In 2019, entrepreneur Renee King was at a conference for Black entrepreneurs when she heard something that took her aback: “If you can’t raise a friends and family round, what does that say about you?”
An angel investor (someone who invests their own money into a new company) directed this remark at King and about 100 other Black women entrepreneurs. The investor was also a Black woman.
For King, this comment ignores the unique hurdles Black business owners might face. While a friends and family round is one of the most common ways to raise money for a startup, it’s not always the most feasible option for Black founders, she explains.
She points to the fact that the typical Black family has $2,000 or less in liquid savings, while the typical white family has more than four times that amount. “Just imagine how challenging that is for a [Black] entrepreneur to now go to their family and say ‘Hey, I have this business and I need to raise this friends and family capital.'”
In King’s experience with Black entrepreneurs, she’s found it’s harder for Black founders to ask for help because she says they’re used to being self-sufficient.
“Our lived experiences [as Black people] have required us to make something out of nothing,” she says.
This extends beyond monetary support. For example, she feels Black entrepreneurs may not feel comfortable asking a friend to look over their business plan.
And this is nothing to say about venture capitalists, a group who invests in startups and small businesses. One percent of startup founders backed by venture capitalists are Black, according to RateMyInvestor, a venture capitalist review startup that analyzed the names, photos, and third-party demographic data of 10,000 founders to get that figure.
After her interaction with the angel investor, King’s wheels started turning. She wanted to create a solution to help Black founders access the capital and moral support they needed. She came up with fundBLACKFounders, a crowdfunding platform designed for Black entrepreneurs.
Anyone can donate money to fundBLACKFounders projects on its website. Because it focuses on Black-owned businesses, the funding helps fill in the racial wealth gap Black entrepreneurs often face when trying to raise capital for their business ventures. The platform also aims to match up to $25,000 for eligible entrepreneurs, with money from partnerships with brands and companies. While fundBLACKFounders is open to non-Black entrepreneurs too, it focuses on providing resources to help Black entrepreneurs overcome the obstacles they may face. Currently, there are no non-Black entrepreneurs with campaigns on the website.
The platform also has a flexible funding model, which means entrepreneurs don’t need to raise 100 percent of their goal to receive funds. King thinks this flexibility benefits new entrepreneurs. Meanwhile, popular crowdfunding platform Kickstarter requires that projects meet their goals before releasing the money so that creators meet funders’ expectations.
King and her team also provides businesses on her website culturally relevant coaching around the typical obstacles Black entrepreneurs run into. For example, they teach Black founders how to overcome the self-sufficiency mindset by emphasizing the need to reach out to others so their business can succeed and helping them brainstorm who should be in that network.
The platform officially launched in January 2020 and, through it, over 2,030 people have donated $258,000 in capital for 19 Black-owned business ventures. King looks at five metrics when it comes to success and impact of her entrepreneurs’ businesses. They include becoming a full-time entrepreneur, hiring the first employee, if the business can generate large returns on investments, or has the potential to qualify for business loans, if the founder receives match funding via fundBLACKfounders’ platform, and whether the founder shifts to a new strategy when their current one doesn’t pan out.
All of the 19 founders who have used her website have met at least one of these standards, she says.
While Black entrepreneurs can use fundBLACKfounders to raise money for their businesses, there are other strategies, too. Here are the steps Kings thinks all Black entrepreneurs should take so they can tap into the funding they deserve.
1. Build your village
Remember: It can be more difficult for Black founders to raise money to get their businesses off the ground, so gathering your village (i.e. tapping into the assets of people around you and individuals you’ll introduce yourself to) benefits you more than other entrepreneurs, says King.
To get financial funding, you need social capital. Your village is the foundation of that.
Surround yourself with a diverse group of people who can support you in different ways, like vetting your ideas and introducing you to investors, suggests King. And, if possible, gather these contacts before starting your business so you can hit the ground running.
“It really will open up so many doors for you,” she says.
To compile this list, think about the networks you’re already linked into. What clubs and social groups do you regularly attend? If you’re religious, do you attend church? Are you part of any political organizations?
Your village can be made up of mentors, both within your field and outside it, who not only advise you on your ideas but can also lift you up during a tough day. Include journalists, public relations professionals, and social media influencers. While press contacts and influencers might not be able to raise money for your venture, they can spread news of your business to people who can.
Lastly, don’t be afraid to reach out to fellow entrepreneurs, especially Black ones, says King. Not only can you learn from their failures and successes, but they might also send funding resources your way and tell you about new or limited time funding opportunities, like pitch competitions, once they become familiar with you and your business idea.
“It makes your journey of building your business a little bit smoother,” says King.
2. Explore financing options
Black entrepreneurs have to overcome several hurdles to get the right financing for their business, from the racial wealth gap to racism within the venture capitalist world, but familiarizing themselves with the available options helps them access funding, explains King.
While this might seem intimidating at first, and you’ll need to do some research, it allows you to be better prepared when you look for and apply for funding.
To get started, King suggests googling a few financing options, such as the following:
-
Microloans: These types of loans are best for startups and small businesses that have trouble getting loans from traditional places like banks. Amounts vary but in the U.S. the government agency, the Small Business Administration, considers anything under $50,000 a microloan.
-
Small Business Administration loans: The Small Business Administration works with lenders to link small businesses with loans. Each loan amount varies. Look on its website to learn about the different loans it offers and what your business is eligible for.
-
Grants: Different sources, like federal and state agencies and private companies, offer grants to small businesses. Consider starting your research here.
-
Pitch competitions: Pitch competitions give entrepreneurs an opportunity to present their business ideas to a panel for a chance to get funding or capital, while also competing with other entrepreneurs for those benefits. King says your village can help you learn about upcoming competitions.
-
Community development financial institutions: CDFIs are lenders, including credit unions and small business loan funds, that focus on providing loans in low-income communities. You can find a CDFI near you through the Opportunity for Finance Network, a national association for CDFIs.
-
Revenue-based financing: While venture capital funds will offer you money for equity, as in a percentage of your company, revenue-based financing investors will provide funding in exchange for a fixed percentage of your future gross revenue.
While these options can be a good fit for you, it’s also worth looking into crowdfunding sites. They can help spread word of your business idea, which can get people you don’t know excited about it enough to open their wallets, says King.
FundBLACKfounders specifically offers the culturally relevant coaching and moral support that other financing alternatives may not. King has been through the hurdles of being a Black entrepreneur and incorporates those learnings into her coaching.
Whatever options you choose, you’ll first need to see if you qualify for them, says King. For example, some loans require that you’re in business for a certain amount of time. King recommends this guide, which lists funding options, eligibility, and other considerations.
King also recommends FundStory, started by a Black entrepreneur named Bobby Gilbert, because it connects you with financing offers from lenders (like a bank). You don’t have to give up shares of your business to the lender, which lets you keep full ownership of your business and FundStory says this ensures someone else isn’t making decisions about your company. After you sign up, you can access the platform’s free plan or upgrade to one of its paid plans (though the cost of each paid plan depends on how much money your business makes).
3. Create a relationship with your bank
King’s bank has gotten her out of some tight spots. For example, she’s relied on her close relationship with her bank to get money for her business wired quickly.
“I can call up the person who I know there [at the bank] and say ‘OK, I’m struggling with this,'” says King. “They’ll go ahead and take care of those things.”
King hasn’t experienced this level of customer service at banks that don’t know her.
She’s seen business owners benefit from this bond during the pandemic, such as through the loans available for small businesses from the Paycheck Protection Program.
“While the rest of us had to figure out how to apply for it [the PPP loan]…their bankers called them and said ‘hey, let me go ahead and get your application in,'” says King. This kind of relationship ensures you can lean on them during the good and bad times.
To establish a relationship with a bank, King points to this resource from Clever Girl Finance, a personal finance platform for women in the U.S. founded by a Black woman. The article advises treating your bank like a potential client or business partner. This means you’ll want to keep in touch regularly. For example, tell them about any milestones your business has reached. It’s best to do this in person when possible (and taking all the necessary safety precautions during the pandemic) because it helps bankers put a face to a name.
You should also ensure you’ve clearly explained your business plan and keep your bank up to date on any changes in it so whoever you’re working with can better recommend any products you might need, according to the Clever Girl Finance article. Don’t forget to be honest with your banker about any financial difficulties you may have so they don’t recommend anything you’re not financially set up for.
King acknowledges that some Black people are suspicious of banks, given their history of discriminating against Black people. She advises choosing one you trust over its proximity to you, just like she did.
“Find the bank that respects you as a customer, even if it means trying a few banks and having to drive well out of your way or out of your local neighborhood…” she says.
To find a good fit, she recommends checking out these tips from Accion, an international nonprofit that financially empowers people who are usually ignored by the financial world.
4. Get comfortable with other people’s money
If you’re in the business world, you’ve probably heard the term “OPM,” If not, all it means is “other people’s money” and you can use it (rather than your own money) to start and build your business.
King says Black entrepreneurs often have a “bootstrapping” mentality when they don’t have to. Instead of using other people’s money to fund their businesses, they might only consider their own financial resources.
“OPM is it. Sometimes our entrepreneurs are very big on ‘No, I just want to use what I have. Use my savings, use my day job salary. I’m going to stick to bootstrapping it,'” says King. “That’s not going to get you to where you need to be…you have to get bigger so your business can survive.”
Work to bypass any psychological roadblock that says you can’t use other people’s money (which can be any of the financing options mentioned above) to finance your business.
One way you can do this is to educate yourself. King teaches her entrepreneurs about big businesses and wealthy people that use OPM to fund their companies.
“This is how the big businesses you’re aspiring to be like do it,” says King. “You want to bring in OPM to go ahead and build your business.”