Black women lead in starting businesses, but struggle to get funding
Black women are more likely to start their own businesses than other women, but they face steep obstacles when it comes to funding their entrepreneurial ventures.
The median seed round for Black women entrepreneurs in 2020 was $125,000, according to ProjectDiane, far less than the $2.5 million for the national median. During the pandemic, they received less help, too. Black small business owners only received 0.5% of Paycheck Protection Program loans, the government-funded assistance loans for small businesses.
“The number one issue facing Black women entrepreneurs is access to capital,” said Cameka Smith, founder of the BOSS (Bringing Out Successful Sisters) Network. “The number two issue is mentorship.”
As a result, some Black female entrepreneurs are stepping up to help other women launch their businesses — and hope their leadership spawns more private- and public-sector aid.
Lack of funding
Even though Black women are founding start-ups at a rapid clip — nearly doubling from 2014 to 2019, according to a report commissioned by American Express, they, along with Hispanic female business owners, received only 0.43% of the $166 billion in venture capital funding given out in 2020, according to ProjectDiane.
But access to capital is crucial to help Black female business owners, according to 43% of 1,000 Black entrepreneurs surveyed by LinkedIn/YouGov.
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The pandemic further underscored these funding inequities.
The PPP program established to shore up small businesses gave out just one loan above $5 million to a Black-owned business, while 332 businesses owned by white men got a loan of that siz. Only 35 businesses run by Black women got a PPP loan worth more than $1 million, compared with 6,636 businesses owned by white men.
Jacqueline Shaulis, CEO of consulting firm Awesome Enterprises, noted that she encountered many obstacles when she applied for PPP loans.
“For me, I learned that there is far more paperwork needed than I anticipated. Additionally, because I largely relied on revenue and savings and run quite lean, it was perhaps easier to turn me down versus other businesses with more full-time employees, less revenue, or more debt,” Shaulis said. “It's very disconcerting and insulting when multinational companies making multiple millions are receiving substantial funding while simultaneously driving out much smaller, local businesses.”
Some Black female business owners also had a time getting grants from private businesses. Tracy Garley, founder of GoFundHer.com, a crowdfunding platform for female entrepreneurs, spoke about how she was rejected by many corporations as well.
“During the pandemic, GoFundHer was denied financing large and small,” said Garley.
Her application for $1 million was turned down by NFX’s seed funding, while Hustle Fund declined to invest $25,000.
“Our only financial assistance was from the Facebook Small Business Grants Program for Black-Owned Businesses,” Garley said. “They awarded GoFundHer $2,500 cash.”
The lack of funding for her business accentuates why Garley started her business in the first place.
“GoFundHer.com needed to be created,” Garley said. “This platform is a lifeline for women and women of color.”
Similarly, Smith partnered with Sage, an accounting software company, to launch the Invest in Progress Grant program to help Black female business owners. Smith founded her networking site for Black female entrepreneurs during a career pivot in the Great Recession of 2009 to fill a void for them to share career advice.
“There was nothing just for Black women,” Smith said.
During the summer of 2020, Sage CEO Steve Hare reached out to Smith to see how the company could help close the racial wealth gap and empower Black female business owners like the 200,000 members of BOSS. Now, Sage is helping Smith raise investment funding for 500 Black women business owners over the next three years.
Sage is giving $10,000 grants to 25 Black women business owners. Entrepreneurs also will receive access to a 12-month mentoring program at BOSS University from Smith’s company.
What else can be done?
Garley believes representation at the top ranks of funding sources would help even out the vast discrepancy.
“There are very few women of color in executive positions at technology companies," Garley said, adding "there is a clear discrimination problem in Silicon Valley.”
About two-thirds of venture capital firms have no female partners, while 4 out of 5 have no Black investors at any level, according to Harvard Business Review. Only 3% of investment professionals are Black, according to a 2016 study by Deloitte and the National Venture Capital Association.
While Dana White, owner of hair salon Paralee Boyd, was able to secure funding for her business during the pandemic, she still feels the government and private sector can be more proactive in helping Black women business owners.
“If not in the form of money, [there can be] actionable and viable connections the government or private sector make in their network to get that business owner ready to receive funding,” said White.
White also wants the government and companies that fund Black women-owned businesses to help the entrepreneurs plan how to allocate any funds they receive.
“What can a government or private sector organization do is make sure that the money lent grows the business,” White said. “I can’t tell you how many Black women business owners I’ve spoken to that received funding and are only guessing that how they will spend it will grow their business.”
Investing in super-small businesses would also help Black women who are starting out, Shaulis said. Instead of prioritizing businesses with multiple employees and six to seven figures in revenue, focus on those start-ups with one or two employees or that leverage contractors and bring in revenue in the mid-five figures, Shaulis said.
“From a government standpoint, I think prioritizing finance for micro businesses and solopreneurs is the best starting point,” Shaulis said. “That small loan can actually make a big difference in the success and ultimate growth of a business.”
Ella Vincent is the personal finance reporter for Yahoo Money. Follow her on Twitter at @bookgirlchicago.
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