When customers Silicon Valley Bank Rushed to cash out billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some of the founders of color who were panicking about losing access to payroll funds.
As a Black woman with nearly 10 years of business experience, Hamilton knew the options available to these startup founders were limited.
SVB had a reputation for serving people from underrepresented communities like its own. Its failure has reignited concerns among industry experts about lending discrimination in banking and the resulting capital 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 a smaller house. We already have a rickety door and thinner walls. And so when a tornado comes, we’re going to be hit harder.
Founded in 1983, the mid-sized California technology lending company was the 16th largest U.S. bank at the end of 2022 before it collapsed on March 10. SVB has 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 the bank is committed to fostering a community of minority entrepreneurs and providing them with social and financial capital.
SVB regularly sponsored conferences and networking events for minority entrepreneurs, Hamilton said, and it was well known for funding the annual event State of Black Business Report led by BLK VC, a nonprofit that connects and empowers Black investors.
“When other banks were saying no, SVB was saying yes,” said Joynicole Martinez, a 25-year entrepreneur and director of advancement and innovation for Rising Tide Capital, a nonprofit founded in 2004 to bring connecting 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 technological tools at reduced prices and research funding.
Minority business owners have long faced difficulty accessing capital due to discriminatory lending practices, experts say. The data of Small Business Credit Surveya collaboration of the 12 Federal Reserve banks, shows disparities in rejection rates for bank and non-bank loans.
In 2021, about 16% of Black-led businesses secured the full amount of business financing they sought from banks, compared to 35% of white-owned businesses, according to the survey.
“We know that there is historic, systemic and just plain blatant racism inherent in the lending and banking industry. We need to start there and not tiptoe around the problem,” Martinez told CNN.
Asya Bradley is an immigrant founder of several technology companies like Kinley, a financial services company aimed at helping Black Americans build generational wealth. After SVB collapsed, Bradley said he joined a WhatsApp group of more than 1,000 immigrant business founders. Members of the group quickly rallied to support each other, she said.
Immigrant founders often don’t have Social Security numbers or permanent addresses in the United States, Bradley said, and it was crucial to think about 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 then sharing different things that they had done to be successful in terms of getting accounts in different places. They were also able to share different regional banks that stood up and said, ‘Hey, if you have accounts with SVB, we can help you,'” Bradley said.
Many women, people of color and immigrants opt for community or regional banks like SVB, Bradley says, because they are often rejected from the “top four banks” — JPMorgan Chase, Bank of America, Wells Fargo and Citibank.
In her case, Bradley said her gender might have been an issue since she could only open a business account at one of the “big four banks” when her brother co-signed for her.
“The first four don’t want our business. The first four systematically reject us. The first four are not doing us the service we deserve. And that’s why we turned to community banks and regional banks like SVB,” Bradley said.
None of the four biggest banks made a comment to CNN. The Financial Services Forum, an organization representing the eight largest financial institutions in the United States, said banks have committed millions of dollars since 2020 to combat economic and racial inequality.
Last week, Jamie Dimon, CEO of JPMorgan Chase told CNN’s Poppy Harlow that her bank has 30% of its branches in low-income neighborhoods as part of a $30 billion commitment to black and brown communities across the country.
Wells Fargo specifically highlighted its 2022 Diversity, Equity and Inclusion Report, which discusses the bank’s recent initiatives to reach underserved communities.
The bank partnered with the Black Economic Alliance last year to launch the Black Entrepreneur Fund – a $50 million seed, early-stage and early-stage capital fund for businesses founded or led by Black entrepreneurs and African-Americans. And since May 2021, Wells Fargo has invested in 13 minority depository institutions, fulfilling its $50 million commitment to support Black-owned banks.
Black-owned banks are working to fill the lending gap and drive economic empowerment in these traditionally excluded communities, but their numbers have declined over the years and they have far fewer assets than big banks .
OneUnited Bank, the largest Black-owned bank in the United States, manages just over $650 million in assets. For comparison, JPMorgan Chase manages $3.7 trillion in assets.
Because of these disparities, entrepreneurs also seek funding from venture capitalists. In the early 2010s, Hamilton intended to start her own tech company, but as she sought investors, she found that white men controlled almost all of the venture capital dollars. This experience led her to create 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 founders — and now we let’s call them underappreciated – who are women, people of color and LGBTQ. more precisely, “because I am all three,” Hamilton told CNN.
Since then, Backstage Capital has built a portfolio of nearly 150 different companies and made more than 120 diversity investments, according to Crunchbase data.
But Bradley, who is also an “angel investor” in minority-owned businesses, said she remains “really hopeful” that community banks, regional banks and fintechs “will all stand up and say, ‘Hey , we are not going to let the good work of the SVB go to waste.’”