The Bottom LineThe Bottom Line

Economics in Brief: Report Illuminates How Wide the Funding Gap is for Black and Latinx Americans

Also: Federal Reserve Bank leaders pledge to reduce racial and economic inequities and San Francisco Black-owned business fund unable to meet demand.

(Photo by WOCinTech Chat / CC BY 2.0)

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Report Illuminates How Wide the Funding Gap is for Black and Latinx Americans

A new landmark report uses compiled race, ethnicity and gender data of U.S. based companies to examine funding disparities for the two largest minority groups in the country.

Historically, Black and Latinx entrepeneurs have experienced underfunding and systemic discrimination, with funding paling in comparison to startups headed by white men.

The report analyzed data compiled by the Diversity Spotlight, a feature on Crunchbase that shows if there is diversity in an organization’s leadership team —CEOs and founders for startups, and partners with check-writing abilities for investment firms. The analysis, released by Crunchbase, a database for tech companies found that 970 companies with Black and Latinx founders were started between 2015 and August of this year, and received $15 billion in funding over that timeframe. That’s 2.4 percent of total venture capital representing a fraction of the funding raised by non-minority group startups.

These two groups have raised $2.3 billion in venture funding in 2020 so far, accounting for 2.6 percent of overall venture capital this year. Funding to underrepresented founders peaked at $4 billion in 2018 — that same year funding to all venture-backed startups peaked in the U.S. at $141 billion.

The San Francisco Bay Area ranks first when it comes to investing in Black and Latinx founded companies, says the report, with $4.6 billion since 2015, or 1.8 percent of invested venture capital, followed by The greater New York area, at $4.4 billion—representing 5.2 percent of that region’s total funding.

There are several causes of the extreme disparity. It’s already difficult to secure funding at a venture capital level if you’re not a white man, and Black and Latinx founders tend to experience rejection at a higher rate due to stereotypes, according to New Age Capital, cited in the report.

Lack of friends and family capital is another reason many minority entrepreneurs are impaired from the start. Crowdfunding platform Fundable shows that friends and family are the biggest funding sources for entrepreneurs in the U.S., who receive an average of $23,000 per startup.

Federal Reserve Bank Leaders Pledge to Reduce Racial and Economic Inequities

The presidents of the Federal Reserve Banks of Boston, Atlanta and Minneapolis vowed Wednesday to commit to policy changes that would fight economic and racial inequalities, reports Bloomberg.

The Federal Reserve, the largest and arguably most influential banking system in the world, isn’t serving all Americans, businesswoman Ursula Burns said in a virtual conference hosted by those reserve banks, reports Bloomberg. In response, the leaders of those banks vowed to make changes.

For example, the Feds could move to include diverse labor and community-based voices in its Beige Book report, which gathers anecdotal information on current economic conditions in each district, but has historically emphasized the input and perspectives of corporate leaders.

“We have to think about this much more holistically,” Boston Fed President Eric Rosengren told Bloomberg. “You can’t just solve, for example, the wealth gap, without addressing all these other gaps. So thinking about collective action in a much more comprehensive way, as Fed policy makers, but also as the recommendations that we’re giving to other policy makers, who have other tools than we have, is really important.”

Race and gender-based wealth disparity continues to plague the country, and the pandemic has widened that wage gap significantly, Burns, the former CEO of Xerox, told Bloomberg.

The impetus for the pledge came after racist events in each of the districts, specifically the murders of George Floyd and Ahmaud Arbery, and the racist slurs hurled against former Red Sox player Torii Hunter in Boston, reports Bloomberg.

San Francisco Black-owned Business Fund Unable to Meet Demand

Amid the COVID-19 pandemic the San Francisco African American Chamber of Commerce rolled out a program to help Black-owned businesses survive the economic downturn. But there is just not enough money to help them all, reports San Francisco Business Times.

The chamber’s fund, which contained $3.2 million, received 391 applications seeking a total of $16 million in funding during the two-week application cycle in August. The $13 million disparity leaves the majority of applicants in a hole.

The fund, which provides interest-free loans of up to $50,000 over a six-year period, with waived payments for the first year, received private donations from San Francisco’s Covid-19 Give2SF relief fund, totaling $1.7 million, and the remaining $1.5 was donated by Main Street Launch.

Despite receiving an upsurge in interest from corporate sponsors interested in aligning with the Black Lives Matter movement, the fund has not yet received any corporate donations.

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter.

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Claire Marie Porter was Next City’s INN/Columbia Journalism School intern for Fall 2020. She is a Pennsylvania-based journalist who writes about health, science, and environmental justice, and her work can be found in The Washington Post, Grid Magazine, WIRED and other publications.

Tags: covid-19federal reservediversity and inclusionventure capital

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