How crowdfunding is supporting Black livelihoods and communities

Sherwood Neiss | Crowdfund Capital Advisors | Jun 13, 2020

raising capital via regCF for racialized communities - How crowdfunding is supporting Black livelihoods and communitiesThe financial challenges facing black entrepreneurs are far reaching. The majority lack the relationships that would get them to either a Silicon Valley VC or a friendly bank loan officer. But Regulation Crowdfunding platforms hold the potential to break down barriers to funding black-founded startups, democratizing access to capital, supporting black livelihoods, decreasing economic inequalities, and supporting communities.

This relatively new source of funding — it debuted four years ago — allows startups and small businesses to raise up to $1,070,000 online per year from the general public, not just accredited investors.

I check in regularly with the various Regulation Crowdfunding platforms on their progress, and this year, their numbers show proportionate representation of Black-led businesses. According to Cencus.gov, as of 2019, 13% of the population was Black. According to George Cook, Co-founder/CEO crowdfunding platform Honeycomb, 11% of all their campaigns have been run by Black founders. And another platform, Seedinvest, has seen 12% of campaigns run by Black founders, according to Aaron Kellner Director of Ventures.

See:  Black tech founders say venture capital needs to move past ‘diversity theater’

Black founders are also seeing relatively good success rates with their fundraises. According to Ben Blieden, co-founder/CFO of MainVest, 60% of companies with at least one African American founder have had successful raises on its platform, compared to the platform’s average of 63%. The success rate for black founders was 50% on Seedinvest, compared to a 69% average success rate on the platform overall.

And Jonny Price, Director of Fundraising at Republic asserts that a higher percentage of capital goes to Black founders through Regulation Crowdfunding campaigns than does from traditional VCs. “Whereas Black founders receive around 1% of venture capital, [they] have received 8% of Wefunder investment volume over the last year.”

Aaron Kellner at Seedinvest told me, “Minority founded/led companies raised on average of about $415K [per company] through the SeedInvest network. This success rate is slightly higher than the platform average overall.”

In a recent blog post, Elizabeth Yin at the Hustle Fund spelled out why VC has been unable to provide these same kinds of opportunities to underserved communities: “A power construct that should worry you, as an entrepreneur, that most people don’t know about: VC funds are only allowed to have 99 investors. There are a couple of exceptions. … But, for the most part, most VC funds can only have 99 investors.  Let’s do the math on that. If you want to raise a $100 million fund, that means that your average check size from an investor in your fund needs to be over $1 million. … The number of people or groups who can easily write a $1 million+ investment check is very few. Power in the investing world is concentrated in the hands of just a few people and that money generally continues to support existing funds and the founders they support who are typically White, Male, graduated from an Ivy League or MIT/Stanford, and worked at a top notch tech company liked Facebook or Google. This is why you don’t see new money or new ideas go into investing. Literally, change is prevented by the laws that are in place.

The principles of crowdfunding are based on egalitarian access to capital. Rather than having capital flow from the ivory tower of Silicon Valley, average Americans can fund a community business they believe in. Members of the crowd can jump in with as little as $10.

See:

According to an article in the Washington Post, There is “a dearth of black investors in venture capital’s upper echelons — where leaders make investment decisions that shape the startup landscape.” This may explain why only 1% of venture capital dollars goes to black startup founders, according to a RateMyInvestor study. In addition, black entrepreneurs lack relationships with banks, which might also explain why black-owned businesses are being shut out of PPP loans, based on an NBC story. Net net, access to capital is a challenge for Black founders in the traditional capital markets.

If you are interested in supporting Black-owned businesses currently raising money online, here’s a sample list of active Black-founded campaigns:

Company/Campaign Page What do they do? Where they are located?
Battery Xchange On the go charge solution for cell phones Charlotte, North Carolina
Building Economic Advancement Network Corporation Social network that is centered on economic advancement for urban communities Belle Chasse, Louisiana
Charles & Company Organic luxury tea Long Beach, California
Daleview Biscuit and Beer Brewery/Café Brooklyn, New York
Deuce Drone Deuce Drone designs, builds, and operates drone delivery systems, enabling same-day delivery for retailers Boston, Massachusetts
Dome Audio Producing proprietary, disruptive technology headphones for music lovers around the world Rahway, New Jersey
ecoText A digital textbook subscription for college students. Creating Opportunity Through Affordability Dover, New Hampshire
Green Growth Real Estate LLC Cannabis Real Estate Washington, DC
Hemp Real Estate Investments Inc Hemp Real Estate Investments Atlanta, Georgia
Love Conquers All Health and Beauty Salon Astoria, New York
Nuurez Inc Buying real estate to make permanent AirBnB and temporary rentals Kissmmee, Florida
Smokey Vale Salon/Barbershop Brooklyn, New York
Sol Cinema Cafe Coffee shop & Cinema New York, New York
Strong’s Cleaners Dry cleaner Pittsburg, Pennsylvania
The Boogie Down Grind Thematic cafe/bar Bronx, New York
Watch Party The Watch Party app makes it easy for friends to connect and share their passion for TV. Allston, Massachusetts

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NCFA Jan 2018 resize - How crowdfunding is supporting Black livelihoods and communities The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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