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As customers at Silicon Valley Bank scrambled to withdraw billions of dollars last month, venture capitalist Arlan Hamilton stepped in to help some company founders of color who were panicking about losing access to payroll funds.
As a Black woman with nearly 10 years of business experience, Hamilton knows that options for startup founders are limited.
SVB has a reputation for serving people from underrepresented communities like its own. The failure has reignited concerns among industry experts about lending discrimination in the banking industry and the resulting capital gap for people of color.
Hamilton, the 43-year-old founder and managing partner of Backstage Capital, said that when it comes to entrepreneurs of color, “we’re already in smaller houses. We already have rickety doors and thinner walls. So when a tornado comes, we’re going to be hit harder.”
Founded in 1983, the Californian mid-tech lender was the 16th largest bank in America at the end of 2022 before going bankrupt on March 10. SVB provides 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 cultivating a community of minority entrepreneurs and providing them with social and financial capital.
SVB regularly sponsors conferences and networking events for minority entrepreneurs, Hamilton said, and SVB is known for funding the annual event State of Black Business Report spearheaded by BLK VC, a nonprofit organization that connects and empowers Black investors.
“When other banks say no, SVB will say yes,” said Joynicole Martinez, an entrepreneur for 25 years and chief advancement and innovation officer 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. He said SVB is an invaluable resource for entrepreneurs of color and offers to their clients discounted tech tools and research funding.
Many women and people of color say they were rejected
Minority business owners have long faced challenges accessing capital because of discriminatory lending practices, experts say. Data from Small Business Credit Surveya collaboration of 12 Federal Reserve banks, showing differences in bank and nonbank loan rejection rates.
In 2021, about 16% of Black-led companies obtained the total amount of business financing they sought from banks, compared with 35% of white-owned companies, according to the survey.
“We know there is historic, systemic and overt racism inherent in lending and banking. We have to start there and not ignore it,” Martinez told CNN.
Asya Bradley is an immigrant founder of several technology companies such as Kinley, a financial services business aimed at helping Black Americans build generational wealth. After SVB’s collapse, Bradley said he joined a WhatsApp group of more than 1,000 immigrant business founders. Group members quickly mobilized to support each other, he said.
Immigrant founders often don’t have Social Security numbers or permanent addresses in the United States, Bradley said, and it’s important to brainstorm ways to get funding in a system that doesn’t recognize them.
“This community is really special because a lot of these people then share different things that they’ve done to achieve success in terms of getting accounts in different places. They can also share different regional banks that have stood up and said, ‘Hey, if you have an account at SVB, we can help you guys,'” Bradley said.
Many women, people of color and immigrants choose community or regional banks like SVB, Bradley said, because they are often rejected from the “top four banks” – JPMorgan Chase, Bank of America, Wells Fargo and Citibank.
In her case, Bradley said her gender may have been an issue when she could only open a business account at one of the “top four banks” when her brother co-signed the contract for her.
“The top four companies don’t want our business. The top four companies consistently turn us down. The top four companies don’t give us the service we deserve. And that’s why we turn to community banks and regional banks like SVB,” Bradley said.
None of the top four banks provided comment to CNN. The Financial Services Forum, an organization representing the eight largest financial institutions in the United States, said the banks have committed millions of dollars since 2020 to address economic and racial disparities.
Last week, JPMorgan Chase CEO Jamie Dimon told CNN’s Poppy Harlow that his bank has 30% of branches in low-income neighborhoods as part of a $30 billion commitment to Black and Brown communities across the country.
Wells Fargo specifically pointed to its 2022 Diversity, Equity and Inclusion report, which discusses the bank’s recent initiatives to reach underserved communities.
The bank last year partnered with the Black Economic Alliance to start the Black Entrepreneur Fund – a $50 million fund of seed, startup and early-stage capital for businesses founded or led by Black and African-American entrepreneurs. And since May 2021, Wells Fargo has invested in 13 Minority Depository Institutions, fulfilling its $50 million pledge to support Black-owned banks.
Black-owned banks are working to close the lending gap and promote economic empowerment in traditionally marginalized communities, but their numbers have dwindled over the years, and they have far fewer assets than leading banks.
OneUnited Bank, the largest black-owned bank in the United States, manages more than $650 million in assets. By comparison, JPMorgan Chase manages $3.7 trillion in assets.
Because of this gap, entrepreneurs also seek funding from venture capitalists. In the early 2010s, Hamilton intended to start his own technology company — but when he looked for investors, he saw that white men controlled nearly all of the venture capital funds. That experience led him to found Backstage Capital, a venture capital fund that invests in start-up companies led by underrepresented founders.
“I said, ‘Instead of trying to raise money for one company, let me try to raise money for a venture fund that will invest in founders who are underrepresented — and now we call them underrepresented — who are women, people of color, and especially LGBTQ,’ because I am all three,” Hamilton told CNN.
Since then, Backstage Capital has amassed a portfolio of nearly 150 different companies and has made more than 120 diversity investments, according to data from Crunchbase.
But Bradley, who is also an “angel investor” in minority-owned businesses, said he remains “very hopeful” that community banks, regional banks and fintechs “will stand up and say, ‘Hey, we’re not going to let SVB’s good work go to waste.’”
