In light of the national conversation on racism and inequality, I know many people are looking for concrete actions to take. Just like service, money can be a tool for building a better world, through choices such as supporting businesses owned by people of color, or donating to organizations doing important work.
There’s also a longer-term idea for advancing equity that I suspect some readers of this blog could do, but may not have thought about.
Starting a business tends to require capital. Sometimes people get bank loans, and sometimes they open businesses with the help of family and friends. Starting something larger tends to require capital from investors — either venture capital (pooled money invested by pros) or money from “angel investors.” These are folks who invest as individuals in early stage companies in the hope of achieving a return.
Patterns of wealth being what they are, it’s probably not surprising that most angel investors are white men. And since people tend to invest in people they know, most angel and venture capital goes to businesses founded by white men. Depending on the source of the figures and the year, somewhere between 3-8 percent of early stage capital goes to women-founded businesses, and less than 1 percent of venture capital goes to businesses with African American founders. It’s unlikely that white men have almost all the good business ideas. Over time, these gaps contribute to perpetuating disparities.
Investing in start-up companies is, of course, risky, which is why there are rules in the US and many other countries about who can do so. You need to be an “accredited investor” — wealthy enough to know what you’re doing and to be OK with losing money. But what this means in practice is that you, as an individual, have made at least $200,000 a year for the past two years, and expect to keep doing so, or that you’re part of a couple taking in at least $300,000 a year. (You can also qualify by having at least $1 million in assets excluding a primary residence.)
I suspect that a non-zero proportion of readers here would qualify, or could view qualifying as a reasonable financial goal over time. But most people with high incomes don’t think of angel investing as a possibility. Many angels tend to be start-up founders themselves who’ve cashed out. They’re more comfortable with the idea. Even so, most angel investments aren’t in the millions. The median investment (according to that linked report) is about $25,000, which means there are plenty that are more in the $10,000 range.
One way to invest in a different world is to help change the face of investing and who receives investments. There are lots of investment groups that help bring together angel investors and founders. (Here’s one list with some resources) People who are actively looking to invest in companies with more diverse founders will help change the ecosystem. They affect who is invited to pitch, and which pitches get funded. Money can be a tool to build a different world, and investing is one way to do that.
In other news: My recent article in City Journal covered teaching entrepreneurship in schools.
We finally got the power back on this weekend after Wednesday’s storm. The portable generator turned out to be a good buy. It didn’t do anything about the 86 degree heat, but it powered the garage freezer so the milk stash made it through.