Finding funding for a startup is often challenging, but even more so for Black entrepreneurs and founders. In 2020, black founders received 16% of angel investing funds, a record at the time. The percentage was a significant increase from the 0.5% of the capital they received in 2019. According to research from Angel Capital Association, an organization comprising individuals and investors, 2021 saw an unfortunate decrease of 2% in support for Black-owned businesses.
While there is a focus by the Angel Capital Association to improve their support of underrepresented communities, it’s evident that investor education helps secure more funding for minority-owned businesses, including those owned by the Black community.
In general, angel investors are a big benefit to black-owned businesses in that they can help founders overcome the barriers that exist within the traditional funding ecosystems, as many investors can still have unconscious biases that affect their decisions.
However, angel investors are often open-minded and willing to invest in a diverse range of ideas, helping Black founders overcome systemic barriers. However, more needs to be done to get investors involved in the community.
Jill Johnson, the founder and CEO of the Institute for Entrepreneurial Leadership (IFEL), says that the Black community is not getting the funding it needs, especially for young Black women. Johnson began IFEL over 20 years ago to offer assistance to small business owners and leaders. However, Johnson says she discovered the organization needed more momentum to help gain capital for Black owners. It’s a predicament Johnson hopes won’t be occurring in another 20 years from now.
In 2020, Johnson created the Making of Black Angels program to educate potential angel investors on the ecosystem, connect them with Black business leaders, and help them raise crucial funding for their organizations.
Johnson says, “Capital in the United States of America is so plentiful. Yet, we have certain groups that have been historically excluded from this access — and we need to change that.”
She reflects on how anyone with the financial means to offer support should become involved in the investor ecosystem to help provide capital that Black owners need.
These angel investors only need to be accredited as advised by the U.S. Securities and Exchange Commission and have earned an annual income of over $200,000 (or a combined $300,000 with a spouse) in the previous two years. Or they should have a net worth of over $1 million, excluding their home’s value. Angel investing can often involve high risk, as more than two-thirds of startups never show positive returns.
On top of providing funding, mentorship is also a great way for angel investors to offer valuable expertise. As angel investors are often experienced leaders, they can provide insight into everything from business strategy to fundraising. For black founders who might not have the same opportunities or resources as their white colleagues, mentorships are vital to helping them find the resources they need.
The reward of angel investing in Black-owned businesses is critical to a thriving business economy and it’s crucial for investors to support these startups to create more equity. Companies will grow and hire people of color, which helps to put capital in the underrepresented communities, helping to address the racial wealth gap.