Silicon Valley Bank collapse renews calls to address disparities affecting entrepreneurs of color
When customers at Silicon Valley Bank rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some of the founders of color who were ‘ panic about losing access to pay money.
As a black woman with nearly 10 years of business experience, Hamilton knew the options for these startup founders were limited.
SVB had a reputation for serving people from underrepresented communities like her. His failure has raised concerns from industry experts about lending discrimination in the banking industry and the disparities in capital 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 already in the smallest house. We already have the rickety door and thinner walls. And so, when a tornado comes through, we’re going to be hit harder.”
Founded in 1983, the midsize California tech lender was America’s 16th largest bank at the end of 2022 before it collapsed on March 10. SVB provided banking services to nearly half of the venture-backed technology and life sciences companies in the United States.
Hamilton, business experts and other investors told CNN that the bank is committed to fostering a community of small entrepreneurs and providing them with both social and financial capital.
SVB regularly sponsored conferences and networking events for minority entrepreneurs, Hamilton said, and was known for sponsoring the annual State of Black Venture Report conducted by BLK VC, an organization or -profit that connects and empowers Black investors.
“When other banks said no, SVB said yes,” said Joynicole Martinez, a 25-year-old entrepreneur and chief development and innovation officer for Rising Tide Capital, a nonprofit founded in 2004. to connect entrepreneurs with investors and mentors.
Martinez is also an official member of the Forbes Council of Coaches, an invitation-only group for business and career coaches. She said SVB was a valuable resource for entrepreneurs of color and offered discounted technical tools and research funding to its clients.
Small 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 differences in rejection rates for bank and non-bank loans.
In 2021, about 16% of Black-owned companies received the full amount of business financing they sought from banks, compared to 35% of White-owned companies, the study shows.
“We know that there is historical, systemic and just plain racism inherent in lending and banking. We have to start there and not tip-toe around it,” Martinez told CNN.
Asya Bradley is an immigrant founder of several tech companies such as Kinley, a financial services business focused on helping Black Americans build generational wealth. After SVB’s collapse, Bradley said she joined a WhatsApp group of more than 1,000 immigrant business founders. Members of the group moved quickly to support each other, she said.
Immigrant founders often don’t have Social Security numbers or permanent addresses in the United States, Bradley said, and it was critical to brainstorm different ways to find funding in a system that doesn’t recognize them.
“The community was very special because a lot of these people then shared different things they had done to succeed in terms of getting accounts in different places. They were also able to share different regional banks that stood up and were like, ‘Hey, if you have accounts at SVB, we can help you,’” said Bradley.
Many women, people of color and immigrants choose community or regional banks like SVB, Bradley says, 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 may have been an issue when she could only open a business account at one of the “top four banks” when her brother co-signed for her.
“The top four don’t want our business. The top four consistently reject us. The top four are not giving us the service we deserve. And that’s why we’ve gone to community banks and regional banks like SVB,” said Bradley.
None of the top four banks would comment to CNN. The Financial Services Forum, a group that represents the eight largest financial institutions in the United States, has said that the banks have committed millions of dollars from 2020 to address economic and racial inequality.
Last week, JPMorgan Chase CEO Jamie Dimon told CNN’s Poppy Harlow that 30% of its branches are in lower-income areas as part of a $30 billion commitment to Black and Brown communities on throughout the country.
Wells Fargo highlighted its 2022 Diversity, Equity and Inclusion report, which discusses the bank’s recent initiatives to reach underserved communities.
The bank last year partnered with the Black Economic Alliance to start 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 as of May 2021, Wells Fargo has invested in 13 Minority Investment 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 over the years , and have far fewer assets available than the major banks.
OneUnited Bank, the largest Black-owned bank in the United States, manages just over $650 million in assets. In comparison, JPMorgan Chase manages $3.7 trillion in assets.
Because of these differences, entrepreneurs also seek funding from venture capitalists. In the early 2010s, Hamilton planned to start her own tech company—but while looking for investors, she saw that almost every venture capital dollar is controlled by White men. As a result of that experience she founded 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 one company, let me try to raise a venture fund that invests in unproduced — and now we’re calling them undervalued — founders who are women, people of color, and LGBTQ. especially, ’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 diversified investments, according to data from Crunchbase.
But Bradley, who is also an ‘angel investor’ of minority-owned businesses, said she remains “very hopeful” that community banks, regional banks and fintechs “will all stand up and say, ‘Hey , we are not going to let the good work of SVB go to waste.”