When it comes to entrepreneurship, the Black community has seen a surge of new business owners, and a 2020 Guidant Financial report found that “72% of Black-owned businesses are profitable, a 5% increase from last year.” 

But when it comes to entrepreneurs who want to take their brands to the next level, securing venture funding continues to be a systemic hurdle. Over the last five years, Black and Latinx founders have received only 2.4% of all funding.

Much like the racial wealth gap, which finds white families typically holding a net worth 10 times greater than Black families, there’s a disparity in funding for Black entrepreneurs. The New York Times reported, “On average, 17% of the funding to white startups came from investors, compared with 1.5% for Black founders.” 

So despite hard-earned wins, a lack of capital continues to prevent access to the financial opportunities that are crucial for Black business owners. To be direct, Black and Latinx voices in business and venture capital (VC) are being blocked from economic advancement in a society where entrepreneurship is valued as a viable and celebrated path to success. In October 2020, PayPal invested $50 million in eight early-stage Black and Latinx-led VC funds with the goal of bringing more equity to the fundraising process. Blavity spoke with two recipients of these funds — Arian Simone, co-founder of Fearless Fund, and Austin Clements, co-founder of Slauson & Co. — about the Black VC experience, what aspiring entrepreneurs need to know and how an investment from PayPal is helping create a more equitable future.

Secure the Bag, Sis: Funding For Women, By Women

Photo Courtesy of Fearless Fund ( Left to Right, Co-Founders Arian Simone, Keshia Knight Pulliam, Ayana Parsons)

For Arian Simone, founder of venture capital firm Fearless Fund, her passion for entrepreneurship dates back to college when she opened a small, mall-based retail store. Despite her early success, after graduating college she would face a series of extreme highs and lows — going from a dream job in fashion marketing to moving into her car after being let go. Through it all, Simone was determined not to allow any setbacks to block her future blessings. 

Simone ended up starting her own successful PR and marketing business, bootstrapping it from the ground up. After running that business for almost 15 years, Simone remembered the promise she made to herself years before: to one day be the business investor she was always looking for when she was starting out. With Fearless Fund, Simone pays it forward by investing exclusively in women of color-led businesses. “I learned that Black women entrepreneurs receive 0.6% of venture funding, and I realized it wasn’t simply a lack of diverse investments but a lack of diverse investors. I knew I needed to get on the other side of the table to impact change in this space.”

Things to Consider Before Approaching a VC

For those looking to get venture capital funding for their startup, Simone has the following advice:

• Consider getting legal counsel before launching to ensure your business is investment ready. Fearless Fund runs an educational Get Venture Ready program to help women of color become fully prepared. The entrepreneurs meet with different master-class teachers and experts in the field so they know what they need to do before approaching a VC.

• Set your business up through the proper legal channels. “A lot of people start their businesses with LLCs, but in a space where people are buying and selling equity, businesses need to be a C-corp or even a Delaware C-corp,” Simone says. 

To get an investor’s attention, businesses need a brand story and traction. Traction can include a few things; for example, how many users are actively engaged with your business or if you’ve had over a certain amount of revenue this year.

Advice for Entrepreneurial-Minded Readers

Simone’s most-pivotal piece of advice is patience. “I remember in college thinking that I was failing in my business. When I go back and look at the numbers now, I was never failing; the reality is businesses have ups and downs. Some things take a little bit of time, some things require a pivot or the next iteration. It’s about being patient through the process.” 

Another piece of timely wisdom Simone has, as we live through a global pandemic, is that “adversity always brings opportunity.” She encourages entrepreneurs to always look for the next product or solution that can solve the new problems we’re facing. 

While funding can be critical when starting a business, there are certainly ways to get into the game even if you haven’t yet secured venture capital. “It’s all going to come down to what type of business you have or want to have,” Simone says. “There are people in consumer packaged goods and other spaces that have more flexibility to bootstrap things. Someone with a product can put it up on social media and say ‘Pre-orders now available,’ without even having anything in stock, as a creative hack to see if there is a market for your product and get revenue going.”

But not every business idea can offer pre-orders, and that’s why Simone believes in providing equal access to venture capital. “If you are in the tech space, the reality is you’re going to need capital. This is why these barriers to entry have to go; it is so important that people of color have access to this funding,” she adds.

As Fearless Fund continues to pave the way for women of color led businesses and investors, Simone predicts there’s much more to come. “We are the first women of color fund built by us and for us. But in the words of Vice President Kamala Harris, we will not be the last.”

For the Culture: Where Community Meets Capital

Photo Courtesy of Slauson & Co. ( Left to Right Co-Founders Austin Clements, Ajay Relan)

After noticing the financial disconnect between the people he worked within private wealth management and the people he grew up with within Los Angeles’ Gardena and Ladera Heights areas, Austin Clements was drawn to the VC industry as a means of creating change in his community. He witnessed the power that venture capital had in catapulting entrepreneurs and soon found himself back in school to learn the tools of the trade. He then landed a gig at TenOneTen Ventures before setting out on his own to co-found Slauson & Co., an LA-based VC firm with the mission to democratize access to entrepreneurship by providing capital and resources to founders traditionally overlooked by the venture ecosystem.

Since launching, Clements has helped build the firm into a premier pre-seed and seed-stage fund company by backing ideas at the earliest stage. Focused on “investing with intention” and inclusion, Slauson & Co. is bringing a new pool of founders to the table. 

“The name Slauson & Co. comes from the street Slauson Ave. in LA, which is a 20-mile stretch from east to west. It starts in a blue-collar area, goes through an under-resourced area and includes neighborhoods representing some of the highest concentrations of Black wealth in the country. We view that journey as a metaphor for what we are trying to do at Slauson & Co.” 

Preparing a Seat at the Table 

Slauson & Co. focuses on two investment categories that are closely aligned with economic inclusion and the goal of expanding the pools of founders being evaluated. 

“First is tools, technology and platforms that support small businesses. This is a category that is drastically underserved by VCs, and if you move the needle on supporting small businesses, it impacts people of color. Without small businesses, the wealth and profits only go to a few players.” 

Slauson & Co. also invests in culturally relevant consumer technology, products and services.“ We think the companies of tomorrow are going to be highly aligned with the values of the customers they aim to serve,” Clements says.

The young firm has a lot to prove, but Clements is confident that getting behind companies with the cultural lens and understanding that will drive growth and adoption by the customer base will boost performance for the fund. “We are looking at a wider pool of people, and the truth is that we are out to outperform everyone, period. And we want to show that our strategy can create that,” he declares.

Things to Consider Before Approaching a VC

Clements shares the following insights from his journey breaking into venture capitalism: 

• Absorb all of the information you can from insiders who were successful. “I say I was mentored by top-tier VCs because they were very prolific bloggers sharing all of the ins and outs of the venture industry. For an industry that is so hard to break into, mentorship wasn’t easily accessible, so you just have to be a sponge,” Clements advises. 

• Open lines of communication with venture firms. “I knew that people in my community were totally disconnected from venture or how to speak the language,” he says. “So I started to talk to venture funds and make connections. A lot of times it takes someone betting on you when you don’t have a whole lot to show to be a game-changer.”

• Perseverance is key. If you work for a long-enough time, walls will come down. But it may take longer than you expected. “I was trying to raise a fund six years ago and it happened this year, but it happened much better than I would have ever expected,” Clements says.

Advice for Entrepreneurial Minded Readers

Clements suggests learning as much as possible before coming to a VC. He explains that while venture capital may help put certain companies on the trajectory for rapid growth, not every business is appropriate for VC. 

To help founders navigate this path, Slauson & Co. is working with established organizations that support founders with new programming that gives guidance on the VC process. 

Clements keeps it real when it comes to advice for aspiring founders. “People from our community are told that they have to work twice as hard to get half as much. In my experience in this industry, that holds true. I don’t want to sugarcoat just how hard it is to build something and build a category-leading company. There are so many ups, downs and challenges that happen along the way. But the most successful people get punched in the face, fall down, then get back up and keep going. I’ve certainly had my fair share of punches to the face — several in 2020 alone — but you have to keep going,” Clements says.

He adds that while it can be challenging, success is very possible, and the best way to get there is to do something that may seem counterintuitive. “Don’t be afraid to share your idea. One thing I have noticed, particularly with communities of color, is that we are very protective of our ideas. But, when you share it with other people, you get the opportunity to build out the idea, learn from other people and engage other people in what you are doing.” 

It’s Time to Commit to Black Businesses

Simone and Clements’ journeys into VC looked similar to many young entrepreneurs of color diving into the unknown and disrupting an industry: long, difficult and, at times, seemingly impossible. But their stories blaze a new trail for the future of investing, one that is much more diverse and accessible.

Black entrepreneurship is booming, and through investments like PayPal’s, these funds can help level the playing field for entrepreneurs of color and decrease the longstanding wealth gap.

When asked what PayPal’s investment meant for Fearless Fund, Simone explained, “It means that we are being seen, and that is so important.”

Where there’s a will –– and grind and patience and research and support from investors like PayPal –– there is a way for Black or Latinx entrepreneurs to gain access to VC spaces and the capital they need to build formidable and impactful businesses.

 

This editorial is brought to you in partnership with PayPal. To learn more about PayPal’s commitment or how to get your business involved, visit here.