Barriers to Black entrepreneurship widen the wealth gap

One of the best ways to build wealth in the United States is through ownership your own business. However, according to a report by the Alliance for Entrepreneurial Equity, only 2% of businesses with employees are black owned.

And that played a big part in the expansion racial wealth gap in the USA. Black households, which made up almost 16% of the US population, held just under 3% of total wealth, according to the Federal Reserve’s 2019 Survey of Consumer Finances. In contrast, white households held almost 87% of the wealth but represented only 68% of the population.

While there has been no shortage of entrepreneurial ventures among black people in the United States, systemic racism and a persistent lack of adequate support and funding have made it much harder for black-owned businesses of any size to thrive, according to a panel of experts who spoke at one of MIPAD and CNN Business co-sponsored event.

“The problem isn’t starting the business, it’s being able to keep the businesses afloat and helping the businesses grow and scale over time,” said Brandon Andrews, co-founder of Gauge, an AI-enabled mobile market research platform.

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From left: Alfa Demmellash, CEO of Rising Tide Capital;  Brandon Andrews, co-founder of Gauge;  and Gayle Jennings O'Byrne, co-founder of the Wocstar Fund, discuss what needs to happen to support black entrepreneurs.

In the first half of 2021, only 1.2% of total US venture dollars went to black entrepreneurs.

This lack of funding can be traced back to “all those”. -isms and prejudices that have built up over the 400 years that we’ve been a part of this country,” said Gayle Jennings O’Byrne, co-founder of the Wocstar Fund, an early-stage mutual fund that invests in tech innovation ventures by people of color.

but The discrimination is subtle rather than overt, O’Byrne said. “It’s like, ‘Hey, great job. That’s a great idea. Keep going. Come back to me, you know, in a year. I would like to see how you are. Hey, keep in touch.’”

And it’s not just a lack of money for promising start-ups. It’s the lack of sustained support for micro-enterprise that make up the lifeblood of communities.

“How do we empower these micro-enterprises? How do we ensure they have access to capital? How do we make sure they have access to business education?” asked Andrews.

This will also likely help keep a community afloat. “We know that Black business owner and Black Entrepreneurs tend to hire people from their community, thereby spreading the economic benefits,” said Kenneth Ebie, executive director and chief development officer, Black Entrepreneurs NYC.

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Rethinking what it means to generate a “return” on investments from these small businesses is imperative when the goal is to strengthen communities and local economies, said Alfa Demmellash, CEO of Rising Tide Capital. a non-profit organization that provides business development skills to entrepreneurs from historically marginalized communities.

“We don’t just need a handful of successful millionaire-billionaire entrepreneurs. Communities of color actually enable communities. We saw that during the pandemic. It’s like you have to sit at home and bring the food to you, who cooks the food? Who drives this truck? Who brings it to your house? Who cleans your home? Who takes care of hygiene? It’s literally our livelihood,” said Demmellash. “They are the essential workers and they are the essential entrepreneurs. You create culture. They create livelihoods. …. [But they] are invisible and never invested because that is not considered great [investor] Return.”

Up to this point, O’Byrne noted, investments in these small black-owned businesses may also take the form of a business referral, or with intentions of hiring someone else’s services, or just hiring contractors who have a diverse leadership team .

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If you don’t run a business, you can still build wealth by stepping into the ground floor of a startup to raise capital. But for blacks and other minorities, there is a barrier to entry known as the “accredited investor regime,” Andrews noted.

“Most people in our communities are literally barred by law from doing this in the United States because of that definition of accredited investors,” he said.

The Securities and Exchange Commission requires that anyone wishing to invest in an early-stage company have a net worth of over $1 million, exempt their primary residence and income greater than $200,000 for individuals ($300,000 if they have a spouse or partner) in each of the past two years and the expectation that their The income in the current year remains the same.

“So again there’s systemic oppression that prevents our communities from even spending our money on our businesses in the way we might otherwise,” Andrews said.

– Laurie Frankel of CNN Business contributed to this report

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