Black Women Receive Less Money When Starting New Businesses

Posted by Nailah Herbert in Black EconomicsFebruary 28, 2022(Last Updated July 28, 2022)3 min read
Key Takeaways
  • A study conducted by the Harvard Business Review found that only 0.5% of venture capital funds go towards entrepreneurs.
  • Only 0.0006% of all venture capital money went towards businesses led by Black women, and the main reason Black women struggle with receiving funding is due to prejudice.
  • As discrimination negatively affects the chances of an African-American entrepreneur attaining money, there are some ways to combat the prejudice and increase the chances of necessary funding being raised.
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The United States is viewed as a country that allows all of its citizens to have the possibility of following and achieving their dreams. Some people dream of having different types of businesses, ranging from operating a food truck to running a graphic design firm. However, starting a business requires money, and regardless of how good the business model is, some people do not receive the money they need due to the color of their skin. 

 

According to a study conducted by the Harvard Business Review, a Black woman is most likely to start a small business compared to white men. However, within the same study, it stated although women of color start many companies, they have the lowest chance of running long-standing businesses. 

 

The reason African-American women have a much lower possibility of running a long-lasting business than white women and men is due to the lack of funding they receive when they are trying to scale their business.

 

Factors Behind Black Women Receiving Less Funding

 

The main factor behind why Black women receive fewer funds for their business is the discrimination and prejudice faced when attempting to receive funding. For example, within the venture capital industry, only 0.5% of all entrepreneurs were able to receive funding for their upcoming business, according to the Kauffman’s State of Access to Capital report. 

 

Between 2009 and 2017, only 0.0006% of Black women could secure venture capital funding for their business. The low percentage of women who were able to receive funding for their enterprises indicates there is a racial wealth gap between Black women and their white entrepreneur counterparts.

 

Effects of Race Inequality

 

Many entrepreneurs start their own businesses to become their own bosses and sell their products and services to their community.

 

However, due to racial inequality, the lack of funding Black women receive when applying for financing means they may not fulfill their dream and watch the business succeed. Instead, they may have to abandon the possibility of having their own business ultimately and may begin working a regular full-time job to pay for their living expenses.

 

How to Fight the Race Inequality

 

Unfortunately, race inequality continues to exist within today’s society, and it is an issue that continues to plague and hinder the success of many people of color. Although racial inequality can be extremely challenging to stop, there are ways to prevent it from happening when trying to secure the necessary funds needed to grow a business.

 

Networking

 

Racial inequality is the judgment made prior to getting to know the person. Consequently, one way to counter the inequality is by getting to know as many people as possible within your community. By reaching out to various people, you put yourself in a position where some of the people you established a connection with may know someone within the venture capital space and put in a good word.

 

The “good word” that can be put in by the person you connected with increases your chances of receiving funding to continue growing your business. Although this may not be ideal, these small steps are required to ensure major changes are made regarding race inequality in the venture capital world. 

 

GoFundHer.com

 

GoFundHer.com is a platform created by Tracy Garley. People of color and Black communities can come together to help raise the necessary amount of money needed for Black women entrepreneurs to fund their businesses. As many Black businesswomen struggle with receiving the required amount of money needed for their goals, this platform will allow many people to chip in and help businesswomen receive the funding they need.

 

Life is not always fair, and there will always be certain hurdles that one needs to overcome. African-American women entrepreneurs can struggle in the entrepreneurial world as they may have difficulty securing the necessary funds required to run their businesses. Although this is a difficult hurdle to overcome, the steps listed above can be taken to make it work in your favor.

 

What are some other ways you can overcome the issue of racial inequality? Please share your thoughts with us in the comment section below.

 

Main Image Credit: fizkes / Shutterstock.com

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