Why More Investors Do Not Invest in Minority Startups
Yes, the statistics are true. Less than 2% of Minority startups receive investor funding, and Minority women startups receive only .0006% of investor funding. In fact, most Minority startups are not even invited to a pitch round because their applications are ignored.
There are many minority businesses that have attracted investors. I am sure that if Rihanna or Oprah Winfrey wanted to start another venture, these same investors who typically ignore minority startups, will be trampling over each other without ever hearing their pitch.
So, why don’t more venture capitalists invest in Minority startups? The most popular narrative around this disparity is racism. Although these narratives might shed light on the truth, I don’t believe that racism is the primary reason, and here’s why.
If we take a step back in history, investors probably didn’t invest in Black Wall Street, which produced more Black millionaires during that era.
So what is it? Why don’t more investors fund more minority startups?
I am going to list the reasons why I believe that investors typically overlook minority startups, why it will never change, and what we can do differently to develop wealth without investor funding.
It’s Not Their Priority
According to a report that was produced by Morgan Stanley, investors admitted that it was not their priority to invest in Minority startups. It’s not something they consider when they are focused on investing. Their thoughts are not focused on supporting Minority businesses but rather where can they invest their hard earned dollars for the best return. Please don’t take it personally. It’s not always race. It’s just business.
Most investors are white males who may not be interested in investing in minority businesses because of cultural differences. Investors represent different cultural backgrounds and investing in certain groups may not appeal them.
Most investors may be white male conservatives and may want little to do with the liberal issues such as the "minority cause," when it comes to investing. As investors, their primary focus is getting the best return on their investments, not a cause – that’s charity.
We are all aware that most businesses fail, and investors must be very selective towards making the best decisions with minimal risk. Stating that minorities are not a priority suggests that the thought doesn’t enter their investment decision making process.
I don’t believe that it is always a case of racism or sexism, but rather differences in cultures tantamount to expecting a republican to support a democratic candidate. Although they might have common interests, their cultures do not match. Same goes with investors who do not want to invest in minority startups, cultural differences.
Many Investors Are Only Interested in Investing in Technologies
Many investors seem to be more interested in startups with a global focus rather than those targeting local neighborhoods or regions which is common for most minority businesses.
Many investors are hoping for that next big startup, and they seem to be more interested in the tech industry, the newest gadget, the next software application, or the next Facebook. They have developed an appetite for the tech industry which is where the world has been heading.
Traditional small minority businesses typically target local traffic like hair salons, beauty products, barber shops, funeral parlors, restaurants, bookstores, newspapers, magazines, printing, etc. The ones that do attract investors are in entertainment, sports, banking, and insurance.
Most minority businesses do not fit into this paradigm of technologies that target a global marketplace. It’s growing, but it’s going to take some time.
Investors Prefer to Invest in Strong Teams, Not One-Person Shows
According to the Small Business Association, most minority small businesses are solopreneurs with no employees.
Minority small businesses with employees represent the highest success rate of minority owned businesses. Investors are more interested in teams rather than one person shows. They see teamwork as essential to running a successful enterprise, and scaling is an important factor when they consider their investments. In fact, the general consensus is that they are not merely interested in the product as much as they are the team, or they are not interested in the horse as much as they are the jockey.
If the team is strong, statistically, the business has a much better chance of success, and this is the mindset of many serious investors.
If you are a solo entrepreneur and you get sick, decide to quit, who’s going to run the business? Would you welcome investors to come in and take over to grow and scale your business? These scenarios are considered high risk which investors tend to avoid.
Regardless as to what reasons investors do not invest in more minority businesses, this disparity will not change. It’s their money and can do with it what they choose, and for whatever reason.
Are We Headed in The Wrong Direction?
African Americans alone maintain a disposable income of over $1.2 trillion and yet the Black white wealth gap is higher than it has been in decades, according to research. Are we’ heading in the wrong direction.
The Civil Rights Bill was enacted in 1964, and nearly 60 years later this is as far as we’ve come?
Obviously, we cannot depend on government, politicians, social programs, political or religious leaders to get us where we want to be in the next 60 years. They are the ones we placed our hopes in that got us where we are, today.
We must do something different. We must take a different approach. We cannot use the same mindset that got us where we are, today. If we do, we will certainly return here sixty years from now talking about how we should have done this or that.
Is this the legacy that we want to pass down to our children? It’s the same legacy that our parents passed down to many of us.
Though there has been an increased interest from corporations, nonprofits and private individuals who are beginning to support more minority startups because of the Black Lives Matter narrative, we need to begin seeking alternatives by thinking differently and becoming more interdependent by supporting each other.
What we can do differently
Here are some things that I believe that we can do to change our future when it comes to growing our wealth. These are the same tactics used by those who built Black Wall Street.
Pool Our Resources
I believe that minorities have everything they need to succeed at anything they desire, and building businesses is no exception. We are at a time when we must think differently to achieve different results, and we should be pooling our resources towards stronger economic wealth.
Remember Black Wall Street? Not only was funding Black businesses not a priority for white investors at that time, I am sure that Black businesses never made the list. They pooled their resources and made it happen. We have the skills. We have the need, and we have the ability. The late Dr. King mentioned this disparity the night before he died.
“Never stop and think that collectively, that means all of us together, we are richer than all the nations in the world. We have an annual income of more than 30 billion dollars which is more than all of the exports of the United States, and more than the national budget of Canada. Did you know that? That’s power right there if we know how to pool it.” – Dr. Martin Luther King, Jr., April 3, 1968, Memphis, the night before he was assassinated.
King mentioned that we had $30 billion at that time. Now we have surpassed $1 trillion.
Neither did the builders of Black Wall Street have access to outside investor funding, and they represented some of the wealthiest people in America during that time. They pooled their talents, resources, and ideas to build the wealthiest community in America.
Back then, Black people didn’t have the resources and freedoms to target their business ideas outside of the Black communities. We were all we had and had to do the best with what we had.
Yes, we built businesses that focused only on the Black communities, but the Black community also supported Black businesses.
Pool Our Talents
We all have skills and talents that we can use towards supporting each other, teaching each other, and sharing with each other. Partnerships and teamwork that are a better, smarter, and stronger approach towards building economic empowerment.
Black entrepreneurs may be missing a blessing in disguise. Rather than harbor disappointment, take that energy and explore ways to build our businesses. The fact that more investors do not support Black businesses is their loss of trillions of dollars, according to a Federal Reserve study highlighted in the Morgan Stanley report mentioned earlier.
Thinking differently can create amazing ideas and opportunities that you may not have considered.
I like what the late Congresswoman Shirley Chisholm commented. “If they don’t give you a seat at the table, bring a folding chair.”
Opportunities Often Appear during Crises
Opportunities come to us when we are in the midst of a crisis. Right now, we are in the midst of a crisis.
The COVID 19 pandemic has destroyed over 400,000 Black small businesses, and Black people around the world have been hit the hardest. If we continue to use the same mindset, the same politics, the same religion that has got us where we are today, then maybe now is the time to begin thinking differently. Now is the time to begin seeking opportunities. Otherwise, we will repeat where we are today for another 60 years.
Is this what we want? Of course not. We need to begin thinking differently and there are plenty of resources available to help us get there.
A Unique Business Opportunity
I have developed a unique business model that will accomplish what I have been discussing here. It is a business model that provides opportunities for anyone who is willing to work smart to generate a six figure income.
This business model was designed for those who may not have the investor funding but have a strong desire to become successful entrepreneurs and close the Black white wealth gap.
If you would like more information about this business opportunity, visit our website at www.inspirethedreams.com under Entrepreneur Opportunities. Subscribe to our newsletter. We will begin this business model this year and you will surely want to get onboard.
Wayne C. Robinson, CEO/Founder, INSPIRE THE DREAMS, Inc.