The Black funding gap

“I was raised to connect a few seemingly clear dots: get an education, apply for a job, apply your skills to that job and work to move up the ladder. I thought — and, honestly, this still catches me sometimes — that I could show how smart, capital-efficient, metric-driven and intelligent I was as a founder, and that would be all I’d need to fundraise.”

As companies across all industries are faced with the systemic racism ingrained in their cultures, changing retail assortments, proposing more diverse hiring practices, and hiring influencers who are Black or persons of color only begin to scratch the surface, in terms of solving this much bigger problem. Simply put, more capital needs to be available to these founders and operators. According to McKinsey & Company, only 1% of Black business owners get a bank loan in their first year of business, compared with 7% of white business owners. And The Washington Post found that only 1% of founders who have raised venture capital are Black; in 2018, 81% of VC firms didn’t have a single Black investor.

“What’s happened is that you end up gaslighting yourself,” said Young. People will say, ‘Women have a hard time fundraising,’ or ‘This little percent of fundraising goes to women,’ but what they are really saying is that that money goes to white women. Running a business and scaling a business is already difficult, but then you tack on that you are a woman, and then a Black woman. You can’t tell which which part of you doesn’t resonate with investors, but I can’t change the color of my skin.”

Young said that she has worked hard to provide more metrics to potential investors, as well as more anecdotal validity from customers, while seeking early stage capital. Meanwhile, “white male founders raise rounds on a idea,” she said, referencing Casper, Harry’s and other recent DTC brands that have launched to fanfare. Oui Shave did secure funding from Catalyst Fund, which is part of Comcast Ventures. Catalyst’s website clearly reads, “We invest in African-American, Latinx and female founders.”

Though Uoma Beauty founder and CEO Sharon Chuter managed to raise $5.5 million (across two rounds) before launching last year, she said she was an anomaly.

“My products were ready to ship; I had already had POs [purchase orders] with 203 Ulta stores and Selfridges. I had put $750,000 of my own money into this brand. But this is not the [typical] experience of Black women,” said Chuter, who previously worked at LVMH as Benefit Cosmetics’ head of operations in Australia.

Chuter said the only reason she landed that capital was because she came from the corporate world. “I was able to speak that mumbo jumbo to middle-aged white men,” she said. “As a Black woman who was making products for Black women, there was no emotional connection between myself and those investors. We didn’t go to the same school, our kids didn’t play on the same baseball team and I didn’t play golf; this is why all capital goes to tech because these men are looking at their own interests to judge what to invest in. I was functionally excellent at pitching, and that’s why I got money, but people shouldn’t use me as an example.”

Young agreed. “Getting to investors is incredibly opaque. I don’t know why investors aren’t seeking out these opportunities or seeing value in what’s different, but they aren’t. Black women figure out capital efficient ways to run companies, because there isn’t any other option but to run a profitable business.”

The experience is not much better for Black male founders. Ted Gibson — despite his celebrity clientele like Angelina Jolie and Anne Hathaway, and his four-year run as a cast member on “What Not to Wear” — has never been able to secure capital for his beauty product and service brand Starring.

“Over 20 years, while having product lines at Henri Bendel, Saks Fifth Avenue, Sephora and Target, and [giving] the most expensive haircut in the country, Jason [Backe, Gibson’s husband] and I have never taken any outside investment,” he said. “Despite all of these accolades, no one has stepped up to the plate, and it’s because of the color of my skin and because I am gay. Meanwhile, my white counterparts have had more recognition while not doing as much as I have done. It really pisses me off.”

Backe added, “We’ve done several dog and pony shows — dinners, presentations, business plans — and nothing. But Oribe and [Frédéric] Fekkai have failed publicly and people still come to their rescue.” Kao acquired Oribe for a reported $400 million to $430 million in 2017, and Fekkai bought back his namesake business last year with Cornell Capital.

Gibson said this is a uniquely “Black problem,” citing Kylie Jenner’s 2018 Forbes cover when Pat McGrath was actually a billion dollar business. “Pat was the business that should have been celebrated, and they preferred to give that attention to Kylie, which we now found out was based on lies. Naomi Campbell is still doing runway shows because all the models in her circle in the ’90s got huge beauty deals that set them up for life. Naomi’s first beauty deal was for Pat, that’s not a coincidence.”

“I think VCs often put founders of color in a smaller box, which means that they want less investment because their addressable market is smaller,” said Keenan Beasley, the founder and CEO of beauty incubator Supply Factory Brands and a former Garnier executive. “That’s a misnomer that needs to change in the industry. Because a founder is of color does not mean that their business has to be focused only on people of color. Our design target for our Sunday II Sunday brand is the multicultural woman, but products are still great for all women, which is where we started at. You may see something as different, but it’s broadly applicable.”

Mahisha Dellinger also used her own savings, from working at Intel, to start her hair business, Curls, in 2002. “There was no other option but to use my money,” she said. “I’ve seen white founders get loans because they are ‘less risky,’ but I have seen so many of those businesses fold since I started. With less information and little access, we are forced to be creative with our money.”

Though Curls has been in business for 18 years, in the last three years, investor interest has been more steady with Dellinger stating that she gets inbound requests every other week. At this point, she said she has scaled the business on her own and “doesn’t need the capital or the retail expertise” being offered. Curls sells in Target, Walmart and Amazon, and through its own e-commerce site. Dellinger would be open to discussing a full-on sale, however.

In the current climate, she is using her platform to help other Black and minority founders with their own business plans. After wrapping “Mind Your Business With Mahisha,” a TV show focused on female entrepreneurs with the OWN Network in 2018, she is bringing that concept to founders virtually this summer. Representatives at Merrill Lynch, Bank of America and Goldman Sachs will be on board, so that prospective founders can practice pitching in real time. Dellinger noted that all of the bank representatives focused on diversity and inclusion are almost always Black.

“Black people are always the ones trying to lift their own people up, because they understand the struggle,” she said. “Unless there are more people in these kind of positions, Black people won’t even be able to get a bank loan.”