It's Hard To Start A Business When You're A Black Woman In America

Arlan Hamilton doesn’t seem like someone who would suffer from stage fright. After all, in less than two years, the 36-year-old founder of Backstage Capital has made a name for herself as an outspoken black, gay woman shaking up the tech industry. She’s been profiled by Inc. and TechCrunch, thanks in part to her interesting origin story, which includes anecdotes from her past career in the music industry.

Hamilton is just what the start-up world needs: a fresh perspective. And while she might not be prepared to accept every speaking engagements she’s offered, she is determined to dispel every myth about the lack of Black and Brown talent in tech while helping minority entrepreneurs get a leg up.

“People write to me all the time," Hamilton explains. "Founders, investors, a lot of executives at tech companies, and they say, 'Thank you for saying what you’re saying because I can’t, but I’m thinking it.'”

Hamilton has always been entrepreneurial, but she didn’t get involved with start-ups on a deeper level until four years ago, when she started doing small projects for a few founders she knew, offering to use her branding expertise to help them with advertising, marketing, and recruiting. The more deals she tried to make, the more upset Hamilton became about the struggles many founders were facing because of their race and gender.

It didn’t matter what market these entrepreneurs were trying to break into, she explained in a phone interview with Refinery29: “White male investors across the board said they 'didn’t understand' or it 'wasn’t for them.' After this happened dozens of times, I had enough data to say, ‘No, this isn’t my imagination; this isn’t a chip on my shoulder. This is truly a bias, whether unconscious or not.' I spent a few minutes taking it personally, but then I realized that there was an opportunity to capitalize on the fact that a lot of people are missing the boat.”

In the year and a half since Hamilton launched Backstage Capital, she has employed eight part-time employees (who are spread across L.A., Oakland, San Francisco, Atlanta, New York, Portland, and Durham), reviewed proposals from 1,500 companies, and invested in 40. She has also stuck to her mission of investing in LGBTQ and minority-owned companies: 65% of founders are people of color, 65% are women, and 35% are women of color. (Hamilton says Backstage lists 10% of founders who identify as LGBTQ.) Her goal is to have 50% women-of-color founders by the time her portfolio reaches 100 companies, and Backstage is well on its way. But Hamilton continues to be surprised by the feedback she receives — often, the VCs she works with are shocked with how resourceful and scrappy Backstage’s businesses are.

“It has gotten relatively easier to raise money because we have more of a track record, but I still have to educate investors about why [Backstage] is a good investment,” she says. “I’m having the same conversations I had two years ago, when they would say, believe it or not, ‘It doesn’t make sense that a Black woman could run a company successfully.' It will come out of their mouths before they can put it back in: ‘I didn’t know they had it in them.’”

This skepticism is hardly surprising in light of the data about the kind of funding Black and Brown women receive when they start their own businesses. In 2014, a report from the U.S. Senate Committee on Small Business and Entrepreneurship found that even though women accounted for 30% of all small businesses owners, they received only 4.4% of small business loans. “In other words, just $1 of every $23 in conventional small business loans goes to a woman-owned business," the report explains. That lack of investment is compounded for Black and brown women who the report says “face greater difficulties in accessing loans from financial institutions, including having their loan applications rejected more often, receiving smaller loans, and experiencing higher borrowing costs.”

The 2016 State of Women-Owned Businesses Report, a review commissioned by American Express OPEN, noted the number of women-owned businesses between 2007 and 2016 increased by 45% — a rate the report explains is “fully five times faster than the national average.” A sizable percentage of that growth was driven by women of color, with their firms increasing by 126% during the same period; that means nearly eight out of every 10 new women-owned businesses launched since 2007 was started by a non-white woman of color. Digging even deeper, OPEN showed that the gains during that nine-year period were greatest among Black women and Latinx women by far. Unfortunately, the support these women receive is inversely proportional to their ambitions.

Have a brilliant business idea? You’ll need between $10,000 and $50,000 just to get started building prototypes and testing at the very earliest stages. From here, start-up founders usually seek another $100,000 to $500,000 from angel investors for “pre-seed” funding to prove their concept and start to grow. By most estimates, there have only been between 13 and 20 Black women who have raised $1 million or more from outside investors. Sure, this is a big accomplishment for each individual, but it’s mind-bogglingly small in aggregate.

A report issued last year from DigitalUndivided found that Black women received 0.2% of all venture deals from 2012 to 2014 and had raised an average of $36,000 in funding overall. For reference, “the average amount raised industry-wide by start-ups that ultimately fail is $1.3 million,” the report stated. “The takeaway," it explained, "is that Black women founders are not raising nearly enough to even test their ideas in the market, and even the best Black women-led start-ups (as indicated by the amount raised) do not raise as much as failed start-ups led by others, namely white men.”

“I think as an entrepreneur, particularly as a Black woman entrepreneur, realize you’re going to have to be twice as good — it’s going to take you twice as long to raise [money]," advises Kathryn Finney, the founder of DigitalUndivided. "It doesn’t mean you’re not going to raise it, just that it’s going to take you much, much longer to raise a smaller amount than your counterpart.”

The organization, which trains and supports Black and Latinx founders, is just one of a number of growing resources available to underrepresented minorities looking to break into the start-up world. Whenever she discusses equity and investment in the Black community, particularly with people who aren’t Black, Finney says the first thing they say is, “What about wealthy Black people?” But Black wealth is not at all the same as white wealth. As a result of myriad and entrenched prejudicial policies, Black families have one-seventh of the wealth of white families, are more likely to have that wealth tied up in homeownership, and are also more likely to be supporting family members.

“When you are a wealthy Black person, you are not just taking care of you, your kid, your wife, or whomever. You are probably taking care of parents and siblings, and you might be taking care of aunts, uncles, nieces, and nephews. Our wealth is not just our wealth,” Finney says. “So if you say, ‘Go to a wealthy Black person,’ there are about 100 people who are already going to that wealthy Black person because there just aren’t that many. Saying that to me is like asking, ‘Why don’t you go to Bill Gates?’”

Kelechi Anyadiegwu, DigitalUndivided’s former social media manager and the founder of Zuvaa, an online marketplace for African and African-inspired designs and textiles, is one person who is very aware of the lack of funding afforded to young, Black female entrepreneurs.

“I’m excited that there are women of color venture capitalists who are starting these funds because they understand it and see the real opportunity,” she says. “I feel like when I talk to white guys or even men [in general], they don’t see the potential for African fashion or realize how big the industry is because that’s not their experience.”

Anyadiegwu, 27, launched Zuvaa in Atlanta three years ago. She started by growing the company’s following on Instagram, Pinterest, and Facebook, where she shared images that cultivated the brand’s aesthetic. Once she got a feel for what people liked, Anyadiegwu launched the Zuvaa website, which currently features designs from 75 vendors from around the world — 25% from Africa, 10% from Europe and Australia, and the rest from the U.S. Zuvaa did $2.3 million in sales last year, and Anyadiegwu is aiming for $5 million this year and $100 million over the next five years through online and IRL sales from Zuvaa’s pop-up events. So far, though, none of the company’s income has come from outside investors, something she aims to change this year.

“In conversations that I’ve had in the past with investors, there have been perceptions about what the company is, and thinking we’re a company that’s only for Black women,” she says. (As if a soon-to-be $1.4 trillion market largely driven by Black women is a matter of “only.”) “It was really important for me to have a clear vision of how we’re going to grow this company and where it’s going, and to work on our messaging so that if we are seriously approaching investors, we’re putting our best foot forward.”

Of course it’s necessary for any entrepreneur to spend time shaping her idea, testing it out on the market, getting feedback, and honing in on any issues before asking people to throw money her way. Not every idea is good or viable. But the obstacle course of requirements and expectations that entrepreneurs of color must overcome before receiving funding is laughable when you consider how many booze-delivery apps get seven-figure deals.

“It’s not about a lack of capital; it’s about redirecting and reallocating that capital to opportunities that have been marginalized for whatever reason from the mainstream,” says Stefanie Thomas, the senior associate of investments at Impact America Fund (IAF). “Traditional VCs are overlooking these billion-dollar market opportunities that address the needs of low- to moderate-income groups in America. People are looking for the next hooded white guy, the next Mark Zuckerberg. As a Black female, if I want to see more Black women getting access to funding, then I need to be on the other side, cutting the check.”

Thomas grew up in Washington, D.C., watching her father try to launch endeavor after endeavor. He didn’t have a college education or a formal business education, she says, but his life’s aspiration was to be financially independent, self-reliant, and “to actually own something.”

“A lot of his challenges were centered around capital accessibility, where he would be turned down for small-business loans and didn’t have access to friends or family who could invest in him initially to get an idea off the ground,” she says. “It wasn’t until I started working in corporate banking that I reflected on a lot of the issues, especially for under-resourced entrepreneurs.”

At IAF, Thomas and her team look for companies that have the potential to grow and become financially successful, but also ones that aim to make a social impact. One of the companies in IAF’s portfolio, Pawn Guru, brings the centuries-old pawn industry into the digital age by allowing users to list their items online, where pawn shops pitch their best bids. Thomas says a pawned item that might normally go for $50 could get $150 on the platform, a difference that is “everything” to users.

“There are 30 million people in this country who are unbanked or underbanked and use the pawn industry as a way to get access to liquidity,” she says. “If Citibank comes out with a new application for mobile banking where I can deposit a check through my camera, that’s cool and convenient, but it’s not really transforming my life. But that $100 difference [on Pawn Guru] could mean the difference between being able to pay rent or not. That’s a totally different narrative.”

Both entrepreneurs and VCs of color are challenged to keep perspective in mind when moving forward. After all, they don’t really have the luxury to completely disengage — not when investors are essential for taking businesses to the next level. Like all entrepreneurs who are seeking money or mentorship, their best bet is to throw themselves out there, again and again, and hope for the best — even when it seems like investors are rejecting people as well as ideas.

“I have walked into a room in Silicon Valley where I was handed keys because I must be the valet, and jackets because I must be checking people’s coats. This has happened maybe half a dozen times in the past two years,” Hamilton says. “There are a lot of surreal moments when I have to say to myself: You’re a venture capitalist. You have a multi-million-dollar fund. You’ve invested in 40 companies. But you are also a Black woman in America. So you’re going to be handed someone’s jacket when you walk into a fancy situation. It’s just what we have to go through, and I try to use that as fuel for the fire to keep going.”

Hamilton has seen POC founders treat their conundrum in one of two ways. Sometimes, she says they become “a little bit bitter” and see funders as the oppositional bad guys and themselves as Robin Hood. Other times, she says, they try to look at the situation in a more optimistic light, with a partnership framework: Today, one partner holds the purse strings, but one day, it will be more equal.

“I personally believe in the latter,” Hamilton says. “I’m not kumbaya-ing, and I’ll definitely call out people. But I think on both sides, the strategy that wins is more about collaboration. We need them, but they also need us. They just may or may not know that right now.”