A New Funding Tool Aims to Fill the ‘Friends & Family’ Gap for African American Entrepreneurs

Amy Cortese | September 23, 2016


When starting a new venture, entrepreneurs have long been told to reach out to their friends and family for their initial seed capital. And in the crowdfunding age, early support from a close social network can make or break a fundraising campaign.

Yet the concept of friends & family funding can be baffling to entrepreneurs who do not come from privileged backgrounds or didn’t attend the right schools. And it can be downright maddening to many African Americans, who, after decades of systematic discrimination, trail behind whites in household wealth.

The median wealth of a black household is just $11,000, compared to nearly $142,000 for white households, according to federal data from 2013. And two-thirds of blacks lack adequate savings. So how are they supposed to invest?

“What friends? What family?” asks an exasperated Jessica Norwood, founder and executive director of Emerging ChangeMakers Network, which works to address issues of economic injustice in the deep south. “How exactly would that work?”

Jessica Norwood
Jessica Norwood

That question led Norwood and a diverse group of innovators—spanning the Impact Hub Oakland to a federal credit union and a CDFI association—to embark on what they dubbed the Runway Project, aimed at addressing the gap for seed funding for African American entrepreneurs that is typically provided by friends & family.

“We’re trying to institutionalize the rich uncle,” says Kevin Jones, the founder of the Social Capital Markets conference (SOCAP) and a lead instigator behind the effort (shown above with, from left to right, Rani Croager of Uptima Business Bootcamp, Konda  Mason of HUB Oakland, and Annie McShiras of the Self-Help Federal Credit Union).

Last week, the group announced the first result of their collaboration: a 5-year CD that will fund loans to early stage entrepreneurs of color. The CD, tentatively called the Friends & Family CD, will be piloted in Oakland, Calif. Funds will be held by the Oakland branch of the Self-Help Federal Credit Union, and will pay competitive rates (currently 1.8%) to attract depositors. (Because credit unions are member-based cooperatives, profits flow back to members in the form of higher depository rates and decreased loan rates, not to external shareholders with lofty return expectations).

Funds for a separate loan-loss reserve are being raised from philanthropic sources to stand in for collateral. The details of the CD are being finalized, but the product is expected to be available to investors sometime next month.

“This is ‘believe in you money,’ the kind of money that says ‘I believe in taking a risk on you and want to give you a chance to explore,’” says Norwood. That, she says, is a powerful statement for entrepreneurs of color to hear and one that can start to change the narrative around black entrepreneurship.

The friends & Family CD was announced at the SOCAP in San Francisco, the annual gathering of impact investors, as well as at two related events preceding it—the SOCAP spinoff Neighborhood Economics and CoCap, an event held at HUB Oakland. In fact, it was one member of the group’s experience at SOCAP four years ago that set the ball in motion.

The median net worth of business owners is almost 2.5 times higher than non-business owners. For a black woman, the difference is more than 10 times.

As a first time SOCAP attendee, Konda Mason, the cofounder & CEO of HUB Oakland, was struck by the lack of diversity at the conference, the largest such event for impact investors. While money was flowing to the African continent, little or no attention was being paid to the needs of African Americans right under investors’ noses in places like Oakland.

“What about African Americans?” she challenged Jones.

He hadn’t thought about it before, but spent the next two years trying to get the wealthy investors who attend SOCAP to focus on the issue—to no avail. Jones kept mulling the problem, but it wasn’t until he invited Jessica Norwood to speak at his Neighborhood Economics event, a sort of local version of SOCAP, that the pieces began to fall into place. They convened a group last fall that included Connie Evans, the president and CEO of Association of Enterprise Opportunity (AEO), a trade association for CDFIs, and the Self-Help Federal Credit Union. Self-Help had already had success with specialty CDs, like one designed to support women and children, so the bank was a natural partner.

The new CD draws, in part, on a solid track record of microfinance and CDFI experience with character-based lending. In order to pre-qualify for the loan, the entrepreneurs must first complete a startup program such as the Uptima Business Bootcamp, a multi-week program based at Impact Hub Oakland. Self-Help will provide another level of light underwriting. But the loan-loss reserve is there to protect investors and credit union members from anticipated higher losses associated with these riskier loans. The CD is structured as a 5-year deposit to match the length of the loans, which will average around $10,000.

Related: Closing the Racial Wealth Gap Through Business Ownership

As Population Becomes More Diverse, Funding Options Grow

An Impact Investor’s Journey From Appalachia to Silicon Valley and Back 

The CD is just the start. Many underserved entrepreneurs are already saddled with debt, and the group plans to explore equity solutions. “We need to have the entire capital stack and suite of products,” says Mason of HUB Oakland.

The product arrives at an opportune moment, as minority entrepreneurship is on the rise and increasingly recognized as a powerful path to addressing the wealth gap. “Our theory of change is that building wealth in our communities is going to come from entrepreneurship, ” says Mason.

The wealth gap and lack of early seed capital is holding back talented entrepreneurs of color. “African Americans have the same level of aspirations and inspirations to start their own business, they just lack the capital,” says Connie Evans of AEO, which has conducted research on the issue with support from the Kellog Foundation.

An AEO study from 2011 found that the median net worth of business owners is almost 2.5 times higher than non-business owners. For a black woman, the difference is more than 10 times. The research also found that a $5,000 increase in revenues per microbusiness per year (less than $500 a month) would generate more than $20 billion nationally. The study is called “The Power of One in Three” for one of its key findings, that if one out of every three micro-entrepreneurs hired just one additional employee, the U.S. would be a full employment).

You can learn more about the Runway Project by watching this video from SOCAP.


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  1. Inspired by how the various partners put their expertise and resources together to create this first-step solution. As someone who works in crowdfunding at the ground level, I have seen many viable business ideas never leave the station for lack of funding and how small
    amounts of “believe in you money” can transform an entreprenuer’s confidence and business. Here’s to more collaborations like these!

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