According to Crunchbase, black startup founders raised a record $1.8 billion in January through June of 2021, 80% more than the $1 billion raised in all of 2020—but still less than 1.5% of all startup funding for the period. “Though the odds against them are still high for all entrepreneurs, statistically,” says Paul Ford, Founder and President of DS9 Capital, “an increasing number of minority founders are flourishing in today’s market. This is a good sign.”
One obstacle to be overcome, says Ford, is a lack of awareness on the part of many entrepreneurs of the realities faced by investors such as venture capitalists. It is, he notes, a very tough business. Only a small percentage of VCs return enough money—12% per year—to justify the risk and illiquidity their investors are taking on.
Minorities who make it clear they’re worth the risk, says Ford, are flourishing. Crystal Rodriguez-Dabney, for example—whose background includes service in the U.S. Navy, law school, and a leadership position in the administration of Buffalo, New York State’s second-largest city—sponsors and headlines highly successful conferences and events around equity, diversity, inclusion, and entrepreneurship. Former fashion model and MBA holder Robin Harris, CEO and Creative Director of Model Atelier, is reinventing fashion for tall women. David Mullings is CEO of Blue Mahoe Capital Partners, a capital investment firm helping transform the Caribbean.
When faced with a founder seeking capital, says Ford, an investor wants to know, what’s their thinking about market pressure? The economy? Hiring people during the Great Resignation? The lingering effects of the pandemic? Interest rates? The stability of their supply chain? Do they understand business and accounting? How much money are they asking for? What do they plan to do with it? And above all, when do I make back my investment, plus some profit?
“If your answer to any of those questions is ‘I’m not sure,’ says Ford, “it is very unlikely that that investor will give you any money—whoever you are.” What is needed, he says, is the ability to think like an investor and to answer questions from an investor’s point of view.
There are, Ford notes, powerful forces at work supporting minority business owners. The Biden administration has pledged to increase the share of government contracts going to small, disadvantaged businesses by 50%, to the tune of $100 billion over the next five years. McKinsey & Company has committed $15 million to support black-owned businesses, and Ally Financial Inc. has invested $30 million in black founders, businesses, and communities.
In other words, opportunity for minority-owned startups and small businesses exists and is growing. “What’s necessary,” says Ford, “is for entrepreneurs to understand how their business fits into—or challenges and disrupts—the market they address. Knowing that and being able to explain it in terms that matter to investors, is one of the primary keys to success.”