cnn
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When Silicon Valley Bank clients rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some of the founders of color who panicked about losing access to payroll funds.
As a Black woman with nearly 10 years of entrepreneurial experience, Hamilton knew the options for startup founders were limited.
SVB had a reputation for serving people from underrepresented communities like yours. Its failure has reignited concerns among industry experts about credit discrimination in the banking industry and resulting capital disparities for people of color.
Hamilton, founder and managing partner of Backstage Capital, 43, said that when it comes to entrepreneurs of color, “we are already in the smaller house. We already have the rickety door and the thinnest walls. And that's why, when a tornado comes, we will be hit harder.”
Established in 1983, the midsize California technology lender was the 16th largest bank in the United States at the end of 2022 before collapsing on March 10. SVB provided banking services to nearly half of all venture capital-backed technology and life sciences companies in the United States.
Hamilton, industry experts and other investors told CNN that the bank was committed to fostering a community of minority entrepreneurs and provided them with social and financial capital.
SVB regularly sponsors conferences and networking events for minority entrepreneurs, Hamilton said, and is well known for funding the annual State of Black Venture Report spearheaded by BLK VC, a nonprofit that connects and empowers Black investors.
“When other banks said no, SVB said yes,” said Joynicole Martinez, an entrepreneur for 25 years and director of advancement and innovation at 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 professional coaches. She said SVB was an invaluable resource for entrepreneurs of color, offering its clients discounted technology tools and research funding.
Many women and people of color say they are rejected.
Experts say minority business owners have long faced challenges accessing capital due to discriminatory lending practices. Data from the Small Business Credit Survey, a collaboration of all 12 Federal Reserve banks, show disparities in bank and nonbank loan denial rates.
In 2021, about 16% of Black-led businesses acquired the full amount of business financing they requested from banks, compared to 35% of white-owned businesses, the survey shows.
“We know there is historical, systemic and simply blatant racism inherent in lending and banking. We have to start there and not tiptoe around,” Martínez told CNN.
Asya Bradley is an immigrant founder of multiple technology companies such as Kinley, a financial services company that aims to help African Americans build generational wealth. Following SVB's collapse, Bradley said she joined a WhatsApp group of more than 1,000 immigrant business founders. Group members quickly mobilized 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 sharing different things that they had done to achieve success 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 at 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 among the “big four banks”: JPMorgan Chase, Bank of America, Wells Fargo and Citibank.
In her case, Bradley said her gender could have been an issue when she could only open a business account at one of the “four major banks” when her brother co-signed for her.
“The top four don't want our business. The top four reject us constantly. The first four do not give us the service we deserve. And that's why we've turned to community banks and regional banks like SVB,” Bradley said.
None of the four major banks commented to CNN. The Financial Services Forum, an organization that represents the eight largest financial institutions in the United States, has said that 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 as part of a $30 billion commitment to Black and Brown communities. Latinas throughout the country.
Wells Fargo specifically pointed to its 2022 Diversity, Equity and Inclusion report, which analyzes the bank's recent initiatives to reach underserved communities.
The bank partnered last year with the Black Economic Alliance to start the Black Entrepreneur Fund, a $50 million seed, seed and early-stage capital 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 promise of $50 million to support Black-owned banks.
Black-owned banks are working to close the credit gap and foster economic empowerment in these traditionally excluded communities, but their numbers have been declining over the years and they have far fewer assets 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 also seek funding from venture capitalists. In the early 2010s, Hamilton intended to start his own technology company, but while searching for investors, he saw that white men control almost all of the venture capital dollars. That experience led her to establish Backstage Capital, a venture capital fund that invests in startups 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 underrepresented) founders who are women, people of color, and LGBTQ. specifically,' because I'm all three,” Hamilton told CNN.
Since then, Backstage Capital has amassed a portfolio of nearly 150 different companies and made more than 120 diverse investments, according to Crunchbase data.
But Bradley, who is also an angel investor in minority-owned businesses, said he is “really hopeful” that community banks, regional banks and fintech companies “will stand up and say, 'Hey, “We are not going to allow SVB's good work to go to waste.”
