The collapse of Silicon Valley Bank renews calls to address disparities affecting black entrepreneurs


When customers at Silicon Valley Bank rushed to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some of the black founders who panicked about losing access to payroll funds.

As a black woman with nearly 10 years of business experience, Hamilton knew the options for those startup founders were limited.

SVB had a reputation for serving people from underrepresented communities like hers. Its failure rekindled concerns among industry experts about lending discrimination in the banking industry and the resulting disparities in equity for people of color.

Hamilton, the 43-year-old founder and managing partner of Backstage Capital, said that when it comes to black entrepreneurs, “we’re already in the smaller house. We already have the shaky door and thinner walls. And so when a tornado comes, we’re going to get hit harder.”

Founded in 1983, the California-based midsize lender was America’s 16th largest bank at the end of 2022 before crashed 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 that the bank is committed to fostering a community of minority entrepreneurs and has provided them with both equity and financial capital.

A banking crisis destroyed Silicon Valley Bank on March 10 as depositors withdrew $42 billion in a single day.

SVB regularly sponsored conferences and networking events for minority entrepreneurs, Hamilton said, and was well known for its annual funding State of Black Venture Report led by BLK VC, a nonprofit that connects and empowers investors of color.

“When other banks were saying no, SVB was saying yes,” said Joynicole Martinez, a 25-year-old entrepreneur and director of advancement and innovation for 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 career coaches. She said SVB has been an invaluable resource for entrepreneurs of color and provided to their clients reduced technological tools and research funding.

Minority business owners have long faced difficulties accessing capital because of discriminatory lending practices, experts say. Data from Small Business Credit Surveya collaboration of all 12 Federal Reserve banks, shows disparities in denial rates for bank and non-bank loans.

In 2021, about 16 percent of black-owned companies obtained the full amount of business financing they sought from banks, compared to 35 percent of white-owned companies, the survey found.

“We know there is historical, systemic and just plain blatant racism that is inherent in lending and banking. We have to start from there and not tiptoe,” Martinez told CNN.

Asya Bradley is an immigrant founder of several tech companies like Kinley, a financial services business that aims to help black Americans build their generational wealth. After SVB collapsed, Bradley said he 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 critical to think of 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 they had done to be successful in getting accounts in different places. They were also able to share different regional banks that stepped up and said, ‘Hey, if you have accounts at SVB, we can help you guys,'” 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 “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 banks” when her brother signed for her.

“The top four don’t want our business. The first four are constantly rejecting us. The first four are not giving us the service we deserve. And that’s why we turned to community banks and regional banks like SVB,” Bradley said.

None of the top four banks offered 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 address economic and racial inequality.

Last week, JPMorgan Chase CEO Jamie Dimon CNN’s Poppy Harlow said her bank has 30 percent of its branches in lower-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, start-up and seed capital fund for businesses founded or led by black and African-American entrepreneurs. And as of May 2021, Wells Fargo has invested in 13 minority depository institutions, fulfilling its $50 million commitment to support black-owned banks.

Black-owned banks work to reduce the lending gap and promote economic empowerment in these traditionally excluded communities, but their numbers have declined over the years and they have far fewer assets at their disposal than top 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 planned to start his own tech company — but while looking for investors, he saw that white men controlled almost all the venture capital dollars. This experience led her to found 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 single company, let me try to raise money for a venture fund that invests in underrepresented — and now we call them underrated — founders who are women, people of color and LGBTQ. especially,’ because it’s all three,” Hamilton told CNN.

Since then, Backstage Capital has amassed a portfolio of nearly 150 different companies and made more than 120 diversity investments, according to data from Crunchbase.

But Bradley, who is also an “angel investor” in minority-owned companies, said he remains “very hopeful” that community banks, regional banks and fintechs “will stand up and say, ‘Hey, we’re not going to leave work SVB’s good fortune is being wasted.”

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