Investing in U.S. companies is a cornerstone of wealth creation for profit-seeking investors, and the sooner you can get a piece of the investment pie, the better off you are.
That also applies to the burgeoning black-owned business sector, which has shifted into a higher gear in recent years.
According to the U.S. Census Bureau's most recent annual business survey, released in November 2022, Black-owned businesses had annual revenue of $141.1 billion and payroll payments of $42.2 billion in 2020. Approximately 27.5% of these companies were in the health and social assistance sector. . The number of Black-owned businesses based in the United States has increased to more than 3 million, and Black entrepreneurship has increased by about 38% since 2019, according to the latest Census data.
With aggressive growth rates and mounting sector success stories, it's time for investors to focus on black-owned businesses when adding positions to their portfolios.
Investors interested in backing fledgling startups also have plenty of options.
For example, Uncle Waitley's Beverage Company, a New York City-based ginger beer maker, is using a StartEngine crowdfunding campaign to gain business leverage in the specialty soda and carbonated beverages category. According to industry research, the niche ginger beer market is expected to grow at a compound annual growth rate (CAGR) of approximately 7% to reach more than $8 billion by 2030.
“A lot has happened in the past year since we launched our brand at Whole Foods Market in Harlem in early 2022,” said Uncle Whately founder Karl Franz Williams. “We became the fastest-selling ginger beer in that store, which led to us expanding to 14 more Whole Foods stores by October and on the shelves of all 56 stores in the Northeast by late February.” We're going to line up.”
Assessing the potential of growth-oriented small businesses like Uncle Whateley's is one way to start investing, but it's not the only way. Here's a look at some strategies for engaging with Black-owned businesses as an investor.
- Invest through venture capital.
- Try angel investing or early stage investing.
- Support black fund managers.
- Invest through a CDFI.
- Find out about peer-to-peer lending.
- Stocks in black-owned businesses.
Invest via venture capital
Investing in venture capital is one way to support Black-owned businesses. Rather than investing in publicly traded stocks of large, vetted companies, venture capital investments provide funding to startups and small businesses with long-term growth potential.
Because venture capital investments involve risk, these investments often come from companies that aim to finance startups, wealthy investors, financial institutions, and investment banks. But equity crowdfunding platforms like StartEngine are also becoming a popular way for startups to raise money to get off the ground.
“Black founders raised an estimated $2.254 billion of the $215.9 billion.” said Octavio Sandoval, investment director at Ilmen Capital in San Francisco. This figure represents about 1% of all venture funding last year, indicating plenty of room and opportunity for growth.
“Research continues to show that diverse leadership teams continue to outperform teams that are all white men,” Sandoval notes. “Therefore, there is still a huge opportunity to invest in Black-owned businesses.”
Try angel investing or early stage investing
Investment experts say the most critical period in a startup's journey is the early stages, or “friends and family rounds,” which are twice as long for minority-owned startups.
Data from an innovation hub called 1871 shows that while traditional founders start their businesses with about $100,000 in capital, BIPOC (Black, Indigenous, and people of color) founders only access about one-twentieth of that amount. you can't. It reduces resources to achieve the growth metrics needed for subsequent funding,” said Desiree Vargas Wrigley, chief innovation officer at P33, a nonprofit focused on accelerating growth in Chicago's technology sector. says Mr.
“The most effective way to invest in Black-owned startups is to give them the best chance of creating a business that scales to the next level, whether at the friends and family stage or pre-seed stage.” Wrigley says.
For accredited investors looking to directly support Black-owned businesses, one of the best ways to access deal flow is to learn about pre-seed funds focused on supporting Black founders.
Investment firms such as Fifth Star Fund, Capitalize VC, Harlem Capital, Backstage, Collaboration Capital, LongJump and Rising Stars all have “incredible” founders in their portfolios, Wrigley said. The company is actively raising capital and will likely need a $25,000 check from investors.
Support Black Fund Managers
Wrigley recommends that investors who are not ready to invest directly in startups invest with Black fund managers to diversify their portfolios, reduce risk and maximize impact. There is.
“Great fund managers include Charles Hudson of Precursor, Tessa Flippin of Capitalize VC, Neil Sales-Griffin of Rising Stars, Kathryn Finney of Genius Guild, and Kelly Jones of Sixty-Eight. included,” Wrigley said.
Other funds may provide a common investment gateway for minority-managed portfolio funds. “Founders First Capital Partners is a great example,” says Carrie Endries, director of impact investing at Reinders, McVeigh Capital Management LLC in Boston. “The company's Change Catalyst Fund provides income-based financing to support businesses led by diverse founders. Investors receive quarterly distributions and receive reasonable interest rates over seven years. To make payments, this fund acts like a bond.”
Invest through a CDFI
Speaking of investment gateways, one way to invest in Black-owned businesses that need working capital to expand is through a community development financial institution (CDFI). CDFIs are private financial institutions that provide affordable financing to underserved communities and people who traditionally have no access to financing.
“CDFIs like Capital Impact Partners, for example, are prioritizing BIPOC affordable housing developers and looking to expand their participation in that market,” Endries said. “Community lending funds like the Boston Impact Initiative not only promote racial equity through lending, but also require their portfolio companies to diversify their workforces and suppliers, creating wealth in BIPOC communities in a variety of ways. We are considering building a
She added, “CDFIs and community loan funds are often open to non-accredited investors.”
High-net-worth individuals interested in venture or angel funding for Black-owned businesses should reach out to investment advisors and capital management firms that specialize in impact investing, Endries said. “Advisers can connect with impact funds focused on providing growth capital to Black-owned businesses,” she added. She adds, “It also helps you target your investments geographically.”
Learn more about peer-to-peer lending
For investors looking for creative and low-cost ways to invest in Black-owned businesses, P2P lending can have a lasting impact on business owners. Peer-to-peer loans remove financial institutions from the process and allow individuals to lend to borrowers.
“In 2022, 49% of our borrowers through Kiva US were Black-owned businesses, including creative companies, healthcare providers, retail boutiques, cosmetics and beauty lines, and more,” said Kiva, vice president of investments at crowdfunding company Kiva. President Kathy Geis said. A company located in San Francisco. “These 0% interest loans are often the first step for small business owners to access financing. Our research shows that we are the first step for them to access formal financial services. I know this is my first engagement.”
“Additionally, these loans help provide startups with a solid track record,” Geis added.
Black-owned business stocks
It's possible to invest in stocks of black-owned businesses, but there are caveats, and they're big ones. This is currently difficult due to the lack of publicly traded companies with minority ownership.
“Of the 4,300 publicly traded U.S. companies reported by the U.S. Capital Formation Council in June 2022, seven were black-owned,” Sandoval said. “This corresponds to about 0.16% of listed companies.”
He added, “Black-owned businesses need capital to grow and scale their businesses. Therefore, investors should invest in Black-owned businesses when they are private. “If a company has sufficient capital, it increases its chances of achieving an IPO.” . ”
Endries says researching publicly traded black-owned companies requires some diligence and creativity.
“It's difficult to break down ownership in publicly traded companies by race because stock ownership is dispersed across shareholders,” she says. “A better approach is to look for companies that have strong diversity in leadership, especially at the CEO, SVP, and board levels.”
“Many companies also report diversity statistics, and sustainable investment mutual funds often highlight social and racial justice as one of the lenses they use when determining the fund’s holdings. Yes,” Endries said.
