Carrington Carter has always known it’s a big challenge to grow a business, but he didn’t realize his race would play into it as much as he feels it has.
Carter, co-founder of the Columbus-based vacation rental company Getaway Society, has talked to more than 50 institutions about equity investments, loans and lines of credit, with little to no response or investment.
He and his partner, Calvin L. Butts, Jr., both Black, have raised $15 million to create a portfolio of rental houses, but they see other similar, and even younger, white-owned companies getting investments of at least $2 to $3 million at a time, both in central Ohio and nationwide. It’s money he hasn’t seen invested in his own company, which was founded in 2014.
And 90% of Getaway Society’s investors are Black.
“One of the biggest challenges for minority and women-owned-businesses is scaling,” Carter said, adding that it can be easier to get start-up funds than money to sustain an existing business.
The issue of Black business owners not getting as much venture capital as their white counterparts isn’t new, but it also isn’t getting much better, especially when it comes to businesses looking to grow.
And that’s despite the changes and initiatives funders and banks have created to invest in more Black- and minority-owned businesses following the 2020 murder of George Floyd, which ushered in calls for more racial equity in many sectors.
Statistics show that just around 1.2% of venture funding in U.S. startups went to Black founders in 2022, according to Crunchbase, a business information company. In 2019, that percentage was 1.1%.
Carter attributes the reason behind his struggles to get money to the racial wealth gap, as do many experts, who say systemic racism and a lack of personal wealth has meant less success for many Americans of color.
White Americans have 84% of the nation’s wealth, but account for 60% of the population, while Black Americans have 4% of the wealth and account for 13% of the population, according to the Federal Reserve Bank of Minneapolis.
Some of this difference is due to systemic racism and practices like redlining, or a form of housing discrimination that denied homeownership to Black people and others. There’s also predatory credit companies offering high-interest credit cards to people already in a financial pinch, worsening their financial situation, said J. Averi Frost, executive director of Freedom Equity, a Black-led community development financial Institution (CDFI) in central Ohio.
Those practices and circumstances have excluded Black people from getting financial resources to grow their wealth, she said.
“It’s a continuously reinforcing cycle we’re seeing,” Frost said.
Unrealistic criteria for Black business owners
Start-up funding has a role, but scaling is what creates jobs, wealth and economic impact, Carter said.
He said some investors have unrealistic criteria for businesses looking to scale, such as a fund being too small. But that’s a chicken and the egg conundrum: If the fund is too small to gain investment, or too new, it also can’t get any investors to grow.
“I feel like the same pressure and biases that exist when hiring a Black person in corporate America is similar to the pressure and biases that exist when recommending a Black founder or Black-owned company to invest in,” Carter said. “There are often extra hurdles to obtain consensus, fear of making a mistake, and likely even a feeling — and often a reality — that one is putting their career on the line by recommending a Black founder or company for investment, when it’s easier to go with the status quo.”
Carter isn’t the only local Black business owner that has noticed this unrealistic criteria.
Kevin Lloyd, co-founder and CEO of Make Your Life Entertaining, Inc. (MYLE), started the comprehensive entertainment software and lifestyle data analytics company with his wife, Sherry Bean-Lloyd, in 2014.
Friends and family helped them secure initial capital, and then they tried to get traditional funding from banks, investors and other institutions.
“(That) was a rude awakening,” said Lloyd, who shared that more than 10,000 people have downloaded his company’s app, MYLE, which helps people find entertainment.
He tried to get a business loan of $150,000, but was told he needed two years of revenue history and would only get a loan of 20% of his annual revenue.
“That’s not realistic when you have a startup,” he said.
And finding capital within his own network was tough, too, as he knows a limited number of people with wealth.
That can be common for Black business owners, as the net worth of a typical white family, $171,000, is nearly 10 times the net worth of the average Black family, at $17,500, according to a 2020 U.S. Chamber of Commerce report.
But even when Black business owners are well-connected, it doesn’t seem to matter, Carter said.
“We feel that our network reaches to the top 1% of Black America, and even they seemingly don’t have the relationships, power or influence to help us scale,” he said.
Seeing skin color as tied to risk
Black-owned firms are half as likely as white-owned firms to be fully approved for loans, lines of credit and cash advances, according to a 2021 report by the U.S. Department of Commerce, Minority Business Development Agency. Black-owned firms are also denied at a higher rate than Asian- and Hispanic/Latino-owned firms.
Lloyd thinks banks and other funding institutions see more risk when it comes to investing in minority-owned businesses.
His business is generating revenue, with projections at $1 million, and he believes if the color of his skin were different, they would have more investors committing.
A long legacy of discrimination:Redlining practices decades ago still influence life in Columbus neighborhoods
“They want the sure shot,” he said.
And the venture capital model isn’t a zero-risk game. Investors take risks every day, but they base it off existing relationships, Lloyd said.
He’s asked investors if they will invest if his company meets specific growth rates — for instance, 30% growth in three to six months — and has been told they can’t commit to a specific number, but that he will “know when it’s there.”
What are the solutions?
Institutions must have “relentless focus” when it comes to identifying promising Black-owned businesses and entrepreneurs and helping them scale, Carter said, and less focus on helping them start new businesses.
The number of businesses created by Black entrepreneurs continues to grow, increasing by 13.64% from 2017 to 2020, according to the Brookings Institution, a nonprofit research organization.
But Black-owned business are less likely to be open four years after opening, according to a 2021 study in the Journal of Economics, Race, and Policy.
“Improving the rate at which Black entrepreneurs succeed, rather than increasing the rate at which Black people become entrepreneurs, should be the primary focus of efforts to leverage business ownership to reduce the racial wealth gap,” the study said.
At JPMorgan Chase, Cristina Avila is focused only on helping minority-owned businesses scale.
Avila, a senior business consultant for minority businesses, started the local minority entrepreneurship program in June 2022 with a goal of bridging the wealth gap.
She’s heard others experience the trouble Carter has with growing his company, but said it can be a case-by-case scenario of why companies aren’t securing funding to scale.
“I uncover reasons why maybe they didn’t get access to capital, didn’t get approved,” she said. “A lot is misconceptions or lack of knowledge on how to run the business.”
But there’s also the wealth gap and the fact that people of color often don’t get money passed down to them from family members, Avila said, so they may not have enough for a down payment.
JPMorgan Chase also made a $30 billion racial equity commitment in 2020, offering more home loans, financing the creation of affordable housing units, spending more with minority-owned suppliers, offering more small business loans, and supporting minority-owned financial institutions.
The company also gave $3 million in February to the Columbus Urban League’s Accelerate Her initiative, which helps women entrepreneurs and business owners scale.
Other banks also created initiatives to help minority-owned businesses.
Huntington Bank launched the Lift Local Business program in 2020 to support minority businesses from start-up to expansion with loans, business planning help, financial education courses and more.
The program has provided $70 million in funding to more than 1,000 such businesses.
“We recognize historically underserved business owners, including Black-owned businesses, need more access to capital, and we are constantly working to make that happen,” a spokesperson told the Dispatch. “As a company, we are also proud to partner with local community organizations who support diverse business owners. We are deeply committed to their goal to improve the lives of our customers by removing barriers to financial equity.”
Is it mostly ‘lip service’ from lenders?
Despite initiatives from institutions, Carter said his company hears “the same lip service and obstacles placed in our way to deny us access to capital to help us scale.”
“Our community has supported us, and as owners/operators we have delivered for nearly a decade,” he said. “Institutions are not supporting us.”
Some community organizations are trying to change that, but “this is 400 years of racism,” said Stephanie Hightower, president and CEO of the Columbus Urban League, and it’s just in the past three years that it’s started to be addressed when it comes to helping businesses scale.
“The numbers are going to be staggering for a while until public and private entities continue to put money in, but it’s not going to be something that just happens overnight,” she said.
Hightower cited the development of the Freedom Equity CDFI as a step in the right direction.
More on Freedom Equity:Black-led financial institution will start lending this fall
Founded to increase access to affordable funding, the organization offers loans up to $50,000 at a low interest rate of 5%, Frost said.
The institution looks at a company’s business plan, not their credit, and works to make sure the business is going to be successful, Frost said. And it can help Black business owners better connect with their banks and advocate for themselves.
Kevin Boyce, vice chairman of Ohio’s only Black-owned bank Adelphi, which started operations in Columbus this year, said he hopes the bank can make an impact for Black-owned businesses.
“The bank is uniquely set up from a standing point in the community to be somewhat of a resource,” he said. “Raising capital, no matter who you are, it’s a difficult thing to do but it’s twice as difficult for Black businesses.“
Adelphi is “going to have to do things that traditional institutions may not have to do to move the needle,” he said, including helping business owners build relationships.
But the bank, which also had difficulty getting capital to start, is currently “limited” on what it can invest directly, given “strict guidelines” to keep the bank solvent, Boyce said.
In the meantime, organizations such as the Urban League aren’t going to stop talking about the disparities and double standards that still exist for Black-owned businesses.
“We need to make sure (this) conversation is still being had and there’s momentum around it,” Hightower said.
“We’re hoping we can get more dollars put into these efforts because we’re going to help to build the ecosystem so there can be more Black businesses who can be in the supplier diversity network. But we’ve got to get them larger, to scale, so they can actually go after those opportunities to be successful.”
dking@dispatch.com
@DanaeKing