:
- Most respondents accessed debt for growth; almost half of the businesses used personal credit cards to support their businesses.
- Fewer than 20% of respondents had worked with CDFIs.
- Founders seek race-conscious policy to ensure equitable access to capital is available.
The report also found that an increase in capital must be paired with contextual technical assistance, professional networks, and policy changes that create an environment where BIPOC-owned businesses can start with more support and continue to grow and thrive.
Melissa Bradley, with 1865 Ventures, recently hosted a webinar with representatives from Living Cities Closing the Gaps Network. She emphasized that there are some local policy solutions that can fill the gaps of capital access, including setting minimum standards and accountability metrics for contracting with BIPOC owned businesses, and making data driven policy decisions that correct historical disinvestment in businesses owned by people of color. Many business owners shared that they saw cities were trying to support them, but they weren’t seeing any marginal changes in effect.
Business serving organizations and mission-driven investors are pushing for longer-term approaches to address systemic barriers and de-risk investments that accelerate business growth and wealth building for more business owners of color. Larger institutional investors and government leaders must see the through line between increasing the number of healthy, long-lasting businesses owned by people of color, and the economy’s ability to grow, create jobs and promote intergenerational wealth transfers.
To learn more about 1863 Ventures mission and ongoing investments in new majority founders, download the Beyond 5 report and visit 1863Ventures.net. For more information on Living Cities City & Community Engagement portfolio as well as our Business Ownership strategies contact Santiago Carrillo at scarrillo@livingcities.org.
