In This Issue:
- Closing the Access to Capital Divide: A Role for Allies
- Editor's Note
- Project W Female Founders on the Frontlines
- How You Can Help
- Arlan Hamilton Q&A
- Featured Virtual Event
- Identifying Information Risk: A Checklist of Potential Privacy and Security Pitfalls and How to Avoid Them
Closing the Access to Capital Divide: A Role for Allies
Co-founder, Institute for Entrepreneurial Leadership and Founder, Women of Color Connecting
Since co-founding the Institute for Entrepreneurial Leadership in 2002, Jill has been a pioneering voice for inclusive entrepreneurial ecosystems. At a time when what divides us seems greater than ever, Jill discusses why the path forward must recognize the history of the wealth gap and she shares her thoughts on what we should do about it.
Let’s have real talk about the problem for Black entrepreneurs when it comes to accessing capital. We focus a lot on credit and collateral issues, banks not lending, and how little venture capital goes to Black founders. But let’s dive into the source of our problems — lack of Black wealth.
The median White household wealth in the United States is $171,000 compared to $17,000 for Black households. Under the pressure of several macro issues, the median Black wealth is projected to go to zero by 2053. Among the reasons why this shocking statistic matters is how it impacts the access to capital conversation.
When we consider the source of capital to start businesses, personal savings and credit account for $185 billion of the money that funds businesses. Next comes friends and family, which accounts for another $60 billion, and then venture capital and bank financing which together contribute about $36 billion. Angel capital is the fourth largest source of funding at $20 billion. Given that the largest sources of capital are based on personal wealth, it is easy to understand why the Black community can’t invest in itself.
While there is a big emphasis on financial literacy, how to handle money and the like, there is no evidence that suggests that Black people at any point in time had great wealth and lost it due to their own incompetence. Instead, history leads us to a different conclusion. Black people have been free for far less time than they were enslaved in the United States. Considering the amount of time in slavery and the length of time with legal barriers to ownership, Black people have had a very short history of wealth building. When we see Blacks in prominent positions, it may seem like progress, but based on the wealth statistics, we actually haven’t gotten very far. Prominent positions haven’t translated into personal wealth, the primary driver of small business capital.
So what do we do to change the paradigm and move toward progress? First, it starts with the recognition that inequality is not equal. While there are many groups that suffer hardship and face discrimination, the Black community is the only group impacted by the legacy of slavery. The solutions designed to address access to capital for Black businesses must recognize that unique history and the impact of institutionalized barriers like redlining which was pervasive into the late 1960s. At the federal level, we need legislative innovation such as expanded uses of Community Reinvestment Act funding and a requirement for community equity participation in all Opportunity Zone transactions.
Second, we need to get more Black people who have the financial capacity into the networks of influence that drive relationship-based capital. At the Institute for Entrepreneurial Leadership, we launched the Making of Black Angels campaign to drive greater inclusion in the angel investing sector. Engaging in the angel community creates an opportunity to build bridges to communities of wealth and networks of influence. Case in point is a Black woman founder who shared her story at our recent event hosted by Project W. This Black woman founder was an early employee at a company that was sold. She used the cash from that exit to start her company and then was able to sell her company. She used some of the proceeds to create trust funds for her nephews, instantly altering the course of her family’s wealth trajectory. She also intends to deploy some of her new wealth to invest in other Black entrepreneurs.
The third way we can change the paradigm and move toward progress is for proponents of diversity and inclusion to step up to become allies and champions. This is where the conversation gets interesting. It’s easy to be supportive of others pulling themselves up, and it makes people feel good to reach back to offer a helping hand to those in need. What isn’t so comfortable is to be introspective and recognize the complicity that you play in maintaining a pernicious status quo that perpetuates inequality. How many events have you attended with no diversity among the speakers? How many rooms have you entered where everyone looks the same? How many times have you invited a Black friend or colleague to a professional or social event that presented new networking opportunities for that person? Just speaking up or making an introduction can have an impact far beyond what you could ever imagine. Being an ally doesn’t have to change your lifestyle, but it will often take you out of your comfort zone.
While today’s White population is not to blame for the transgressions in our distant history, neither are Black people today responsible for the wealth deficit that has accumulated over centuries. Allies involved in the investor ecosystem can play a tremendous role in changing the wealth trajectory of the Black community within a generation. What does it take to be an ally? You must educate yourself about the depth of the problem and causation. You are required to take action. Build relationships with Black founders, commit to requiring that the teams in which you invest have at least one Black person with meaningful equity, make room for Black accredited investors in your deals.
If we are serious about moving the needle, we must be intentional and use our collective voice for change. Together, we can make a difference and move closer to closing the access-to-capital divide. More than just standing with us, we need allies to stand for us and to do what’s right when we are not in the room. That’s how you become a champion.
In mid-May, when we began to plan our June newsletter, we reached out to two women who are transforming the way we think about investing -- Jill Johnson and Arlan Hamilton -- to see if they would contribute to our newsletter. They both eagerly agreed to do so. Little did we know what would transpire in the ensuing weeks. But, we should have known. The events of the past two weeks are, shamefully, a recurring pattern in our society. It is time for those of us in a position of White privilege to own this problem and to do something to fix it. Jill’s article and Arlan’s Q&A are calls to action for all of us, and they set out specific, actionable steps that each of us can take to start to close the close the divide between White and Black in our country. We are honored to share these urgent and essential voices with the Project W community.
How You Can Help
Give your time, expertise, or money
- Volunteer for Small Businesses Need Us
- Become a Black and Brown Founders Member
- Learn About Changing the Status Quo Through Narrative Intelligence
- Donate to Black Women Talk Tech's $50K Bail Fund | email@example.com
- Become a Notley Tide Monthly Donor
- Donate to Black Women's Blueprint
Q&A With Arlan Hamilton
Founder & Managing Partner, Backstage Capital
Photo credit: Sarah Deragon
Arlan Hamilton knows what it's like to be undervalued. In 2015, she was homeless, sleeping in the San Francisco Airport. And, as a woman who identifies as a person of color and LGBTQ, being homeless was just one more reason people wrote her off. But Arlan wasn't having it. That same year, Arlan became a venture capitalist and founded Backstage Capital, which has since invested in 123 companies founded by entrepreneurs that other investors overlooked or discounted. Arlan was recently recognized in Fast Company's Queer 50 List – the first list of LGBTQ and nonbinary innovators in business and tech.
At this time, when we are seeing the tragic consequences of the systemic devaluation of Black people in our society, Arlan's story and her message are more important than ever. We had the privilege of asking Arlan about why she is so passionate about unlocking the value in overlooked founders and why other investors should be as well.
Q: Why choose venture capital, a traditionally (and still) clubby White male industry, as the place to put your stake in the ground?
I've always been an entrepreneur. I just didn't always recognize it in myself, partially because entrepreneurs are presented to us in the media as affluent White men. I've been creating products and looking for ways to make money my whole life. When I started learning about startups, it felt like I had finally found my place, my calling, and then I found out that it was overwhelmingly White and male. I found out that 0.2% of venture capital funding is allocated to Black women. And I knew I had to change that.
Venture capital can have a huge impact on the world around us. It's behind the scenes of 50% of all companies and trendy apps. If we change the people working behind the scenes, what would the world look like? I know that Black people, LGBTQ people, and women are just as entrepreneurial and inventive as any White man. If we start here, behind the scenes, where could we go next?
Q: Backstage Capital invests in systemically undervalued entrepreneurs. What do you see in them that majority investors overlook?
I see them as people. I see them as equal. I see them as inherently valuable in their thoughts and ideas. I think it's as simple as that. When you take the time to listen to people and you create systems that allow those people to be heard, you see that there is no reason not to invest in people from these undervalued and underestimated groups and put them through the same diligence as anyone else. Most venture capitalists expect you to have a 'warm invitation' (an introduction from a mutual friend, for instance) before they will speak to you. I give my email out all the time, I talk to people on twitter, I meet people at events. By opening myself up to being approachable and ensuring that people from all walks of life are able to contact me, I get a truly varied pool of people to choose from.
Q: In your new book, It's About Damn Time, you describe how you leveraged the challenges of being undervalued into a position of influence and power. What advice do you have for founders who are looking to do the same?
The first things you're going to need are self-belief and resilience. You have to absolutely know that you are great at what you do and that your voice is one that needs to be heard. There are going to be a lot of people who will close doors in your face, people who will be ignorant, who will be disrespectful. Remembering your worth in those times is what will keep you going.
You only need one yes. I emailed and talked to hundreds of people asking to be given a chance before I got the yes I needed. That yes is out there, but you'll only find it if you keep going.
Build your network! This doesn't have to mean paying to get into an expensive conference or some kind of meet and greet. You can build relationships with other people who are in the same circumstances as you, you can talk to people on twitter, send emails, and now virtually meet up. Through good and through bad, keep those networks alive. Sometimes word of mouth is more powerful than one investor's wallet.
Be authentic. If you try to blend in with a group of people who are very different from you, if you try to pretend that your difference isn't your superpower, you're wasting your time and theirs. Your unique view is a valuable asset to that group.
Q: You have been a trailblazer in the venture community, but it will take many more like you to shift the paradigm. Share with us your call to action. What can each of us do to empower historically undervalued entrepreneurs and to unlock the wealth that can be created for investors, founders, employees and our communities?
Diversify your friendship group. Listen to people and learn about lives that are different from yours. Do the work to be anti-racist, anti-homophobic, anti-misogynistic, anti-transphobic, anti-ablelist, anti-xenophobic. I like to say "let someone shorter stand in front of you." Use your privilege to enable others.
Your money is political. Every person who spends has spending power. Put your money into businesses you believe in - buy from the independent book store you love, the Black-owned grocery store, the businesses who not only hire diverse staff but treat them equally and promote them.
I think you have to ask yourself: do I only want White men deciding what the future looks like? Do I want the future to be filled with more technology that was built for a male body, or that cannot recognize Black skin, or that expects you to tick a box 'male' or 'female' and has no room for the spectrum of diversity that exists in the world as we know it?
Featured Virtual Event
Identifying Information Risk: A Checklist of Potentional Privacy and Security Pitfalls and How to Avoid Them
Rachel R. Marmor
Counsel, Privacy & Security Group, Davis Wright Tremaine
As technology has vastly expanded businesses’ ability to collect, compile, and analyze information about individuals, legislators and regulators have equally become more aware of the importance of privacy rules that provide individuals with more transparency and control over how businesses use their information. A privacy mishap or security breach can lead to negative publicity as well as regulatory enforcement and civil actions. Any of these could be particularly devastating to an early stage company.
The following checklist is intended to assist start-ups and small businesses in identifying their information risk profile and determining when to seek legal advice.
1. Recognize that the definition of personal information is broader than you think.
Just because you may not collect a person's name or address does not mean that the information you collect is "anonymous." The Federal Trade Commission (FTC) considers information to be personal if it can be reasonably linked to a particular person, computer, or device. This typically includes device identifiers, IP addresses, and any other persistent identifiers (such as advertising IDs). Definitions of personal information in the California Consumer Protection Act and EU General Data Protection Regulation are even more expansive. If the information comes from an individual, or is intended to describe a particular individual, it’s likely personal information.
2. Document what types of information are collected and used in your product or service.
Collection and use of any of the following types of personal information are high risk due to the sensitive nature of the data:
- Health information, such as whether an individual has experienced symptoms of COVID
- Location data, such as tracking the precise location of a mobile device
- Information collected from minors under 16
- Payment card information and other financial information
- Biometric information, such as fingerprints or images to be used for face scans
3. Document where your data comes from.
Specific laws may impose additional requirements depending on where your data comes from:
- Collection of data through cookies or other tracking devices should be transparent to the user; opt-out may be required in some cases
- Acquisition of data from external parties, such as data aggregators or marketing partners, may trigger state data broker laws
- Collection of data from residents of countries outside the US, or residents of CA, may raise additional risks due to privacy laws in place in those jurisdictions
4. Document where your data goes.
Your legal obligations and legal risk are different depending on whether you are sharing data with an external party so that party can provide you with a service, and whether you do it for a mutual benefit or joint marketing. Contracts should specify the role of external parties and what, if any, restrictions apply on their ability to use your data. Identify all external parties who receive data from your product or service, including:
- Entities that place cookies on your website
- Advertising and marketing partners
- Cloud storage providers and other software-as-a-service vendors
- Individuals who buy your product and may obtain information about others through their use
5. Develop a compliance strategy to mitigate risk.
Privacy and security controls are a lot easier to implement at any early stage, before products become reliant on use of high-risk data and use of vendors becomes too complex to map. Consultation with a lawyer may be required to identify specific laws relevant to the jurisdictions in which you operate or types of high-risk data you use; but there are also basic steps an organization can take on its own to reduce risk.
- Post an accurate privacy notice on your website (with link displayed in any mobile app)
- Make sure individuals working to develop your products and services are aware of the public commitments you have made in your privacy notice
- Review the FTC's security guidance, Start with Security: A Guide for Business to develop an understanding of best practices
- Develop an incident response plan that defines what constitutes a security incident and lists the individuals who should be involved in the investigation of incidents
- Develop a mechanism to document what data use restrictions and privacy and security promises are contained in external party contracts, in particular a form of Terms of Service
DWT can also assist you in assessing your risk and drafting key compliance documents. Our "Privacy Essentials" package offers organizations a head start on compliance with common privacy laws; or we can tailor services to fit specific needs.
- The Founder Institute x Hello Alice Fellowship
- Thinkific $1 Million Entrepreneur Growth Fund
- Built by Girls WAVE Mentorship Program
- LACI Innovators Program
- 500 Startups SF Accelerator
- Women Founders Network Annual Fast Pitch Competition
- Booz Allen Foundation Innovation Grant
- Women Founders Foundation Junior Judge Program