CNN
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When Silicon Valley Bank customers rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some of the founders of color panicking about losing access to the payroll fund.
As a Black woman with nearly 10 years of business experience, Hamilton knows the options for startup founders are limited.
SVB has a reputation for serving people from underrepresented communities like hers. Its failure has reignited concerns from industry experts about discriminatory lending in the banking industry and the resulting capital disparities for people of color.
Hamilton, the 43-year-old founder and managing partner of Backstage Capital, said that when it comes to entrepreneurs of color, “we’re in a smaller house. We have the rickety door and the thin walls. And so, when a tornado comes, we get hit harder.
Founded in 1983, the midsize California tech lender was America’s 16th largest bank by the end of 2022 before it collapsed on March 10. SVB provides banking services to nearly half of all business-backed technology and life sciences companies in the United States.
Hamilton, industry experts and other investors told CNN that the bank is committed to developing a community of minority entrepreneurs and providing them with social and financial capital.
SVB regularly sponsors conferences and networking events for minority entrepreneurs, Hamilton said, and it is notable for funding the annual State of Black Venture Report spearheaded by BLK VC, a nonprofit organization. which connects and empowers Black investors.
“When other banks say no, SVB says yes,” said Joynicole Martinez, a 25-year entrepreneur and chief development and innovation officer for Rising Tide Capital, a is a nonprofit organization founded in 2004 to connect entrepreneurs with investors and mentors.
Martinez is also an official member of the Forbes Coaches Council, an invitation-only organization for business and career coaches. He said SVB is an invaluable resource for entrepreneurs of color and offers their clients discounted technology tools and research funding.
Minority business owners have long faced challenges accessing capital due to discriminatory lending practices, experts say. Data from the Small Business Credit Survey, a collaboration of all 12 Federal Reserve banks, shows disparities in denial rates for bank and nonbank loans.
In 2021, about 16% of Black-led companies obtained the total amount of business financing they sought from banks, compared to 35% of White-owned companies, the survey showed .
“We know there is historical, systemic, and blatant racism inherent in lending and banking. We need to start there and not tip-toe around it,” Martinez told CNN.
Asya Bradley is an immigrant founder of several tech companies like Kinley, a financial services business that aims to help Black Americans build generational wealth. After SVB collapsed, Bradley said he joined a WhatsApp group with more than 1,000 immigrant business founders. Group members quickly mobilized to support each other, he said.
Immigrant founders often don’t have Social Security numbers or permanent addresses in the United States, Bradley said, and it’s important to brainstorm different ways to find funding in a system that doesn’t. recognize it.
“The community is really special because many of the people in the past have shared the different things they have done to achieve success in terms of getting accounts in different areas. They have also been able to share in different regional banks that stood up and said, ‘Hey, if you have accounts with SVB, we can help you guys,'” Bradley said.
Many women, people of color and immigrants are opting for community or regional banks like SVB, Bradley said, because they are often rejected from the “top four banks” – JPMorgan Chase, Bank of America, Wells Fargo and Citibank.
In her case, Bradley said her gender could be an issue as she was only able to open a business account at one of the “top four banks” when her brother -co-sign for him.
“The top four don’t want our business. The top four always rejected us. The previous four did not give us the service we deserved. And that’s why we go to community banks and regional banks like SVB,” Bradley said.
None of the top four banks provided comment to CNN. The Financial Services Forum, an organization that represents the eight largest financial institutions in the United States, said that banks have committed millions of dollars since 2020 to address economic and racial inequality.
Last week, JPMorgan Chase CEO Jamie Dimon told CNN’s Poppy Harlow that his bank will have 30% of its branches in lower-income neighborhoods as part of a $30 billion commitment to communities in Black and Brown across the country.
Wells Fargo specifically points out in its 2022 Diversity, Equity, and Inclusion report, which discusses the bank’s recent initiatives to reach underserved communities.
The bank partnered last year with the Black Economic Alliance to launch the Black Entrepreneur Fund – a $50 million seed, startup, and early-stage capital fund for businesses founded or led by Black and African American entrepreneurs. And since May 2021, Wells Fargo has invested in 13 Minority Depository Institutions, fulfilling a $50 million pledge to support Black-owned banks.
Black-owned banks work to close the lending gap and promote economic empowerment in traditionally excluded communities, but their numbers have been shrinking over the years, and they have fewer assets at their disposal than leading banks.
OneUnited Bank, the largest Black-owned bank in the United States, manages more than $650 million in assets. In comparison, JPMorgan Chase manages $3.7 trillion in assets.
Because of these disparities, entrepreneurs also seek funding from venture capitalists. In the early 2010s, Hamilton wanted to start his own technology company — but as he looked for investors, he found that white men controlled almost all of the venture capital dollars. That experience led him to found Backstage Capital, a venture capital fund that invests in new companies led by underrepresented founders.
“I said, ‘Well, instead of trying to raise money for a company, let me try to raise for a venture fund that invests in underrepresented — and now we call them underrated — founders who women, people of color, and LGBTQ specifically, ’cause I’m all three,” Hamilton told CNN.
Since then, Backstage Capital has amassed a portfolio of nearly 150 different companies and made more than 120 diversity investments, according to data from Crunchbase.
But Bradley, who is also an ‘angel investor’ in minority-owned businesses, said he remains “very optimistic” that community banks, regional banks and fintechs “will all stand up and say, ‘Hey, we won’t let the good work of SVB go to waste.’”
