Investing in Minority Entrepreneurship is not Philanthropic, It’s Business

Key Takeaways:

• 60% of Black-owned businesses were in distress during the pandemic compared to 30% of white-owned businesses.
• The rate of success of securing PPP funding for white-owned businesses was 60% and for Black-owned businesses 30%.
• The economic recovery of disadvantaged businesses does not mirror top-line economic statistics.
• Detroit is an 80% Black city whose biggest asset is human capital.
• Black business owners are not looking for an advantage but opportunities.

In early 2020, 60% of Black-owned businesses were in distress and at risk of closing. By March 2020, 40% were in the process of closing.

According to Candice Matthews Brackeen, executive director of Lightship Capitol, this was not a surprise. The distress rate for Black-owned businesses during the pandemic was 60%, compared to white counterparts whose distress rate was approximately 30%.

“That’s a lot of companies closing (nearly) all at once, and that happened because of the wealth gap. They didn’t have enough money to stay open. They didn’t have any leverage to get those companies to stay open,” Brackeen said.

This topic of venture capital among minority entrepreneurs, including people of color and women, was explored through a lens of diversity, equity, inclusion, social justice, and sustainability during High Expectation, High Returns: Investing in Minority Entrepreneurship at Mackinac Policy Conference on Wednesday, Sept. 22.

Vickie Thomas, communications director of the City of Detroit, moderated the panel that included Brackeen, who explored the topic from a national perspective; Brian Calley, president of the Small Business Association of Michigan, who approached the subject from a statewide perspective; and Hiram Jackson, chief executive officer of Real Times Media, who discussed with a local lens.

Minority entrepreneurship and difficulty in accessing capital has been a hot topic over the past year, particularly when examining the distribution of Paycheck Protection Program (PPP) loans, which were given to businesses to help them sustain their workforce. According to Bracken, the success of securing funding from PPP for white businesses was around 60%. Black-owned businesses had a success rate of 30%.

This disparity was not unusual. In fact, it only highlighted the challenges Black-owned businesses faced before the pandemic.

“The pandemic had an exaggerated impact on those who already faced major challenges,” Calley said. “So, all the things that were true pre-pandemic was true to a larger scale after the pandemic.”

When looking at the top-line economic statistics, Calley said how easy it is for people making important decisions about loan distributions to think businesses and the economy are back on track. However, that is not true for everyone, especially businesses that started off disadvantaged. Their recovery does not mirror those top-line statistics.

“It takes a really intentional decision that you’re not going to rely on the fact that the unemployment rate has come down, that the housing market is hot, and that our mainstays and manufacturing, they’ve got more demand than they could possibly need. The smaller businesses…the industries that were most negatively impacted by the pandemic also are the ones that are bounded by smaller companies, and that has really created a scenario where the world is kind of moving on and leaving a lot of people behind,” Calley said.

One approach Brackeen shared that many banks, financial institutions, and other people are using to try and overcome this urgent issue of minority-owned businesses shuttering is mentorship. But she does not believe that is the best approach.

“People are kind of pushing mentorship. Mentorship is great. Let’s mentor this company and eventually they’ll be profitable. That is wonderful to have lots of great mentors, but we’re very intelligent people. We have a disparity of opportunity, and many of that is financial opportunity. Mentorship is not going to pay a purchase order from Target, Walmart, or anywhere else. Until we figure that out, there’s no sense of urgency,” Brackeen said.

Jackson agrees with that, especially when talking about the lack of investments in Black-owned businesses in Detroit—a city that is 80% Black.

“If you can’t develop a sense of development around Black entrepreneurship in Detroit, where can you do it? Detroit is 80% Black. If our greatest asset is human capital, wouldn’t it make sense from a business perspective to invest in the largest asset class in Detroit?” Jackson said.

The mistake many investors are making, according to Jackson, is looking at investments in minority-owned businesses as philanthropic. Minority business owners are not looking for a handout.

“We’re all trying to make a profit to reinvest in our businesses and communities. Those of us that are Black and in business, we’re not looking for an advantage. The sophistication of our approach, our education, our experience —we feel like we already have an advantage if you give us an opportunity. The whole conversation around having corporations and investors give Black people or minorities something without the expectation of return, that’s not how entrepreneurship works,” Jackson said.

This session was sponsored by Delta Dental.