Equitable Equity Crowdfunding

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Equitable Equity Crowdfunding – Crowdfunding is Turning the Tables on Discrimination

Equitable equity crowdfunding has emerged to level the playing field for investors and companies alike. Where  minority entrepreneurs are concerned, it is nothing less than equitable equity crowdfunding. That’s because minorities have had a notoriously difficult time raising capital to start or expand a business. In a Medium post published in October 2020, Vern Howard shared his experiences pitching his startup, Hallo, to venture capitalists as a Black man. Hallo did succeed in raising $2 million in a seed round…but not without discrimination and humiliation. At one pitch, Howard was mistaken for a delivery man. In another, one investor told him to please not “run off to Cabo now!” after agreeing to invest.

Black people make up 13% of the population in the US, and Black Americans have the highest rate of entrepreneurship. Black women are the fastest group of business owners in 20 years. So why do Black entrepreneurs receive less than 1% of traditional venture capital?

How is this possible?

Even sincere venture capitalists may express a commitment to diverse investing, but the very structure of venture capital is entrenched in institutional bias.

Elizabeth Yin of the Hustle Fund explains this vividly in a blog post from the spring of 2020,  “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.”

That math is not on your side. Indeed, the math doesn’t work for hardly anyone anymore. . If you want to raise $25 million  the average investment  your average investment must be no less than $250,000.  Dream on, cowboy.

The number of people or groups who can easily write a $250,000+ 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 like 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.“
equitable equity crowdfunding

Access to Traditional Capital is a Persistent Challenge for Minority Founders

The other traditional option for capital—bank loans—is fraught with the same kinds of obstacles for Black and POC entrepreneurs. Approval rates for business loans are much, much lower, and when Black and POC founders are granted credit, it’s for less capital at higher interest rates.

This inability to access credit has a cumulative devastating effect on minority-owned businesses. After all, it takes money to make money, and capital is critically important for a business to establish and expand. In 2014, 28% of Black entrepreneurs reported the lack of access to capital directly impacted profits, compared to 10% of white entrepreneurs.

Additionally, startup entrepreneurs are expected to raise initial funding from friends and family—an expectation itself born out of bias: white Americans have an average net worth of $144,000, compared to Black Americans’ average net worth of $11,000. Needless to say, this lack of generational wealth means most friends and family members can’t invest, rendering early capital even further out of reach for Black founders.

Enter Equitable Equity Crowdfunding

Equity crowdfunding the latest method of raising capital and rapidly becoming the most popular. As extensively explained all over this website,  equity crowdfunding allows a business to raise funds from anyone willing to invest (as opposed to only accredited investors or angel investors or venture capitalists), often with amounts as low as $100-$250—in exchange for a share in the business.

One of the most promising aspects is equitable equity crowdfunding, that is to say the potential for positive social impact and a more equitable distribution of capital for minorities and women  entrepreneurs. By removing the typically all-white, all-wealthy, all-male fat cat stuffed suits in venture capital and financing, equity crowdfunding is an open arena welcoming all entrants to compete for investors’ dollars. On this level playing field, anyone can raise startup funds, and anyone can invest—and profit from—that startup’s success.

Equitable Equity Crowdfunding Invests in the Black Community

Since the second part of the US JOBS Act legalized crowdfunding in 2016, several niche equity crowdfunding platforms have sprung up, including the 10K Project, a Black-owned crowdfunding platform for Black entrepreneurs and investors. 10K is a reference to the group’s goal for 10,000 members to invest $100 each, for a total $1M direct reinvestment in the Black community. As the 10K website describes it:

“One of the most underestimated investment opportunities is the black business owner. In traditional markets, most of us are unable to invest in early-stage companies like wealthy families do. They buy shares early in a business and participate in “hockey stick” stock price increases if and when the company gains traction. As early investors, they make the majority of the investment returns. We can do the same.”

Other equity crowdfunding platforms report fundraising for African American-led businesses at levels proportional to their US population (about 13%, according to Census data). Republic reports that in its first two years of operation, 25% of funds raised went to companies founded by POC. 11% of Honeycomb’s campaigns are Black-led, 12% of Seedinvest’s, and 8% of Wefunder.

I for one am very curious to see what numbers come out of Ruth Hedges’ Rise Up Crowdfunding. Ruth always brings her A game to everything she does and with heavy hitters like Coca Cola as a sponsor, I’m expecting great things.  Their stated goal?

Our goal is to enable people to invest in diverse-owned small businesses and the future those businesses believe in.

It’s easy to imagine Rise Up Crowdfunding as the long-awaited answer to a multi-faceted problem. I wish them luck.

Equitable equity crowdfunding is harnessing the power of capitalism for good: accessible fundraising and investment opportunities for eventual redistribution of community wealth and prosperity. It’s long overdue for minority and women entrepreneurs to gain access to essential early capital, and equitable equity crowdfunding is making it happen.