Capitalizing the Revolution— How Alternative Financing Could Transform the Economy
Lavonya Jones of Consciously Funded makes the case for equity in entrepreneurial funding
Entrepreneurship is already a perilous journey. A creator is a revolutionary, and the typical paths for entrepreneurs in Silicon Valley more times than not do not fit the needs of creative entrepreneurs. To a restaurateur, animator, photographer, etc., venture capital and business loans can seem unattainable, meant for someone creating the new Tik Tok or Shopify. Finding a path to funding as a creative visionary means jumping through unrealistic hurdles and facing adversity, especially in a global pandemic.
These issues run even deeper for Black, Indigenous, and people of color trying to start their own small businesses. It’s no secret that Black women are leading the economic recovery, creating more small businesses and in turn generating more new jobs for their communities than other groups, and yet, the biases in financing prevent these entrepreneurs from flourishing. According to a study by the National Community Reinvestment Coalition, even in just the past year Black-owned businesses were treated drastically differently than white owned businesses seeking funding from the Payment Protection Program during the pandemic. In the world of venture capital, minority and women owned businesses face deep biases, with only 3% of venture capital in 2018 going to women entrepreneurs. The financial landscape is set up for the success of some, to the detriment of the global economy.
Last month, Creative Startups CEO Alice Loy spoke with Lavonya Jones, founder of Consciously Funded, in our live series Making the Case to grapple with the current problems plaguing the financial system, setting clear paths for banking and funding to become uniquely tailored to the communities being served in a way that provides equity for all.
Alice Loy: Today, we’re joined by Lavonya Jones, and to share a little about who she is and what’s important to her: Lavonya is on a life’s mission to equip an army of socially conscious entrepreneurs. She is passionate about entrepreneurship as a solution to economic injustice and inequality.
A third generation HBCU graduate, Lavonya currently works with minority serving institutions around the country and is an entrepreneurship professor with Morehouse College. She has over 15 years of experience working to create pathways into entrepreneurship and venture capital, and she is committed to the economic empowerment of her community.
It's an impressive resume of important work. Lavonya, we are delighted to have you.
Lavonya Jones: Thank you. I’m delighted to be here.
Alice: You and I connected early on a couple of months ago and just really hit it off discussing the lack of financing for innovative ventures founded by Black, Indigenous, or people of color. Why is this such an important problem that Americans have to solve?
Lavonya: I'll start at the macro level. We know that 1% of Black businesses get funding and 1% of investors are Black. That impacts us all because for one, we need more entrepreneurs creating jobs. I read a report that globally we need nine million more entrepreneurs for the amount of people that will need jobs.
As the population grows, particularly in the United States, the racial injustice we see in financing, especially in the investment industry, costs our economy $300 billion a year, and it costs us nine million jobs. Those are jobs that are needed in the workforce. We may soon add another six million people to our homeless population. We already have a large homeless population because there aren’t jobs and people don't have income, and often it is Black businesses that are providing jobs to Black people in the community.
When everyone in an economy can't contribute, that economy suffers. If we have a weak economy in a country, that's a national security issue, and we have to tackle that if we want a thriving economy where all of our people are contributing to the economy and doing well, we have to address that issue. We have 20 million businesses that are making less than $80,000 a year. You can’t survive like that. It doesn't create any jobs, and you can't even pay your bills.
When we just look at the numbers and how it positions us, it makes us have a weak economy, and we can't have a thriving nation without a thriving economy.
Alice: Beautifully said!
Adding to that, it’s important to point out that Black women are leading our economic recovery. According to a recent Harvard Business Review article, 17% of Black women (that’s practically one in five, are starting or running a new business; whereas, only 15% of white men and 10% of white women are generating new businesses. Yet Black women are still not getting the capital they need and, I would argue, are still not viewed or understood as a part of the entrepreneurial community.
Lavonya: Exactly. They are not. When you look at entrepreneurial communities, like accelerators, incubators, membership communities, it's still dominated by men, particularly white men. Even in spaces that are for Black people, they are still dominated by Black men, so there just aren’t enough resources.
There have been reports that have shown that while male entrepreneurs have more access to mentoring, Black women don’t get as much mentoring for their business. So, there’s a finance issue and there’s a mentoring issue for women. We’ve seen, even with all of the commitments companies made last year during the George Floyd protests from 2020 to 2021, investing fell for women entrepreneurs, particularly Black women, by 30%.
Alice: You're saying that despite all of the attention focused on this issue, the amount of financing is decreasing. It makes me feel a little despondent, you know, wondering why we are not awakening to the problem. Who would you say are some of the people or organizations that are paying attention? What are some examples of people who have started to move in the other direction and guide the way?
Lavonya: We've seen organizations like Silicon Valley Bank and Andreessen Horowitz investing more in founders of color and women of color. Softbank even created a fund, I believe it was $100 million, to invest in underserved entrepreneurs. We also see a lot of women, particularly Black women, starting their own funds to fund other Black women.
Here in Atlanta, we have Zane Ventures, and we have Arlan Hamilton who’s absolutely amazing. With Black Girl Ventures, we’re seeing, as we tend to do, Black women taking matters into their own hands. We’ll help ourselves.
Pinky Cole, who is a graduate of Clark Atlanta University, has a very successful restaurant here called Slutty Vegan, and she has taken portions of her profits from her business to fund women entrepreneurs and even created a scholarship for women entrepreneurs at her alma mater.
Alice: That is fantastic! What a brilliant thing for a CEO or founder to do instead of just paying herself more, which you see happen in so many businesses, the disparity of pay. She said, Why don’t I invest in other entrepreneurs? I’ll still make more money, but I’ll also change the game.
Lavonya: Yes, absolutely! She's doing it on so many levels, not even just for Black women but also Black men.
We’re seeing a lot more of Black business owners become successful through these efforts. Another good example is Pharrell, the rapper who created the Black Ambition initiative to fund HBCU entrepreneurs. He came from the area where I went to school, Hampton Roads Virginia, so he knows how much HBCU’s contributes to the Black middle class. He decided to focus his earnings on that.
Alice: It's interesting because the creative economy is a space where a lot of Black entrepreneurs have dominated and have been able to build a lot of wealth, and now we're seeing more and more Black entrepreneurs in the creative economy turn around and launch businesses and start investing in other entrepreneurs.
Unfortunately, there’s data showing that those especially successful Black or Indigenous women investors are put through more rigorous screening than white male investors who have similar resumes. The bias is deep and persistent, and we need to build our own systems of alternative forms of financing and support each other.
What are some of the alternative forms of financing that are starting to work?
Lavonya: We're seeing a lot of shifts in how people even look at venture capital because the venture capital industry has crazy win/lose scenarios. The returns are not great. They don’t work very well.
People are coming up with alternative investment vehicles. We have Collab Capital here in Atlanta that’s created a profit sharing model for their investment fund, as well as a model for taking a small equity stake and helping their founders connect to the next round of funding, providing them with a mentor. They're fixing both of those challenges.
We’ve seen companies like Pop Com and Streamlytics with Dawn Dickerson and Angela Benton, respectively, that use equity crowdfunding. I truly believe equity crowdfunding can be a game changer for underrepresented founders because we’ve always done these cooperative models in our community, sharing resources and finances. Equity crowdfunding just fits into that culture in our communities.
There are also grants. We have a lot more organizations popping up like Echoing Green or Kapor Capital that are providing grants to founders to help them scale. One of the partners of Collab Capital, Jewel Burks Solomon, also talks about how pitch competitions helped her scale her business and get it to the point where she was able to sell it to a Fortune 10 company.
We know there are slim chances to get funding in the venture capital industry, and then when you do, the returns are not great. Even the exits for underserved founders are not the same as for white men. Black founders typically don’t exit at the same level that a white male does. Oftentimes, they just break even or make a very small amount of money. There are a lot of people coming up with different paths, and I am of the belief that we have to get out of these cookie-cutter models of financing.
I believe that every community is unique. Every community has a culture, and, just like with entrepreneurship, they have to understand their target market and their needs. We need more investors to look at the people they are trying to target for investment and figure out what will be the win/win solution for that community. It needs to be more centralized.
Alice: We’re doing a new course, Capital for Creators, because we want to spark the thinking in the Creative Economy that funding isn’t one size fits all. Venture capital is more than likely not the right pathway, which could be really good news. Revenue share models could be instrumental for the Creative Economy— loans, convertible debt. All kinds of funding is out there.
I urge entrepreneurs to gain enough understanding of the capital landscape to make good, informed decisions. Don’t be wooed by venture capital. Just because you’ve raised $1 million doesn’t make you successful— it just means that you got married to an investor who may or may not help guide you. It comes with a lot of good and bad, but there are other types of capital that might be better aligned to your creative vision.
Lavonya: From an economic standpoint, we need to do more. It’s comfortable to do this cookie-cutter model. But if we’re going to be investors, we have to target the communities we want to invest in. The model that may work in Atlanta might not work in New Mexico.
I’m encouraged by the investors who are starting funds and really doing their research on the communities they serve to find the best finance model to help those communities and companies succeed.
Alice: If you could sit down in a room full of investors who really want to make a difference, what would you say are one or two things they could do to start making that shift?
Lavonya: The first thing is to support organizations like Collab Capital and Zane Ventures who have come up with these alternative forms of investment and help them fund people using those models.
Secondly, they could have a portion of their fund for grants. That’s something you could do today that’s not related to equity investment. Maybe there’s a portion that you use for a smaller community to help them get to the point where they can take equity investment. Utilize grants to do that. That’s something that HBCUvc started doing. They started off with grants to HBCU founders, and then they worked with those businesses to get to the point where they could take equity financing.
Alice: You have many projects ongoing, and I wanted to ask you, what do you have going on the rest of the summer?
Lavonya: I’m very excited about my business, Consciously Funded. I’m getting ready to launch the application for my social impact fellowship next summer for HBCU and Tribal college students. It will be focused on social impact, sustainable cities, and impact investing and getting more HBCU and Tribal college students into that pathway.
When I got into this, I didn’t even know you could have a career in social impact. I didn’t even know you could get a degree in this field. Black and Indigenous communities are often impacted first and worst by social impact issues, and we need more HBCU and Tribal college students who are closest to the problem and are often closest to the solution to join those fields.
We’re also starting a program at Morehouse very soon where I’ll be teaching an entrepreneurship class for our new entrepreneurship minor. We are getting ready to launch at Morehouse College, Spelman College, and Clark Atlanta University. We’re going to be the first HBCU locations for Blackstone Launchpad.
We are also heads down working with minority serving institutions across the country to connect their innovation and entrepreneurship resources because we know our schools are resource strapped. For instance, Savannah State is a logistics hub, and when we have students interested in business logistics that go to our institutions, we can send them to professors and entrepreneurs at Savannah State. So we connect the systems to create a vault for entrepreneurs starting a business.
Alice: Where can people go to find more information about the fellowship?
Alice: So, reach out to Lavonya. She is a leading thinker and doer around alternative finance models and uplifting Black, Indigenous, and People of Color entrepreneurs. Thank you so much Lavonya for joining us.
Lavonya: Thank you for having me. It’s been a great conversation.
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