2022 BMO EMpower Summit

At the recent 2022 BMO EMpower Summit, several entrepreneurs as well as luminaries from the world of private equity and politics, gathered to participate in a series of interactive discussions on how to drive scalable growth for Black- and Latinx-owned businesses. The panels covered a wide range of topics:

• 

  State of America: An Economic Outlook

• 

  Improving Access to Capital for Diverse Founders

• 

  The Changing Face of Entrepreneurship

• 

  Strategies for Building Scale Through Supplier Diversity

A few common themes emerged from these conversations, which are summarized below.

As many of the panelists across the event noted, access to capital directly correlates with access to opportunities. All too often, however, that access is shut off to women and entrepreneurs of color. Certainly, there’s no shortage of talent among minority communities. But as Betsy Ziegler, CEO of 1871, a Chicago technology startup incubator, said during the discussion on supplier diversity: “Talent is equally distributed, but access is not. Entrepreneurial aspiration is equally distributed, but not access to resources, access to customers, access to financing.”

Canela Media, the first streaming media services for Hispanics in the U.S., raised $32 million in Series A funding earlier this year. But that success was hard fought. In our discussion on the Changing Face of Entrepreneurship, Julieta LaMalfa, CFO of Canela Media, told an all-too-familiar tale of the company founder Isabel Rafferty’s initial inability to secure venture capital funding from investors who didn’t understand the cultural considerations behind the company’s business model.

“Look, Latinos don't have access to credit cards,” LaMalfa said. “Their financial realities are just different. [Rafferty] saw the gap in the market and thought, I am going to launch a media company, but it's going to be free to the consumer.”

The VC community wanted to hear that Canela had a roadmap to paid subscription tier. Rafferty stuck to her position, and all the potential investors declined. “She knocked on so many VC doors and was basically shut down—I think the number’s close to 140,” LaMalfa said. “It wasn't until the VCs that were women-led, minority-led and minority-focused invested in Canela that we started really getting traction.” But when the company exceeded revenue expectations, turned a profit and started attracting women- and minority-led VCs, the larger VC community suddenly took notice.

“Even when we went to our Series A funding and it started to look a little bit more diverse the other way, we made sure that we left room for some of those initial investors.”

That’s why having more diverse representation in the investor and lending community is important. In our Economic Outlook discussion, U.S. Representative Tony Cardenas, D-Calif., recalled his frustrations with securing a federal loan when attempting to get his small business off the ground.

“Just out of sheer stubbornness we finally got our first SBA loan,” Cardenas said. “It took us several years. We had strong credit records, we had a great track record, and it just took us forever to try to get a loan. We strongly believe that we're being profiled by the system.”

Ultimately, access to capital is crucial because the wealth gap, already large before the COVID-19 pandemic, has only widened since 2020. Among the other negative impacts, this gap creates barriers for entrepreneurs of color.

As Ziegler pointed out, the average white company founder starts with $18,000 in saving, whereas the average Black founder starts with $500. “There are extraordinary Black and brown founders that are solving really important problems, but they can’t afford to focus on them full time because they don’t have money to fund their lives,” she said.

Access to capital isn't limited only by racial and cultural barriers. Geography also plays a role. During the Improving Access to Capital panel, Damien Dwin, Founder and CEO of Lafayette Square, an impact investment platform, explained the geographic bias inherent in access to capital.

"In the United States you have about 300,000 companies employing around 50 million people,” Dwin said. “There's a dirty secret, however. If you mapped those businesses, you’d find that two-thirds of those companies are headquartered in the richest zip codes in America. There's a spatial, geographic conversation to be had about capitalism. It is peculiar that we're having a conversation here in Chicago,” he said, adding that "The cost of capital in Chicago is not what it should be relative to the human capital and the track record of Chicago.”

Dwin also pointed out that successful individuals from underserved communities often leave those areas to move to the centers of capital, such as New York or San Francisco. To that end, sustainable growth among minority founders will require a commitment to strengthening local communities. That includes real estate developers developing a vision of what communities can become.

Leon Walker, Managing Principal of DL3 Realty, understands the challenges involved in keeping minority entrepreneurs in their communities. “When you have a great education, you get a lot of exposure and experience, and you get pulled out of our communities,” he said. “So the brain drain out of our neighborhoods is a challenge. But the neighborhoods offer potential and promise.”

Walker said part of his job is to encourage developers and entrepreneurs to reinvest in their communities. He’s also a founder of the Chicago Emerging Minority Developer Initiative, or CEMDI, which advances opportunities for increasing the number of minority real estate developers in Chicago as a means of building Black and Latinx wealth. “As you build success in our communities, you can begin to bring other investors to opportunities,” Walker said. “Many people don’t think that you can make money in the neighborhoods. I'm trying to dispel that notion and say that there is money to be made.”

Like all business owners and entrepreneurs, Black and Latinx founders need to build resiliency to survive through the current economic uncertainty. But it’s even more urgent because in a downturn, capital dries up in Black and Latinx communities first.

“I believe this is the 1970s revisited,” Dwin said. “I anticipate five to eight years of economic malaise where interest rates will be high, and there will not be a Fed bailout.”

That’s one reason why Darrel Hackett, President of BMO Wealth Management, said entrepreneurs should make sure their personal credit profiles are strong. "You have to think about the ways that you will have access to capital,” he said. “It can be savings, it can be investments from others, credit cards, home equity loans—any number of things. You have to think about that full access before you go all the way in.”

He also suggested another way entrepreneurs can mitigate the risks associated with funding a new venture, "You might want to start that business while you keep your job," Hackett said “Live your dream but be cautious in this environment.”

Watch a replay of the panels below.