CNN
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As clients at Silicon Valley Bank hurried to withdraw billions last month, venture capitalist Arlan Hamilton intervened to assist some founders of color who were alarmed about the prospect of losing payroll funds.
As a Black woman with almost a decade of business experience, Hamilton recognized that options for those startup founders were scant.
SVB was known for serving individuals from underrepresented communities like hers. Its demise has sparked renewed worries among industry experts regarding lending discrimination within the banking sector and the consequent inequalities in capital for people of color.
According to Hamilton, the 43-year-old founder and managing partner of Backstage Capital, when it comes to entrepreneurs of color, “we’re already in the smaller house. We already have the rickety door and the thinner walls. Thus, when a tornado hits, the impact will be more severe on us.”
Founded in 1983, the midsized California tech lender ranked as the 16th largest bank in America by the close of 2022 before its collapse on March 10. SVB catered to nearly half of all venture-backed technology and life-science businesses in the United States.
Hamilton, along with industry experts and other investors, informed CNN that the bank was dedicated to nurturing a community of minority entrepreneurs and supplied them with both social and financial resources.
Hamilton shared that SVB frequently sponsored conferences and networking opportunities for minority entrepreneurs and was recognized for its support of the annual State of Black Venture Report led by BLK VC, a nonprofit dedicated to connecting and uplifting Black investors.
“While other banks were declining requests, SVB would agree,” said Joynicole Martinez, a 25-year entrepreneur and chief advancement and innovation officer for Rising Tide Capital, a nonprofit established in 2004 to link entrepreneurs with investors and mentors.
Martinez is also a recognized member of the Forbes Coaches Council, an exclusive organization for business and career coaches. She noted that SVB served as a critical resource for entrepreneurs of color, offering clients discounted technological tools and funding for research.
Numerous women and individuals of color report being turned away
Experts indicate that minority business owners have faced long-standing obstacles in securing capital due to biased lending practices. The Small Business Credit Survey, a consortium of all 12 Federal Reserve banks, highlights disparities in denial rates for loans from both banks and nonbanks.
In 2021, approximately 16% of companies led by Black individuals secured the total amount of business financing requested from banks, in contrast to 35% of companies owned by White individuals, as revealed by the survey.
“We understand that there’s historic, systemic, and overt racism embedded in lending and banking. We must address this issue directly without dancing around it,” Martinez conveyed to CNN.
Asya Bradley, an immigrant who founded various tech companies, including Kinley, a financial services firm aimed at assisting Black Americans in accumulating generational wealth, mentioned that after SVB’s downfall, she joined a WhatsApp group of over 1,000 immigrant business founders. The group quickly organized to support its members, she stated.
According to Bradley, immigrant founders frequently lack Social Security numbers or permanent addresses in the United States, making it essential to brainstorm alternative funding methods within a system that overlooks them.
“The community was particularly remarkable as many of these individuals shared their successful strategies for accessing accounts in various locations. They were also able to identify different regional banks that stepped up, indicating ‘If you had accounts at SVB, we are willing to assist you,’” Bradley explained.
Many women, individuals of color, and immigrants prefer community or regional banks like SVB, according to Bradley, as they are often denied by the “top four banks” — JPMorgan Chase, Bank of America, Wells Fargo, and Citibank.
In her situation, Bradley mentioned that her gender may have contributed to the fact that she could only secure a business account at one of the “top four banks” due to her brother co-signing for her.
“The major four banks have no interest in our business. They consistently reject us. They do not provide us with the service we rightfully deserve. Therefore, we have turned to community and regional banks like SVB,” Bradley stated.
None of the top four banks responded to CNN’s requests for comment. The Financial Services Forum, an organization representing the eight largest financial institutions in the United States, has stated that banks have dedicated millions of dollars since 2020 to tackle economic and racial disparity.
Recently, JPMorgan Chase CEO Jamie Dimon informed CNN’s Poppy Harlow that his bank has established 30% of its branches in lower-income neighborhoods as part of a $30 billion commitment to Black and Brown communities nationwide.
Wells Fargo specifically highlighted its 2022 Diversity, Equity, and Inclusion report, which outlines the bank’s recent efforts to reach underserved communities.
The bank collaborated in the previous year with the Black Economic Alliance to launch the Black Entrepreneur Fund — a $50 million fund for startup, seed, and early-stage capital aimed at businesses started or led by Black and African American entrepreneurs. Since May 2021, Wells Fargo has repeatedly invested in 13 Minority Depository Institutions, fulfilling its $50 million promise to aid Black-owned banks.
Black-owned financial institutions strive to bridge the lending gap and promote economic empowerment in these historically excluded communities, yet their numbers have been decreasing over time, and they possess significantly fewer assets compared to the major banks.
OneUnited Bank, the largest Black-owned bank in the country, manages just over $650 million in assets. For comparison, JPMorgan Chase oversees $3.7 trillion in assets.
The fallout from SVB’s collapse may inspire future transformations, according to an entrepreneur
Due to these inequalities, entrepreneurs are also pursuing funding from venture capitalists. In the early 2010s, Hamilton aimed to launch her own tech venture — but while seeking investors, she noticed that White men dominated nearly all venture capital funding. This realization drove her to create Backstage Capital, a venture capital fund focused on backing new companies led by underrepresented founders.
“I thought, ‘Instead of trying to secure funding for a single company, let me aim to raise capital for a venture fund that invests in underrepresented — now referred to as underestimated — founders who are women, individuals of color, and LGBTQ specifically, as I identify with all three,” Hamilton shared with CNN.
Since that point, Backstage Capital has built a portfolio of nearly 150 unique companies and has executed over 120 diversity investments, as per data from Crunchbase.
However, Bradley, who also serves as an ‘angel investor’ for minority-owned ventures, stated that she remains “very optimistic” that community banks, regional banks, and fintech companies “will all rise to the occasion and say, ‘Hey, we are not going to allow the valuable work of SVB to be in vain.’”
