Let’s improve access for Black Entrepreneurs by making resources readily available along with revisiting vehicles that have a direct impact on capital availability. As a follow-up to my initial post, Entrepreneuring While Black: Here’s Our Situation, improved access should allow for 1) better informed, equipped and prepared entrepreneurs; and 2) increased capital availability opportunities for individuals seeking to pursue an entrepreneurial venture.
Access to Business Networks
“As a black woman [and] small-business owner, my concerns are that other black business owners continue to have direct access to opportunities, as well as access to tools, resources and funding needed to ensure their businesses can thrive.” 8 Insights on the State of Black Entrepreneurship by Anthonia Akitunde.
Before we begin, I think it’s important that we level set and get on the same page of what we mean by access. I will spare you the trite approach of using the dictionary to define the word and simply indicate it means providing access to helpful and useful information, activities, and resources that one would deem relevant to an individual interested in pursuing an entrepreneurial venture.
Entrepreneurs have a lot to think about when building a business, and one of the most important may be strengthening and tapping their networks. Research has tied business networking to entrepreneurial success, demonstrating that networking is an important way to validate opportunities, connect to resources, and access information.
As mentioned in my first post, I have been fortunate to attend some of the best institutions in the world and when opportunities present themselves, I make it a point to share with others. Recently, my MBA program sponsored a pitch forum and I invited a mentee to attend. My objective for their attendance was to give my mentee exposure to an actual pitch session — the structure, dynamics and nuances — pitches by other entrepreneurs and questions and feedback from prospective investors.
In that vein, I am advocating that individuals look to provide access and exposure to interested individuals outside their usual pool and for applicable institutions to increase marketing outside of their traditional target markets. It should be noted that marketing to non-traditional audiences requires different tactics because typically these audiences face unique challenges, have unique concerns, and prefer different channels to gain information. Some examples include:
- Black Enterprise Women of Power Summit
- Blacks Network Conference
- National Black Chamber of Commerce Annual Convention
Relevant Business Networks
This naturally leads into what would deem applicable and useful. To which, I would recommend the following:
- Company/University-sponsored entrepreneur forums: These can be especially invaluable not only from an information standpoint but a networking one, as well;
- Local startup sponsored seminars/webinars: Quiet as kept, these frequently take place and are often missed and overlooked. Here are some sites to consider to learn more — Black Business News, Black Enterprise
- Introductions to peers and/or colleagues: We all know someone who has subject-matter expertise in a specific business area); and
- Reading materials: I’m sure you’re like me constantly inundated with numerous posts and articles in your inbox. Don’t just delete them but share them; I do (before deleting them).
The goal in increasing access is to drive increased exposure so individuals are better informed and equipped. Not every session/article you share will be relevant or useful; we’re not looking for a 100% hit rate just getting in the habit of sharing the wealth, which in this case is information.
Increase Access to Capital Availability
“If you really want to make change, you have to invest in it. Building a company is still a capital-intensive activity. If you give me all the best mentorship, but if I’m still under-resourced, I’m still going to lose.” (Frederik Groce, Storm Ventures)
Research has shown that despite a negligible difference between black and white startups credit scores, there is a stark difference in blacks ability to receive approved capital investment. And by stark, I mean that white startups are 3.4 times as likely to receive approval than their black counterparts. But, I mentioned I would not dwell on the current state but focus on a path forward.
A business that starts from a strong financial position is more likely to be able to endure challenges, adapt to change, and scale based on opportunities that arise. Startups with more initial funding are also more likely to receive additional sources of funding during financing rounds, which effectively compounds the negative effect of a smaller initial raise.
Here are a few strategies that could work to increase Black entrepreneur’s access to capital.
- Pursue alternative Credit Score Models: Adapt the credit model used to validate one’s credit worthiness. LexisNexis Risk Solutions and Equifax launched PowerView Score, a new, three-digit credit score tailored specifically for use in the automotive industry. The new scoring leverages alternative data sources, including telecommunications and utility payment history from Equifax and public records information from LexisNexis, to help automotive lenders identify creditworthy car shoppers. The PowerView Score has shown significant improvement in model performance across portfolios helping to more precisely underwrite traditional customers, while also supporting financial inclusion to address a broader market. Given the initial focus on the automotive industry, we should evaluate our ability to expand this model to the startup arena.
- Bolster Lending Transparency Activity: Promote actions by the Consumer Financial Protection Bureau, a government agency designed to protect consumers by providing regulatory oversight of the financial systems, by instituting guidelines and regulations to monitor and provide transparency on lending performance of ventures by various demographics.
- Increase Diversity on Lending Review Boards: Assess financial institution personnel used to evaluate credit applications and look to address and improve diversity, when and where applicable.
- Make Entrepreneurial Support Organizations More Inclusive: Encourage entrepreneurship support organizations, particularly when receiving government funding, to develop and apply metrics to track entrance and retention rates of entrepreneurs of color. This data can help identify challenges to address
- Reauthorize and scale existing policy levers: Several policy decisions have been instrumental in unlocking capital for marginalized communities. The State Business Credit Initiative(SBCI), designed to strengthen state programs that support financing of small businesses and, the New Market Tax Credit (NMTC), designed to increase the flow of capital to businesses, use public funds to leverage private capital to support small businesses. It will be important to continue these programs. Therefore, I recommend reauthorizing these programs, making these legislative actions permanent, increasing the funding, and better targeting them to serve ventures led by persons of color.
By funding Black entrepreneurs more equitably, the business community will benefit not only from increased economic growth but also from a richer tapestry that a deeper, more diverse business community enables.
Measure Access Performance and Progress
To evaluate our progress, I recommend employing the following metrics to monitor and measure performance:
- Sessions/Information Shared: Again, this is going to be hard to capture and measure. Just get in the habit of doing it further evaluating your frequency of sharing it outside of your usual target market.
- New Credit Model NSAT: Solicit feedback from your customers and evaluate their feedback on your new model — Is it a fair measure of creditworthiness? Accurate? How can it be improved?
- New Credit Model Efficacy: Solicit feedback from financing institutions on the efficacy of newer credit models on qualifying customer’s credit worthiness.
- Usage of Public Subsidies: Evaluate the number of applicants and overall usage of public subsidies (SBCI, NMTC) to fund Black-led ventures.
The objective of this post was to offer fact-based recommendations and guidance regarding the need to increase opportunities for improved access. Improved access should allow for 1) better informed, equipped and prepared entrepreneurs; and 2) with enhanced capital models, consistent and relevant models to improve capital availability for individuals seeking to pursue an entrepreneurial venture.
Therefore, we should look to improve access by:
- making resources readily available — provide access and exposure of reading materials and subject-matter expertise to interested individuals; and applicable institutions should increase marketing outside of their traditional target markets
- revisiting vehicles that have a direct impact on capital availability — financial institutions should evaluate and pursue alternative credit score models;
- improving the inclusivity of entrepreneurship support organizations to communities of color; and
- reauthorizing and scaling existing policy levers.
The know-how and resources to improve access are there. We just need to reinforce the intent and the willingness to take the appropriate steps and make necessary changes.
About the author
Ronald (Ron) Berry is a senior-level executive with global experience and success in B2B and B2C digital commerce in a variety of industries and businesses. If you have any further questions or would like to provide additional insights, please contact him at ron@EastanConsulting.com.