Raising Capital

As Population Becomes More Diverse, Funding Options Grow

Amy Cortese | January 19, 2016

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The gorgeous mosaic that makes up the U.S. is becoming more so. African-Americans, Asian Americans and Hispanics collectively account for 38% of the U.S. population, and are expected to surpass 50% by 2044. And the Millennial generation is not only large, it is the most racially diverse in the nation’s history.

This multi-culti melting pot will result in new products, markets, and solutions yet to be dreamed up. Indeed, a diverse perspective is critical to solving big social and economic challenges, such as inequality, climate change, education and poverty.

Yet somehow, the country’s money men (because yes, they’re mostly men) have not gotten the memo. Generally speaking, the nation’s banks, venture capitalists and angel investors have a dismal record when it comes to funding minority and women-owned businesses. We’ve all seen the stats.

But that bleak landscape is starting to change, as new players and old channel capital to innovative entrepreneurs who for too long have been on the margins. It’s not altruism—at least not in all cases. There’s a strong business motive driving the diversity agenda. As David McClure, the founder of 500 Startups, which has been rapidly expanding into emerging markets, told TechCrunch, “Women and minorities are undervalued assets. You could argue that we’re arbitraging racism and sexism globally for our own benefit.”

Here are some funders that see an opportunity to invest in diverse entrepreneurs:

THE SUITS

Intel Capital’s Diversity Fund

Few Silicon Valley companies have made as big a commitment to diversity as Intel Corp. A year ago, the chip giant announced a $300 million initiative to make its workforce mirror that of the broader population by 2020. Then, in June, it announced the Diversity Fund, a $125 million venture fund that will focus on underrepresented minority entrepreneurs—African Americans, Hispanics and Native Americans, who, the company has noted, together make up fewer than 1% percent of Silicon Valley’s venture-backed CEOs.

The fund is looking for growth-ready startups in areas that strategically align with Intel’s businesses, such as cloud computing, the Internet of Things, cybersecurity, wearable devices, and mobility.

Portfolio companies: Brit + Co, Lisnr

Comcast Ventures Catalyst Fund

Part of Comcast and NBCUniversal, this fund aims to “find, fund and nurture smart entrepreneurs, who sometimes fall outside the traditional tech ecosystem, giving them the same access to resources that their well-connected peers might enjoy.” The $20 million Catalyst Fund makes seed and Series A investments, primarily in the areas of consumer, mobile and enterprise systems. The fund looks for companies that have at least a minimally viable product or demonstrated traction.

Portfolio companies: Makers Row, Cuyana

THE INNOVATORS 

Impact America Fund

“Technology, combined with a deep understanding of low-to-moderate income community needs, is at the core of our investment strategy,” says Kesha Cash, founder of Oakland, CA-based Impact America.  That means identifying and nurturing entrepreneurs who are making quality goods and services more affordable, opening up supply, developing tools for small businesses, and generally creating opportunities to enhance the quality of life for all Americans. The fund looks for early stage, tech-enabled businesses in education, health and wellness, and emerging marketplaces.

Portfolio companies: ConnXus, Mayvenn 

Cross Culture Ventures 

This venture fund was founded last year by former Intel Capital partner Marlon Nichols and Troy Carter, the founder of Atom Factory, an entertainment management firm that has worked with pop culture artists such as Lady Gaga. The pair is on the hunt for companies that fuel shifts in culture trends and behaviors in an increasingly diverse global marketplace.”

Portfolio companies: LendStreet, Afrostream

Camelback Ventures 

An Oakland, CA-based incubator for entrepreneurs of color that provides small amounts of seed funding (raised through charitable donations) and copious amounts of coaching and mentoring. Camelback accepts about a dozen entrepreneurs for its yearlong program (the cohort meets in person three times a year). The program is initially focused on early-stage education and social ventures, including nonprofits, in Chicago, New Orleans, New York and Oakland.

Companies: Beyond Z, The Knowledge House

THE MICROLENDERS

Kiva Zip 

A decade ago, Kiva pioneered online microfinance, allowing micro-entrepreneurs in far-flung places to crowdfund loans from the public. More recently, the company has blazed a new trail with Kiva Zip, a “social lending” program that facilitates direct, no-interest loans to micro-entrepreneurs in the U.S.  The program aims to expand access to low-cost financing opportunities for borrowers who otherwise lack them, while fostering connections between borrowers and lenders. With Zip, the focus is on trust and a borrower’s reputation in the community rather than credit history—an approach that creates access for thousands of entrepreneurs who would not qualify for a bank loan. Sixty-four percent of Kiva Zip borrowers are ethnic minority entrepreneurs.

Borrowers: Chile Lindo  The Harlem Pie Man 

Community Development Financial Institutions (CDFIs). These U.S. Treasury-certified nonprofit institutions provide financial services to members of underserved communities, including families and entrepreneurs, often in the form of low-interest loans. The loans come with lots of hands on mentoring and training—one reason CDFIs have historically had a very low default rate even though the loans they make would be considered risky by traditional banks. Prominent CDFIs include Accion and California’s Opportunity Fund, but there are more than 800 of these mission-driven institutions across the country.

Borrowers: Southern Girl Desserts, My First Steps Babycare

SBA Loans

Finally, don’t overlook the Small Business Administration. The federal agency supports small business lending by guaranteeing loans made by qualifying banks. The SBA also has programs that target or are suitable for minority entrepreneurs, including SBA Community Advantage Loans and the SBA Microloan Program.

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