Silicon Valley bank collapse renews calls to address disparities affecting entrepreneurs of color

CNN
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Last month, as Silicon Valley Bank clients rushed to withdraw billions of dollars, venture capitalist Alan Hamilton stepped in to help some founders of color panicking about losing their salary funds.

As a Black woman with nearly 10 years of business experience, Hamilton knows the options for these startup founders are limited.

SVB has a reputation for serving people from underrepresented communities like hers. Its failure has reignited concerns among industry experts about lending discrimination in the banking industry and the resulting capital disparities for people of color.

For entrepreneurs of color, “we're already in smaller houses. We've got rickety doors and thinner walls,” said Hamilton, 43, founder and managing partner of Backstage Capital. When tornadoes come, we get hit harder.”

The midsize California technology bank was founded in 1983 and was the 16th largest bank in the United States as of the end of 2022 before its collapse on March 10. SVB provides banking services to nearly half of all venture capital-backed technology and life sciences companies in the United States.

Hamilton, industry experts and other investors told CNN the bank is committed to cultivating a community of minority entrepreneurs and providing them with social and financial capital.

SVB regularly hosts conferences and networking events for minority entrepreneurs, Hamilton said, and it is known for funding the annual Black Entrepreneurship Report spearheaded by BLK VC, a nonprofit that connects and empowers Black investors. .

“SVB says ‘yes’ when other banks say ‘no,’” said Joynicole Martinez, an entrepreneur with 25 years of experience and chief development and innovation officer at Rising Tide Capital, a nonprofit founded in 2004 year, aiming to connect entrepreneurs with investors and mentors.

Martinez is also a full member of the Forbes Coaches Council, an invitation-only organization for business and career coaches. She said SVB is a valuable resource for entrepreneurs of color and provides their clients with discounted technology tools and research funding.

Many women and people of color say they have been shut out

Experts say minority business owners have long faced challenges accessing capital due to discriminatory lending practices. Data from the Small Business Credit Survey, conducted jointly by all 12 Federal Reserve Banks, show differences in denial rates for bank and non-bank loans.

The survey showed that about 16% of black-led companies obtained all their business financing from banks in 2021, compared with 35% of white-owned companies.

“We know there is historic, systemic and blatant racism inherent in the lending and banking industry. We have to start here, not tiptoe around it,” Martinez told CNN.

Asya Bradley is an immigrant founder of several technology companies including Kinley, a financial services company that aims to help black Americans build intergenerational wealth. After SVB collapsed, Bradley said she joined a WhatsApp group of more than 1,000 immigrant business founders. Members of the group quickly mobilized to support each other, she said.

Immigrant founders often don't have Social Security numbers or permanent addresses in the United States, so it's critical to brainstorm different ways to find funding in a system that doesn't recognize them, Bradley said.

“This community is really special because a lot of people are sharing different things they've done to be successful in getting accounts in different places. They're also able to share different regional banks that are standing up and saying, 'Hey, if you Have an account with SVB and we can help you,'” Bradley said.

Bradley said many women, people of color and immigrants choose community or regional banks like SVB because they are often rejected by the “Big Four” — JPMorgan Chase, Bank of America, Wells Fargo and Citibank.

Bradley said her gender may have been an issue in her case because she could only open a business account with one of the “big four banks” and her brother co-signed for her.

“The top four don't want our business. The top four keep turning us away. The top four are not serving us as well as we should. That's why we choose regional banks like Community Bank and SVB,” Bradley explain.

None of the four major banks commented to CNN. The Financial Services Forum, a group representing eight of the largest U.S. financial institutions, said banks have committed millions of dollars since 2020 to address economic and racial inequality.

Last week, JPMorgan CEO Jamie Dimon told CNN's Poppy Harlow that 30% of the bank's branches are in low-income communities, part of a $30 billion commitment to Black and brown communities across the country part of.

Wells Fargo singled out its 2022 Diversity, Equity and Inclusion Report, which discusses recent initiatives the bank has taken to serve underserved communities.

The bank last year partnered with the Black Economic Alliance to launch the Black Entrepreneur Fund, a $50 million seed, startup and early-stage capital fund specifically targeted at businesses founded or led by Black and African-American entrepreneurs. Since May 2021, Wells Fargo has invested in 13 minority depository institutions, fulfilling its $50 million commitment to support Black-owned banks.

Black-owned banks work to close the lending gap and promote economic empowerment in these traditionally excluded communities, but their numbers have been shrinking for years and they have far fewer assets at their disposal than top banks.

OneUnited Bank is the largest black-owned bank in the United States, with slightly more than $650 million in assets under management. By comparison, JPMorgan Chase has $3.7 trillion in assets under management.

Because of these differences, entrepreneurs also seek funding from venture capitalists. In the early 2010s, Hamilton was looking to start her own tech company, but when looking for investors, she discovered that white people controlled nearly all venture capital funding. This experience led her to found Backstage Capital, a venture capital fund that invests in new companies led by underrepresented founders.

“I said, 'Well, instead of raising money for a company, I'm going to try to raise money for a venture fund that's going to invest in underrepresented (what we now call undervalued) women, people of color, and LGBTQ people. ) specifically, 'cause I'm three people,” Hamilton told CNN.

Since then, Backstage Capital has amassed a portfolio of nearly 150 different companies and made more than 120 diversified investments, according to Crunchbase.

But Bradley, who is also an “angel investor” in minority-owned businesses, said she remains “very hopeful” that community banks, regional banks and fintech companies “will all stand up and say, 'Hey, we're not going to let SVB's Good work down the drain.”