Minority-owned small businesses, on average, have lower revenues than nonminority-owned firms. A 2019 report from the Federal Reserve Bank of Atlanta showed that this disparity is the largest for Black-owned firms. Nearly half (45%) of Black-owned small businesses reported earning $100,000 or less annually, while just 18% of white-owned firms reported an annual revenue of less than $100,000. The vastly different levels of struggle was made similarly apparent through the coronavirus pandemic, which hit minority-owned small businesses significantly harder than their white-owned counterparts. For example, between February and April 2020, when the pandemic was reaching its peak in the US, the number of active business owners fell by 22% overall. However, the number of active Latinx business owners fell by 32%, Asian business owners dropped by 26%, and Black business owners dropped by 41%. Thus, one month of the pandemic wiped out nearly half of the country’s Black-owned businesses and a significant proportion of other minority-owned ventures.
The reason why minority-owned businesses are less likely to thrive and survive setbacks has been studied in great detail and has been tied in part to systemic biases and consequent unequal opportunity. Absolutely key to the success of almost every entrepreneur is funding. Without liquid confidence, it’s nearly impossible to get any business off the ground. Minority-owned businesses are systematically denied access to loans and venture capital funding at much higher rates than white-owned businesses. Black business owners are the most disadvantaged, reporting a rate of failure 10% higher than all other groups. Less than 1% of all US venture capital-backed firms are Black. Of course, Black entrepreneurs aren’t the only minority group that’s impacted by discriminatory financing. This October, venture funding for female founders hit its lowest quarterly total in three years. Latinx founders are similarly denied financing.
“Dollars are being disproportionately allocated to experienced founders and this disadvantages minorities and women who do not have the same pre-existing reputation and network,” said Allison Baum, a general partner at SemperVirens Venture Capital.
The issue of funding disparities has risen to the fore in the business community, with many now recognizing the importance of overcoming these systemic barriers. However, bursts of interest and various grant programs from big banks and organizations have only done so much to chip away at a problem deeply ingrained in US society. That’s why innovative ideas like Inclusion Theory, which take a different approach than the otherwise short-term solutions, may actually have traction.
Inclusion Theory is a new and unique fund-raising platform that intends to serve historically disenfranchised groups like minorities, women, and members of the LGBTQ+ community. Minority-run itself, the way Inclusion Theory will work when it launches in January of next year is that it will connect minority entrepreneurs with innovative ideas to investors who can help them succeed.
According to a recent news release, Inclusion Theory “will offer equity and debt investment opportunities in a broad spectrum of categories, including tech, real estate, healthcare, food, and beverage businesses and even more.” The platform will work a little bit like GoFundMe in that startups, companies, and individual entrepreneurs can go onto the platform to build a fundraising campaign. Investors can then go on the platform and browse the listed ventures. There will be campaign fees and options to pay more for better placement.
“All under-funded populations are welcome to raise, and we have many features that differentiate and distinguish us from older, less nuanced platforms,” said Inclusion Theory founder and CEO Adell Pickens, listing specific features like an automatic donation of part of the venture’s profits back into communities represented on the platform, as well as newsletters, pictures, and success stories. “I’ve often wondered what it would have been like if minorities, women, LGBTQ, and others — especially those who aren’t wealthy — were able to take advantage of early investment opportunities in Big Tech, or major digital service companies. Now, we can find out.”
What’s really interesting about Inclusion Theory is its approach to investment. The founders highlight that financing a minority-owned venture isn’t throwing money into the void; it’s the pursuit of a return on investment — which these founders have proven to generate, again and again. Minority-owned businesses contribute significantly to the US economy, both in terms of revenue and in terms of jobs. In 2016, the Center for Global Policy Solutions calculated that the US lost $300 billion in revenue from discriminatory financing practices and biases that stymied 1.1 million minority-owned businesses. Financing these ventures is proven to pay off, which is what Inclusion Theory is trying to emphasize.
“Rather than a typical crowdfunding platform, Inclusion theory is an investment in and for the underserved,” said Pickens. “And unlike donation and reward platforms, the issuers and investors on Inclusion Theory all seek to receive a return on their investment. The Inclusion Theory investment model closes the gap between those who wish to help enlarge and enrich their communities and the financial providers who can make it happen – addressing a wealth disparity that has long hedged out minority populations from the seed capital they need to succeed.”
About the Author
Jemima is a journalist who enjoys reporting on business, particularly small business and entrepreneurship.