Lack of Aligned Capital Leads Over 300 Female Entrepreneurs to Compete for $50,000
January 11th marked the deadline for applications for the HERImpact DC Pitch Competition, which we are sponsoring in partnership with the Ford Motor Company Fund. The purpose of the program is to support female social entrepreneurs having an impact in their communities. The pitch competition will give away $50,000 in cash, and a near comparable amount of in-kind support. We expected at least 150 applications.
As of 11:59:59 on Friday, we had 347 applications from all over the country. We were pleasantly surprised, as well as overwhelmed with the interest and needs of this community of women. What made our competition so special? Why were women from across the country vying for 10 minutes to share their business ideas?
The answer is easy. In a world where entrepreneurs of color and women have limited access to capital, there needs to be a path for them to secure the appropriate and relevant funding for their businesses. Venture capitalists invest less than 2% of their capital with new majority entrepreneurs. Equity investments are highly unlikely. When equity is available, research found that the average amount of new equity investment in a minority-owned business was about $3,400, which was 43 percent of the average equity investment in a non-minority business.
Debt is available to entrepreneurs of color, but it is quite costly. Data from the 2003 Survey of Small Business Finances shows that whereas the average loan amount for minority-owned small businesses was about $9,300, the non-minority average was more than twice this amount, at $20,500. The same survey found that minority businesses pay, on average, 7.8 percent for loans, compared with 6.4 percent for non-minority businesses.
Access to a “friends and family” is even more challenging for new majority entrepreneurs. By 2020, median Black and Latino households stand to lose nearly 18% and 12% of the wealth they held in 2013 respectively, while median white household wealth increases by 3%. Just two years from now — white households are projected to own 86 times more wealth than Black households, and 68 times more wealth than Latino households. The median wealth of Black Americans will fall to zero by 2053; Latino households will have a median wealth of zero by 2073.
This lack of access to capital and wealth stymies the potential of entrepreneurs of color. In many cases across the country, these entrepreneurs have relied on pitch competitions and online campaigns to access capital that is both cheap and non-dilutive. Competitions and campaigns, where capital is provided as a grant, allow new majority entrepreneurs to grow their businesses, as well as maintain control without the fear of high interest payments and/or dilution.
We are excited to host the HERImpact DC Pitch Competition on March 16th at Georgetown University, which will attempt to fill the capital gap for these worthy female entrepreneurs. We hope you can join us to show the much needed and deserved support for these female entrepreneurs as they battle an unfriendly capital landscape in order to have positive impact on their communities.
