The pandemic has disproportionately affected Black owned businesses, in part because they were more likely to already be in a precarious financial position going into it. According to global management consulting firm, McKinsey & Company, nearly six out of ten Black-owned businesses were at risk of financial distress before the pandemic, compared with about 27 percent of white-owned companies.
In its extensive report, the pandemic contributed to 41 percent of U.S. Black-owned businesses closing shop from February to April 2020 and more than half reported being very or extremely concerned about the ongoing viability of their businesses. Like many similar reports have shown, the situation is being magnified by the inability to secure credit. A total of 36 percent of Black business owners responding to the McKinsey survey said they had experienced this, compared with 29 percent of all respondents.
The report also restated the fact that businesses ownership in the U.S. has never been one showcasing consistent equity. While about 15 percent of white Americans hold some business equity, only 5 percent of Black Americans can report the same. Among those businesses which do, the average Black American’s business equity is worth about 50 percent of the average American’s and a third of the average white Americans.
The startup mode for Black-businesses can be even more daunting. In a recent issue of Ebony Magazine, Chairman of the Los Angeles Southwest College Foundation and a lifetime member of the Langston Bar Association, Almuhtada Smith share his own tips on what Black entreprenturs need to be working on to secure fundraising, including:
Figure out how much money you need for 18 months of ‘runway.’
In the startup world, “runway” is how long your company can survive before it runs out of money. Calculating this figure is one of the most essential steps to ensure your long-term success and will require you to evaluate your financial model. For early-stage startups, 18-months is an ideal amount of runway time to plan for.
Perfect your pitch. Know your value and how to present it.
Pitching a startup to investors is like modern online dating—people will make an instant decision about your pitch. Create a pitch deck that’s full of data and adaptable to different audiences, do your homework, set the stage, tell a compelling story and make sure to have a clear ask.
Be mindful of who is on your cap table. Know who you want to raise capital from.
Before you sign that VC term sheet, make sure you and your firm are prepared to ensure diversity on your cap table. People will notice, especially if you publicly claim to support your community. While it’s cool to get that big-time investment from Sequoia, you should also seek a smaller check from folks like Base Ventures, Harlem Capital, or Collab Capital.
Find the right networking events. Where are the stakeholders?
Having a vast and diverse network is essential for any entrepreneur, let alone Black and minority entrepreneurs who routinely face a lack of representation and comparative resources. Look for conferences, workshops, and seminars that aim to connect and raise awareness for minority entrepreneurs.
Seriously, protect your equity!
Unless you want to become an employee of the startup that you founded, you’ll need to be diligent about implementing the right business principles early on to avoid over-reliance on dilutive funding measures.
Thanks to the 2012 JOBS (Jumpstart Our Business Startups) Act signed into law by President Obama, folks can leverage community support to reach their funding goals. Crowdfunding comes with many benefits for entrepreneurs. It can be helpful getting niche ideas off the ground that may not appeal to more risk-averse VC firms, as well as help generate public awareness and credibility.