Every single entrepreneur begins their company with the same thing: an idea. Your idea marks your first steps into the startup ecosystem. And on its face, the plan for what comes next also looks similar for most founders — raise capital, hire a team, develop your product, rinse, repeat (sometimes multiple times over), exit.
But when you break these steps down, you realize they don’t look the same for all founders. Some founders — especially Black women — face significant hurdles in accomplishing that early step of raising capital. For Black women in the startup ecosystem, everything after the idea can be a struggle.
It doesn’t have to be this hard. Policymakers have the opportunity to foster a more inclusive and equitable innovation ecosystem. They can build better pathways to access capital and provide more resources for startup founders and entrepreneurs who look like me. They can enable Black women to become investors — to build generational wealth including investing in startups run by diverse leaders.
One major step in the right direction would be updating the requirements to become an accredited investor, that is, a person who is certified by the government to invest in early-stage startups.
As of 2017, almost 90% of angel investors are white, just under 80% are men, and just 1.3% of early-stage investors are Black. This means that only a sliver of these investors are Black women. Racial and generational wealth gaps coupled with high financial thresholds to qualify as an accredited investor — an income in excess of $200,000 per year, or a net worth of at least $1 million — means many would-be investors are shut out of the startup ecosystem.
For the women of color my company serves, wealth signifies improved housing, access to quality healthcare, educational opportunities, career advancement, and an enhanced overall quality of life.
This is despite the fact that Black women are leading innovation nationwide across multiple industries, from agriculture to beauty, education to food access, and more. Additionally, Black women founders launch businesses at higher rates, especially in the last few years. But we have to work significantly harder for much less support. And when studies show that investors who look like you are more likely to fund you, Black women founders are often left behind.
As a Black female founder, the absence of Black investors has profoundly affected my journey in funding RAVN, my company. The lack of representation means there are few individuals who truly understand the unique challenges and opportunities I face as a Black entrepreneur. Non-Black investors often fail to recognize the value of a company like RAVN, which aims to elevate wealth and financial planning for underrepresented communities. This lack of understanding and empathy can lead to biases and skepticism, limiting access to necessary resources and mentorship.
Additionally, my startup is often undervalued, resulting in lower valuations, less funding, and increased equity dilution. Increasing diversity among investors is not just about equity; it’s about unlocking the untapped potential of ventures like mine that are dedicated to empowering communities that have historically been overlooked.
For the women of color my company serves, wealth signifies improved housing, access to quality healthcare, educational opportunities, career advancement, and an enhanced overall quality of life. It also entails securing a financially stable future for future generations and ending a cycle of financial adversity. When confronted with the United States’ staggering reality of a racial wealth gap, the last thing these women need is yet another obstacle hindering their progress. What they truly desire is a wide range of diverse options, not limitations, that can empower them to achieve their goals and aspirations. My company and the women we support prove that you don’t have to have yet achieved considerable wealth to have financial acumen.
But within our community of 30,000, the members who have benefited the most from our services can’t even invest in my company to help it expand to reach other women who would benefit. Women who have leveraged the professional guidance of our certified financial advisors and education — to increase their income, become debt-free, and max out their retirement contributions — have disposable income to invest but can’t, not because they don’t understand the risk or can’t withstand it but because of the income and net worth requirements. The truth is many of them have garnered more investment education than most folks who currently qualify as sophisticated investors.
The opportunity to invest in a high-growth startup represents the chance to participate in a future exit.
The opportunity to invest in a high-growth startup represents the chance to participate in a future exit, which may occur seven to 10 years down the line, and will have a more profound financial impact on their children than on themselves personally. It also provides the freedom to decide where and how to allocate their money. While we wholeheartedly support measures that protect investors, we strongly oppose policies that perpetuate discrimination based on education, economic status, pedigree, or any other factor that excludes deserving Americans.
Policymakers must act now to support underfunded and underrepresented women founders and investors. Thankfully, the House of Representatives has passed legislation that would open up new paths to meet the accredited investor definition outside of relying on discriminatory income or net worth thresholds. Per Rep. Ann Wagner, chair of the Subcommittee on Capital Markets: “Under this bill, if you can demonstrate competency with these types of investments through an exam, then you qualify as an accredited investor.”
The legislation will give rise to a diverse pool of investors who will in turn help to fund a diverse pool of startups, while still allowing for investor protection. Expanding the definition of accredited investor takes a step in the right direction towards a more level playing field for Black women, so we can build wealth and build companies with the support we deserve. It is essential that the Senate pass this bipartisan legislation and send it to President Biden’s desk.
The US has been a leader in innovation for so long. But more and better innovation is possible with a more diverse startup ecosystem, from investors to inventors to founders, and policymakers must act to make it happen.
