Barriers to black entrepreneurship widen the wealth gap

One of the best ways to build wealth in the United States is to own it your business. But just 2% of companies with employees are owned by Black people, according to a report by the Alliance for Entrepreneurial Equity.

And that has played a big role in expanding it race wealth gap in the usa Black households, which made up nearly 16% of the US population, The Federal Reserve’s 2019 Survey of Consumer Finances found less than 3% of total wealth. White households, on the other hand, had almost 87% of the wealth, but only 68% of the population.

While there hasn’t been a lack of entrepreneurial spirit among black Americans, systemic racism and a lack of adequate support and funding have made it much more difficult for black-owned businesses of all sizes to thrive, according to a panel of experts. He spoke at an event jointly organized by MIPAD and CNN Business.

“The problem is not starting the business, but keeping the business going, being able to help the business grow and scale over time,” said Brandon Andrews, co-founder of Gauge, an AI-enabled mobile market research platform.

In the first half of 2021, just 1.2% of all US venture dollars were for black entrepreneurs.

This lack of financing “can be attributed to all of them The biases and biases that have been created over the 400 years that we’ve been a part of this country,” said Gayle Jennings O’Byrne, who founded the Wocstar Fund, an early stage investment fund that invests in technology innovation projects by women of color.

But discrimination is subtle rather than overt, O’Byrne said. “It’s like, ‘Hey, great job. That’s an awesome idea. Go ahead. Come back to me, you know, a year from now. I’d love to see how you’re doing. Hey, stay in touch.’

And it’s not just a lack of funding for promising startups. It is the lack of permanent support micro businesses that make up the life of communities.

“How do we empower these micro-enterprises? How do we ensure they have access to capital? How do we ensure they have access to business education? Andrews asked.

Doing so is likely to help maintain a community. “We know that Black business owners and Black entrepreneurs tend to hire from their own community, so they spread the economic benefit,” said Kenneth Ebie, executive director and chief development officer of Black Entrepreneurs NYC.

Rethinking what it means to get “returns” on these small businesses’ investment is essential if the goal is to strengthen communities and local economies, said Alfa Demmellash, CEO of Rising Tide Capital, a nonprofit that teaches business development skills to entrepreneurs. from historically marginalized communities.

“We don’t just need millions upon millions upon millions of successful entrepreneurs. Communities of color are enabling communities. We saw this during the pandemic. Like if you were sitting at home and you needed that food brought to you, who cooks the food? Who is driving that truck? Who drives you home? Who is cleaning your house? Who is responsible for sanitation? It’s literally our livelihood,” Demmellash said. “They are indispensable workers and indispensable entrepreneurs. They create culture. They create livelihoods. …. [But they] they are invisible and are never invested, because that is not seen much [investor] return”.

To that point, O’Byrne points out, investing in these Black-owned small businesses can also be about making a business recommendation, or being intentional about using someone’s services, or hiring only contractors with a diverse leadership team.

If you don’t run a business, you can still build wealth by getting in on the ground floor to raise startup capital. But for blacks and other minorities there is a barrier to entry known as the “accredited investor rule,” Andrews noted.

“Most people in our communities are legally barred from doing business in the United States because of that accredited investor definition,” he said.

The Securities and Exchange Commission requires that anyone who wants to invest in an early-stage company have a net worth of more than $1 million, unless their primary residence, and income of more than $200,000 for individuals ($300,000 if they have a spouse or partner) in each of the previous two years and their the annual income will be the same.

“So again, there’s systemic oppression so that our communities don’t have the opportunity to spend our money on our businesses the way we would otherwise,” Andrews. he said

– CNN Business’ Laurie Frankel contributed to this report