CNN
–
When Silicon Valley Bank customers rushed to withdraw billions of dollars last month, venture capitalist Erlan Hamilton intervened to help some of the founders of color panicked at losing access to the payroll fund.
As a black woman with nearly a decade of business experience, Hamilton knew the options for those startups had limited options.
SVB had a reputation for serving people in underrated communities like her. The failure reignited concerns from industry experts about lending discrimination in the banking industry and disparities in capital among people of color.
“We're already in a small house. We already have rattling doors and thin walls,” said Hamilton, the 43-year-old founder and managing partner of the capital behind the scenes, when it comes to entrepreneurs of color.
Founded in 1983, Midsize California Tech Lender was America's 16th largest bank at the end of 2022, before it collapsed on March 10th. SVB provided banking services to almost half of all venture technology and life science companies in the US.
Hamilton, industry experts and other investors told CNN that the bank has committed to fostering a community of minority entrepreneurs, providing both social and financial capital.
SVB regularly sponsors meetings and networking events for minority entrepreneurs, Hamilton said. It was well-known for funding the annual state Black Venture Report, led by BLK VC, a nonprofit organization that connects and empowers black investors.
“When other banks say no, SVB will say yes,” said Joynicole Martinez, 25-year entrepreneur and head of 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 Coach Council, an invitation-only organization for business and career coaches. She said SVB was an invaluable resource for entrepreneurs of color, providing clients with discounted technical tools and research funding.
Many women and people of color say they are turning away
Minority business owners have long faced challenges in accessing capital due to discriminatory lending practices, experts say. Data from the Small Business Credit Survey, a collaboration between all 12 Federal Reserve banks, shows the disparity in bank and non-bank loan refusal rates.
In 2021, about 16% of black companies acquired the total amount of business finance they wanted from banks, compared to 35% of white companies.
“We know there is a historical, systematic, blatant racism that is inherent in lending and banking. We have to start there, and the tips are not toes around it,” Martinez told CNN.
Asya Bradley is the immigrant founder of multiple tech companies like Kinley, who aims to help Black Americans build wealth for generations. Following the collapse of SVB, Bradley said he joined WhatsApp group of over 1,000 immigration business founders. Members of the group were immediately mobilized to support each other, she said.
Immigrant founders often don't have a Social Security number or permanent address in the United States, Bradley said it was important to brainstorm different ways to find funding in a system that doesn't recognize them.
“The community was really special because many of these people shared the different things they did to achieve success in terms of getting accounts in different places.
Many women, people of color and immigrants choose communities and local banks like SVB, Bradley says. Because they are often rejected by the “top four banks.”
In her case, Bradley said her gender could have been an issue when her brother co-signed for her, when she could only open a business account in one of the “top four banks.”
“The Top 4 doesn't want our business. The Top 4 consistently rejects us. The Top 4 doesn't give us the service we deserve. That's why we went to community banks and local banks like SVB,” Bradley said.
None of the top four banks offered CNN any comments. The Financial Services Forum, the organisation representing the eight largest financial institutions in the United States, says 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 branches in low-income areas as part of a $30 billion commitment to black and brown communities across the country.
Wells Fargo specifically pointed out the 2022 Diversity, Equity and Inclusion Report.
The bank partnered with the Black Economic Alliance last year to launch a Black Entrepreneurial Fund. This is a $50 million seeds, startups, and early stage capital fund for businesses founded or led by black and African American entrepreneurs. Since May 2021, Wells Fargo has completed a $50 million pledge to invest in 13 minority deposit institutions and support black-owned banks.
Black-owned banks work to close the lending gaps in these traditionally excluded communities and promote economic empowerment, but their numbers have declined over the years, with much less assets free to them than top banks.
OneUnited Bank, the largest black-owned bank in the United States, manages its assets for just over $650 million. In comparison, JPMorgan Chase manages $3.7 trillion in assets.
Because of these disparities, entrepreneurs are also seeking funding from venture capitalists. In the early 2010s, Hamilton intended to set up his own tech company, but as he searched for investors he saw a white man controlling almost every venture capital dollar. That experience led her to found Backstage Capital, a venture capital fund that invests in new companies led by underrated founders.
“Well, “Well, instead of trying to raise money for one company, we try to raise money for an undervalued venture fund — and now we're undervaluing them — we call them women, people of color, founders who are LGBTQ.
Since then, Backstage Capital has accumulated a portfolio of nearly 150 different companies, and has invested more than 120 diversity in terms of data from CrunchBase.
But Bradley, who is also the “angel investor” in minority-owned businesses, said that community banks, local banks and fintechs “all get up and say, 'Hey, I'm not going to waste a good job from SVB's” and “really full of hope.”