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Research Outline

Prepared for Celena A. | Delivered July 23, 2020

Capital Funding To Minority and Female Business Owners

Goals

The research aims to identify statistics on the capital raised by minority founders (people of color or black and brown people) and women business owners in the US. The value, number of deals and percentage of total allocated to each type of investors in the past are expected to indicate the potential maximum of funding obtainable in the future.

Early Findings

  • In the space of venture capital funding, only 2% of the fund was granted to female business owners in the US. Within 2%, there was only a fraction of them went to women of color. Between 2007 and 2018, the number of women-owned businesses has increased by 58% while the number of businesses owned by women of color grew by 163%.
  • Regarding the sources of funding of new startups, personal savings and credit cards were the top resources, which 76% and 36% of new firms respectively have used to fund their business. In comparison, only 25% of new firms have used bank loans and 6% have used private equity, such as venture capital for business financing, according to the study by the Bank of America in 2016.
  • The Q2 2020 report by National Venture Capital Association unveiled that in 2019 venture capital fund allocated to female business owners was $19.1 billion in 2,581 deals, while the first half of 2020 saw 280 deals with a value of only $1.4 billion. Both the number of deals and the value of deals are not expected to exceed those recorded in 2019. The corresponding statistics for 2018 were $18.6 billion and 2301 deals and for 2017 were $14.3 billion and 2,174 deals.
  • For technology ventures founded by women of color, only 0.32% of $424.7 billion raised went to Latinx women since 2009, while only 0.0006% of the capital was allocated to start-up businesses owned by black women, according to All Raise.
  • In the 2019 financial year, the Small Business Administration (SBA) has extended a total of $8.8 billion credit (7(a) and 504 lending) to minority-owned businesses in the US, which represented 31% the SBA loan portfolio. During the same period, the loan value to women amounted to $8.1 billion.
  • Research by Global Strategy Group found that only 12% of businesses owned by black and Latino people have received the loan amount that they had applied for. The type of loan refers to the paycheck protection program. The survey was conducted between April 30, 2020, and May 11, 2020, which reflected the historically weak relationship between many major banks in the US and businesses owned by the minority population.
  • A study by the Federal Reserve Bank of Atlanta and Cleveland in 2017 revealed that black business owners were charged an interest rate that was 10% higher than white business owners. The loan approval rate was 20% lower than businesses owned by white people. For those black business owners who received loans, only 40% of them received the full amount they have applied for, in comparison to 70% of white business owners who received their full amount.
  • By 2018, firms owned by black people and women have been one of the fastest-growing segment of small businesses in the US. However, they have faced the challenge of obtaining credit on equal ground with white business owners. The Opportunity Finance Network has launched Venturize that aims to overcome the challenge faced by black and women business owners by offering loans, ranging from $5,000 to $100,000.
  • In 2018, the research by American Express found that there were 2.4 million firms owned by black women and they have had "the higher shares of business ownership than black men."