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.
I like this and it echoes what I’ve heard regarding funding from a friend who is a Black female business owner. I know many will take issue with working within the existing system, but if you have money to work with and can’t personally figure out a way to overthrow capitalism in a timely manner this is a certainly an action item.
I’m not that sure the overthrow of capitalism whether in a timely or an untimely manner is really the answer to issues of inequality and poverty. Surely we have better hope from reform within that system given how poorly every other alternative tried so far in human history has delivered.
Angel investing is something I’ve always planned to do, and I really look up to women in the business world who run their own businesses and ALSO who are able to invest in and advise other business owners. We have similar restrictions in the UK about being accredited, but there are some platforms, like Seeder, which allow you to invest way smaller amounts of money than even £10,000. For a few hundred quid you can support a start up through crowdfunding as an investment, rather than using the perks model. I will definitely make sure to look into more diverse investments next time I’ve got some money to contribute.
Hi Laura – I’ve been a longtime reader and listener but I’m not sure I’ve commented. Considering the diversity of founders that you invest in is great and meets a real need. I’ve raised angel funds before and it is a very white (older) male world. This strategy is especially effective if it is in the company’s mission to scale the impact of these funds with hiring BIPOC and/or benefiting similar communities. However, as you know there is a lot of risk in these investments, with maybe a 1/20 (estimating based on 1/10 VC backed companies) chance of obtaining this scalability. I suggest you also encourage your readers to diversify the use of your funds directly towards BIPOC causes to organizations, e.g., NAACP, bail funds, etc. (I know that you mention donating to organizations, but it feels a bit like you’re dancing around that – it would be more impactful to just say it.)
To offer a different perspective, I thought Laura was clear on the topic of donating. I interpreted this post as shining a light on another monetary means of support that some may be uniquely positioned to consider — not either/or, but also. In case that’s helpful!
that was my interpretation as well. Other forms of donation are covered well elsewhere but I appreciate this new aspect.