Watch: Jewel Burks Solomon breaks down her tips for pitching to investors. Film by REVIVETHECOOL
Everybody’s heard the cliché at least once: “You gotta spend money to make money.” But a follow-up question that many entrepreneurs may ask is, “How do you raise the money to spend in the first place?”
From beloved mom-and-pop shops to hot tech startups, raising capital is often necessary in order to survive and thrive in business. However, the process of fundraising can be elusive—especially for Black entrepreneurs, who are often shut out of traditional capital networks due to systemic racism and bias.
So, where do you start when trying to raise money for your venture? What types of funding are available to small business owners, and which are best? How do you know if you even need to raise money at all?
To answer these questions and more, H. Drew Blackburn spoke to 3 experts—Jewel Burks Solomon, Managing Partner at Collab Capital and Head of Google for Startups, US; Dr. Lakeysha Hallmon, CEO and founder of The Village Market; and Lenore Champagne Beirne, founder of Bright Ventures—to learn more about the ins and outs of raising capital.
The current state of Black business funding
Black business owners tend to have a more difficult time raising capital than their white counterparts, even if they have excellent credit or remarkable ideas. Institutional racism and systemic bias play a part in why diverse founders struggle to raise capital.
“The overt bias in VC structure, the overt bias in banking practices, the overt bias in [Community Development Financial Institution] funds...have created barriers that tell Black people that it doesn't matter how many products that they've sold, foundationally their business will fail,” Dr. Lakeysha Hallmon, who is known as Dr. Key, says. “That's what those barriers mean. If someone is not willing to invest in you, they do not think that you will become profitable.”
According to Fundera, the average amount of outside equity white business owners receive is $18,500 compared to just $500 for Black-owned startups. And when Black business owners apply for loans, they receive higher scrutiny, lower approval rates, and higher interest rates.
Despite these roadblocks, Black entrepreneurship has surged in recent years. A study by the National Bureau of Economic Research found that new business registrations spiked in areas with large Black populations during the pandemic. And according to a Harvard Business Review report, Black women (17%) are more likely than white men (15%) to start a new business in 2021 in the United States.
Still, just 1 percent of venture capital investment goes to Black entrepreneurs, and 61 percent of Black women self-fund the entirety of their startup capital.
But there’s good news. “Now is the best time ever to raise money as a Black, Latinx, veteran, or woman founder,” says Jewel Burks Solomon.“ Unlike when I was raising money 7 years ago, there are far more investors on the other side of the table who have that shared experience and are looking for BIPOC entrepreneurs to invest in.”
Source: Guidant Financial
The characteristics and mindset that entrepreneurs need to successfully raise capital
So what are those investors on the other side of the table looking for in founders?
Every entrepreneur needs some tenacity, perseverance, or, as Dr. Key says, some grit. “Grit gives you the mental stamina to be resilient,” she says. If we’ve learned anything about the Black experience in America, grit and resilience are essential characteristics. So while there may be obstacles ahead for enterprising Black entrepreneurs, with a bit of grit and a clear head, anything is possible.
Burks Solomon says one of the indispensable traits one must possess when seeking investors is a solid team. “Investors must believe the team is well positioned to win,” she says. “The solution the founders are going after may change over time, but the investor must have confidence that this team will figure it out.”
Coachability is also an important factor that Burks Solomon looks for in the founders she backs. “The ability to recognize where one needs guidance, think critically about the advice received, and apply the advice that’s useful is an important skill to have,” she says.
Burks Solomon and Lenore Champagne Beirne both believe that curiosity is integral to success too. “Great founders are constantly searching for answers to questions and looking around corners to discover things that may not be obvious to others,” Burks Solomon says.
Curiosity is basically the flint to the flame of great ideas and problem-solving; it attracts people who may want to fund a business. “You have to know that you know something to build a business, and you have to know that you don't know other things to hear your customers and understand the market and understand how to improve,” Champagne Beirne says. “There's a balance of competence and humility that I think the best entrepreneurs embody. And I see curiosity as sort of that intersection of the two.”
Funding types that you can consider
Equity-based financing is the process of raising capital through the sale of shares. This is typically done via angel investors or venture capitalists.
“Bringing on [equity] investors is a lot like getting married,” says Burks Solomon. “It’s a long-term relationship and there are different personalities. You want to make sure that you’re actually in a relationship with people that you can learn and grow with.”
Dr. Key is a big fan of Burks Solomon’s investment firm, Collab Capitol. “They have an education approach, where it's not just about numbers, but it's about people, and they're not looking to own so much of people's companies, they're just looking to ensure that these entrepreneurs with these big tech, innovative ideas, have a community surrounding them and the capital they need to accelerate,” she says. “What [they’ve] been able to do is humanize what capital means.”
Friends and family financing is the process of raising startup cash from relatives and acquaintances, usually in the form of a loan or equity shares.
“I think this is for any up-and-coming entrepreneur who hasn't been able to really prove their concept yet. Your first seed round can be friends and family,” Dr Key says. “Now, after you've been able to have a concept, and that concept means you have customers...it would be great to put together your pitch deck and start having focus groups around your pitch deck,” Dr. Key says.
Finding business owners, members of a bank, and local investors to be a part of the focus group is an integral part of practicing your pitch, Dr. Key says. “These people are going to listen and look at it from a critical eye.” “Once they've given you the sign-off,” Dr. Key says, “you’re ready to hit the ground running.” She recommends friends and family because it’s a way to circumvent the barriers inherent in a system that perpetuates institutional racism. Another way to avoid such barriers is by locating inclusive funds.
Startup accelerators and incubators support early-stage companies through financing, mentorship, and education.
The Google for Startups Black Founders Fund headed by Burks Solomon gives non-dilutive funding to promising Black-led companies across the world. “We began the Black Founders Fund because we recognized how existing capital-access gaps were being exacerbated by the pandemic,” Burk Solomon says. “We noticed that capital allocators were becoming even more insular in their allocation strategies, and we wanted to provide what we thought could be catalytic capital to Black founders in our network.”
There are countless other startup accelerators that range in size, focus, and investment. This list of over 700 accelerators, incubators, and investors from the Founder Institute is a good place for Black entrepreneurs to begin their research.
Debt-based financing typically comes in the form of loans and requires the business to pay back the loan principal and interest to the creditor.
“Loans can be a great way to maintain all of your equity in your company but get the funding that you need to go to the next milestone,” Burks Solomon says. However, she cautions that loans are best suited for companies that have a strong go-to-market strategy, paying customers, and are in a position to be able to pay back the loans.
“The thing about loans, though, is that you typically have to have some cash flow in order to obtain [them].”
Crowdfunding is the process of raising money (usually via Internet platforms) from a large number of people who generally contribute relatively small amounts of capital individually. There are 2 main types of crowdfunding: reward-based and equity-based.
Reward-based crowdfunding, popularized by Kickstarter and Indiegogo, enables businesses and creators to offer perks, products, or prizes to funders in exchange for contributing to their campaign. Burks Solomon highlights that in this type of crowdfunding, funders are often incentivized to help support a cause or person they care about. “You’re bringing in your community to help support whatever it is you’re doing,” she says.
Equity-based crowdfunding allows a pool of investors to invest in a business in return for an ownership stake in the company. Made possible in 2012 by the US JOBS Act, businesses can raise up to $5 million for their company. Burks Solomon says equity crowdfunding has its pros and cons. “[Choosing equity crowdfunding] depends on if you want to manage [potentially] thousands of investors who now have a stake in your company,” she says. “But those people can actually be great supporters, customers, and cheerleaders.
“They may be a little bit more patient than traditional investors—or they may be less patient,” she added. “You never know.”
Equity-based financing is the process of raising capital through the sale of shares. This is typically done via angel investors or venture capitalists.
“Bringing on [equity] investors is a lot like getting married,” says Burks Solomon. “It’s a long-term relationship and there are different personalities. You want to make sure that you’re actually in a relationship with people that you can learn and grow with.”
Dr. Key is a big fan of Burks Solomon’s investment firm, Collab Capitol. “They have an education approach, where it's not just about numbers, but it's about people, and they're not looking to own so much of people's companies, they're just looking to ensure that these entrepreneurs with these big tech, innovative ideas, have a community surrounding them and the capital they need to accelerate,” she says. “What [they’ve] been able to do is humanize what capital means.”
Friends and family financing is the process of raising startup cash from relatives and acquaintances, usually in the form of a loan or equity shares.
“I think this is for any up-and-coming entrepreneur who hasn't been able to really prove their concept yet. Your first seed round can be friends and family,” Dr Key says. “Now, after you've been able to have a concept, and that concept means you have customers...it would be great to put together your pitch deck and start having focus groups around your pitch deck,” Dr. Key says.
Finding business owners, members of a bank, and local investors to be a part of the focus group is an integral part of practicing your pitch, Dr. Key says. “These people are going to listen and look at it from a critical eye.” “Once they've given you the sign-off,” Dr. Key says, “you’re ready to hit the ground running.” She recommends friends and family because it’s a way to circumvent the barriers inherent in a system that perpetuates institutional racism. Another way to avoid such barriers is by locating inclusive funds.
Startup accelerators and incubators support early-stage companies through financing, mentorship, and education.
The Google for Startups Black Founders Fund headed by Burks Solomon gives non-dilutive funding to promising Black-led companies across the world. “We began the Black Founders Fund because we recognized how existing capital-access gaps were being exacerbated by the pandemic,” Burk Solomon says. “We noticed that capital allocators were becoming even more insular in their allocation strategies, and we wanted to provide what we thought could be catalytic capital to Black founders in our network.”
There are countless other startup accelerators that range in size, focus, and investment. This list of over 700 accelerators, incubators, and investors from the Founder Institute is a good place for Black entrepreneurs to begin their research.
Debt-based financing typically comes in the form of loans and requires the business to pay back the loan principal and interest to the creditor.
“Loans can be a great way to maintain all of your equity in your company but get the funding that you need to go to the next milestone,” Burks Solomon says. However, she cautions that loans are best suited for companies that have a strong go-to-market strategy, paying customers, and are in a position to be able to pay back the loans.
“The thing about loans, though, is that you typically have to have some cash flow in order to obtain [them].”
Crowdfunding is the process of raising money (usually via Internet platforms) from a large number of people who generally contribute relatively small amounts of capital individually. There are 2 main types of crowdfunding: reward-based and equity-based.
Reward-based crowdfunding, popularized by Kickstarter and Indiegogo, enables businesses and creators to offer perks, products, or prizes to funders in exchange for contributing to their campaign. Burks Solomon highlights that in this type of crowdfunding, funders are often incentivized to help support a cause or person they care about. “You’re bringing in your community to help support whatever it is you’re doing,” she says.
Equity-based crowdfunding allows a pool of investors to invest in a business in return for an ownership stake in the company. Made possible in 2012 by the US JOBS Act, businesses can raise up to $5 million for their company. Burks Solomon says equity crowdfunding has its pros and cons. “[Choosing equity crowdfunding] depends on if you want to manage [potentially] thousands of investors who now have a stake in your company,” she says. “But those people can actually be great supporters, customers, and cheerleaders.
“They may be a little bit more patient than traditional investors—or they may be less patient,” she added. “You never know.”
In the end, Champagne Beirne cautions entrepreneurs to have a thorough understanding of their business’s capital needs, different pathways, and to keep in mind that not all money is good money. “It is not useful to finance your business the wrong way,” she says. “Transactions have a financial component, but they often have nonfinancial elements that are being exchanged.”
“It's really important to understand what you're exchanging,” she continues, and be sure that it’s a worthy trade.“
Answer these questions to determine if you’re ready to raise, and if so, what type of funding you should seek.
1. Does your business have significant financial barriers to entry (i.e. licensing, staffing, legal fees) that you cannot pay out-of-pocket?
If you answered “Yes” to 3 or more of these questions, you may be ready to raise.