What is venture capital?
When a company is just starting out, it requires a certain amount of money to ensure it can meet the demands of its growth. Often, companies, including a black-owned business, will look to outside investors to fund this growth. These investors invest their capital into the business with the hopes of the business being successful and providing them with significant returns on their money. This process is called venture capital, and while often beneficial, it does come with risks for both parties. In exchange for the investment, the business usually must give up some control to the investors. The investors are not guaranteed a return on their money because it depends on the success of the business.
Challenges of Venture Capital for A Black-Owned Business
Why is it so challenging for a black-owned business to secure venture capital? Many reasons have been alluded to, but they all point to the same things: a lack of diversity among investors and negative biases that the investors hold. Unfortunately, until recently it seems that discrimination was very much still a factor in the world of venture capitalism.
The Good News….
The good news is that the tide seems to be changing in the world of venture capitalism. Investors are becoming more aware of their biases and are taking steps to change things. Attention is being directed towards creating more diversity in venture capitalism, and funds are being allocated specifically to underrepresented groups. This opens the door for a black-owned business to find investors and they can prepare themselves with the following tips:
• Be realistic: View your company realistically and present it to investors as such. While your business is most likely not going to change the world, it could improve its designated industry.
• Standout: You must be able to clearly demonstrate to investors what makes your business unique to the industry. Identify the need in the industry and how your business meets it. Doing this will create excitement in your investor.
• Long-term sustainability: Demonstrate that your business has what it takes for the long haul. Lay out your plans for growth and how they will be achieved.
• Know your audience: Take the time to research potential investors to develop an understanding of who they are and what they are looking for. Network with investors that have some type of interest in your business and tailor your pitch to them.
• Keep learning: View every meeting as a learning opportunity, regardless of the outcome. Listen to feedback from investors and use it to improve. Do not be afraid to ask questions about what factors went into their decisions.
Any business that is just starting out will face its share of challenges, and a black-owned business has the potential to face even more. As the world of venture capitalism works to create a more equitable future for all, securing investments for the growth of their company should be made easier for black-owned businesses. Contact us for more details.