In the United States, less than 10% of entrepreneurs pitching to investors are black, and fewer than 20% of those who do succeed in getting their pitch translated into a real investment.
When it comes to institutional biases against people of color in the United States, there are many areas that need to be corrected, but probably the most disregarded is the investment that fuels entrepreneurship and up-and-coming firms.
Between beginner black entrepreneurs and established VC investors looking for success patterns in possible prospects, there is a significant barrier that exists.
Angel investors are often the only source of finance for fledgling enterprises that are cash-strapped and not yet strong enough to attract the attention of traditional investors such as limited partners and venture capital firms. Women of color, in particular, are becoming more active as angel investors.
However, in this context, the phrase “angel investor” does not simply apply to a person who invests in cash-strapped businesses. As we’ll see shortly, these black female investors act like angels, assisting many black entrepreneurs, particularly those who have found their enterprises starved for capital and shut off from traditional funding sources.
In this article, we’ll look at the problems that make it so difficult for black entrepreneurs to get funding, how black angel investors are helping them get capital and new chances, and three notable female black angel investors who are striving to overcome the racial funding gap.
Why is it so difficult for black entrepreneurs to raise capital?
It is nothing new for black entrepreneurs in the Western world to face income disparities. Despite the fact that recent news stories on minority inequality and systematic racism have (at long last) brought the matter to the attention of the world, countless seemingly insurmountable challenges remain.
Simply put, most new black entrepreneurs who are just starting out lack access to networks, closeness to recognized investors, and simple funding from other sources of finance such as banks (like a lack of available collateral makes many banks hesitant to invest in any startup).
It’s not that black business owners aren’t attempting to succeed.
However, the aforementioned figure demonstrates that there is a significant issue that must be addressed. Part of the solution may rest in the efforts of black angel investors to help accelerate investments in minority companies and narrow the overall inequality gap.
This is beneficial not only to the entrepreneurs but also to customers and the whole economy of the United States.
The emergence of black angel investors as a source of wealth
Did you know that black entrepreneurs receive less than 1% of total venture financing in the United States?
Several black angel investors (also known as “black angels”) are stepping up to the plate to assist close the gap and offer black entrepreneurs a chance.
These black angels, like any other angel investor, have the same goal in mind: to make more money. However, they hope that by doing so, they will be able to assist underserved black entrepreneurs. The black angels truly do exist for these businesses that are cut off from traditional sources of capital.
We’ll get into the stories of three female black angel investors who are helping to pave the road forward in a moment. They do more than merely put money into startups that are desperately needed.
They may also provide much-needed counsel and instruction to many African American business owners who simply do not have investors in their network, as well as providing encouragement to future generations of minority women striving to establish generational wealth.
So, who are these mysterious black angels?
Three Black female angel investors are working to bridge the funding gap.
The following are three female black angels whose stories stand out:
Westside Capital’s Arlan Hamilton
Backstage Capital is a venture capital firm that has invested in over 130 firms founded by people of color or LGBT people. But it was Arlan Hamilton, the fund’s founder, who started it from the bottom up while she was still homeless and relying on food stamps.
Hamilton, who was featured on the cover of Fast Company in late 2018, garnered notoriety when she revealed that Backstage Capital would establish a $36 million fund dedicated solely to African-American women-founded businesses.
Her autobiography, It’s About Damn Time, tells her story.
Cleo Capital’s Sarah Knust
Sarah Knust has established herself as a key figure in the investment world, having invested in more than 40 different businesses and has worked with firms such as Apple and Red Bull.
Knust is frequently featured in prominent magazines such as Vanity Fair and Business Insider as an investor who can teach success before the age of 35 and who will remain a force in the future.
She is the managing director of Cleo Capital and the founder of ProDay, a subscription fitness app, as well as a contributing editor at Marie Claire.
The Budgetnista’s Tiffany Aliche
Tiffany Aliche established and leads Budgetnista, a financial education company that has assisted over 1 million women throughout the world in saving hundreds of millions of dollars and paying off debt in the same amount.
According to Aliche, she was inspired to launch the company after performing extensive research on how black women are paid less than their white counterparts and face other significant challenges such as devalued housing. Budgetnista was born out of Aliche’s desire to assist women in regaining their financial footing and living a debt-free existence.
The book Get Good with Money tells Aliche’s story and offers her counsel.
Finally, Aliche, Van Court, and Kimberlin aren’t simply making a difference in terms of representation and equity. They’re making a difference in people’s lives by expanding chances for individuals of color to start businesses.
Despite the difficulties they’ve experienced, black-founded firms are on the increase, thanks to investors like the three ladies whose stories we’ve presented today.