Joe McConnell
CNN
—
When Silicon Valley Bank customers rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some founders of color who were panicking over losing access to payroll funds.
As a Black woman with nearly 10 years of experience in business, Hamilton knew the options for founders of these startups were limited.
SVB had a reputation for serving people from underrepresented communities like hers. Its failure reignited concerns among industry experts about discrimination in banking lending and the resulting equity disparities 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 wobbly door and the thinnest walls. And so when a tornado comes, we’re going to be hit the hardest.”
Founded in 1983, the California-based midsize technology bank was America’s 16th largest bank at the end of 2022, before its bankruptcy on March 10. SVB provided banking services to nearly half of all venture-backed technology and life sciences companies in the United States.
Hamilton, industry experts and other investors told CNN that the bank is committed to fostering a community of minority entrepreneurs and providing them with both social and financial capital.
Hamilton said SVB regularly sponsored conferences and networking events for minority entrepreneurs, and was known for funding the annual State of Black Venture Report, sponsored by BLK VC, a nonprofit that connects and empowers Black investors.
“When other banks said no, SVB said yes,” said Joynicole Martinez, a 25-year entrepreneur and chief advancement 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 Coaches Council, an invitation-only organization for business and career coaches. She said SVB is an invaluable resource for entrepreneurs of color and offers its clients discounted technology tools and research funding.
Many women and people of color say they have been rejected
Minority entrepreneurs have long faced difficulties 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 disparities in denial rates for bank and nonbank loans.
According to the survey, in 2021, about 16% of Black-owned businesses received the full amount of business financing they requested from banks, compared to 35% of white-owned businesses.
“We know there is historic, systemic, just blatant racism that is inherent in lending and banking. We have to start there and not tiptoe around it,” Martinez told CNN.
Asya Bradley is an immigrant founder of several tech companies, including Kinley, a financial services firm that aims to help African Americans build generational wealth. After SVB collapsed, Bradley said she joined a WhatsApp group of more than 1,000 immigrant founders. The group members quickly rallied to support one another, she said.
Bradley said immigrant founders often don’t have a Social Security number or a permanent address in the U.S., and it was crucial to brainstorm different ways to find funding in a system that doesn’t recognize them.
“The community was really special because a lot of these people were sharing different things that they had done to achieve success in terms of opening accounts in different places. They were also able to share different regional banks that had come forward and said, ‘Hey, if you have accounts at SVB, we can help you guys,'” Bradley said.
Many women, people of color and immigrants opt for community or regional banks like SVB, Bradley says, because they are often turned away by the “big 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 “big four banks” when her brother co-signed for her.
“The top four don’t want our business. The top four consistently turn us down. The top four don’t give us the service we deserve. And that’s why we’ve turned to community and regional banks like SVB,” Bradley said.
None of the Big Four banks responded to CNN. The Financial Services Forum, an organization representing the eight largest U.S. financial institutions, said the banks have committed millions of dollars since 2020 to address economic and racial inequality.
Last week, JPMorgan Chase CEO Jamie Dimon told CNN’s Poppy Harlow that his bank has 30% of its branches in low-income neighborhoods, part of a $30 billion commitment to Black and Hispanic communities across the country.
Wells Fargo specifically referenced its 2022 Diversity, Equity and Inclusion report, which examines the bank’s recent initiatives to reach underserved communities.
Last year, the bank partnered with the Black Economic Alliance to launch the Black Entrepreneur Fund, a $50 million seed, early-stage, and startup fund for companies founded or led by Black and African-American entrepreneurs. And since May 2021, Wells Fargo has invested in 13 Minority Depository Institutions, fulfilling its $50 million pledge to support Black-owned banks.
Black-owned banks are working to close the lending gap and promote economic empowerment in these traditionally excluded communities, but their numbers have declined over the years and they have far fewer resources at their disposal than major banks.
OneUnited Bank, the largest black-owned bank in the United States, manages just over $650 million in assets. By comparison, JPMorgan Chase manages $3.7 trillion in assets.
Because of these disparities, entrepreneurs are also seeking funding from venture capitalists. In the early 2010s, Hamilton wanted to start her own tech company, but as she looked for investors, she realized that white men controlled nearly all of the venture capital dollars. This experience led her to found 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 a company, let me try to raise money for a venture fund that will invest in underrepresented — and now we call them undervalued — founders who are women, people of color, and LGBTQ in particular,’ because I am all three of those things,” Hamilton told CNN.
Since then, Backstage Capital has amassed a portfolio of about 150 diverse companies and made more than 120 diversified investments, according to Crunchbase data.
But Bradley, who is also an “angel investor” in minority-owned businesses, said she is “very confident” that community banks, regional banks and fintechs will “stand up and say, ‘Hey, we’re not going to let the good work of SVB go to waste. ’”
