The promise of venture capital funding is tantalizing for any entrepreneur. Every day we see another Series A funding announcement for millions of dollars, to the point where it feels like the only measure of success in business comes from how many – and how much – VCs believe in a business.
For Black businesses in particular, venture capital funding is almost a mirage. While there are billions being invested every year, representation in both VC firms and the businesses they back is largely not seen by Black and minority-owned businesses. Some studies have revealed that a mere one percent of VC-backed founders are Black, and 81 percent of VC funds have no Black investors. It can be frustrating sitting around waiting for a VC call to come, or for term sheets to arrive, but the sad reality is that the amount of money available within venture capital can make it seem like their validation is the only way for a business to “make it.”
In the wake of the protests that shined a light on racial inequity last summer, some VC firms began initiatives to help support Black businesses, which further ingrained the idea that venture capital funding was the best way forward for Black entrepreneurs. While these investments are a step in the right direction, they represent a drop in the bucket in the world of investment, and there simply is not enough to go around to support all Black entrepreneurs seeking investment. It’s time that we move beyond the paradigm that states venture capital is the end-all-be-all of business success.
Redefining Measures of Success
The push towards venture capital for Black entrepreneurs is important, but with the funding disparities on display, it’s important to focus internally to determine overall business health and evaluate other indicators that prepare a business for the future without relying on outside investment, particularly in the early stages of growth and business development.
The challenge that many Black entrepreneurs face is a knowledge gap that doesn’t prepare them for the realities of the business world. Many Black and minority-owned businesses exist within the service sector, which engenders an act-first, get-it-done mentality. While this scrappy upstart business approach leads to ingenuity, when it bumps up against future forecasting, it can lead to a lack of preparedness for long-term growth. Without a concrete understanding of cost of goods sold, inventory management, economies of scale, and other foundational business considerations, Black entrepreneurs begin a step behind their industries.
For many Black entrepreneurs in the service sector, initial success for their product can be incredibly encouraging; but with that growth comes a whole host of new problems such as understanding the transition to wholesale and distribution, and the minefield that is copyright and intellectual property. Without the acumen to take a business to the next level, many Black entrepreneurs are left with a good idea that they’re unable to translate to a broader market.
Not No, Just Not Now
Venture capital funding is a great goal, but it can’t be the end-all-be-all for Black and minority-owned businesses. While it’s true that so-called “unicorns” exist, it’s important to recognize that when they exist, they exist on the back of a great deal of effort.
VCs aren’t just investing in an idea, they’re investing in a host of variables and projections that determine a company’s long-term growth and viability. For many Black and minority-owned businesses, the prospect of VC funding can be the end goal, just not the first goal. Only after getting their own finances and plans in order can they begin seeking large-scale outside investment to bring their business to the next level.
Building the Infrastructure for Generations of Opportunity
Bridging the knowledge gap for Black and minority-owned businesses is an essential first step in shaping the future. While there are some resources that exist for Black entrepreneurs, they are few and far between or prohibitively expensive; and the ones that do exist may be isolated to urban areas that exclude access for a more dispersed population.
By leveraging the expertise and experience of successful Black entrepreneurs, we create an infrastructure that builds upon the knowledge of past generations, and compounds with the success of current and future generations of Black businesses. This transfer of knowledge can give upstart entrepreneurs the tools they need to understand best practices and the factors that determine long-term, sustainable growth.
With this knowledge, gleaned from decades of experience from successful entrepreneurs, up-and-coming Black and minority-owned businesses will be put in the best position to seek venture capital funding when the time comes. By investing in our own communities with our time and experience, we open the door for entirely new avenues of investment.
Editor’s Note: The opinions expressed in op-eds are those of the authors and do not necessarily reflect those of Arkansas Money & Politics or About You Media Group.