Alfa Demmellash knows the numbers. She lives them every day.
As co-founder and CEO of Rising Tide Capital, she knows that fewer than 1 percent of tech companies with black founders receive venture capital founding.
“At Rising Tide Capital, we work in large part with underserved entrepreneurs: 90 percent minority and 70 percent women,” she said. “One of the primary barriers that they face is a lack of access to capital, which is essential to business growth and sustainability.”
That barrier may be coming down in New Jersey.
Small businesses owned by minorities and in New Jersey could get a boost if a law signed by Gov. Chris Christie on Tuesday is effective in providing access to capital through the Economic Development Authority.
The text of the law calls for a focus on urban areas, naming the program the Urban Plus Program, and would allow the EDA to provide loans to companies that cannot obtain loans in other ways.
Such lending has been a focus of companies in the state such as Rising Tide and The Intersect Fund, as well as a number local banks, such as BCB Community Bank.
Demmellash knows it’s a market that’s underserved.
“Companies that have a woman CEO only receive 3 percent of venture capital dollars,” she said. “And this disparity is far worse for women of color, which is why this legislation is critical to addressing this issue.
“This legislation is a step in the right direction to expanding access and opportunity for entrepreneurs throughout the state. Having more options will assist us in better serving our entrepreneurs through our Credit to Capital Program, which pairs them with a business coach to help them to access the capital needed to grow their businesses.”
Lack of access has been an ongoing problem facing the banking industry for years, and one that even the Federal Reserve and the U.S. Small Business Administration have come to focus on in recent years.
In February 2016, Maria Contreras-Sweet, then the SBA administrator, admonished the financial sector in a speech at the Nasdaq stock exchange.
“According to new Census data from December, minority company ownership is up 38 percent over five years. These firms provide 7 million jobs,” she said. “Hispanics and African-Americans represent 25 percent of the population. Yet only 1 percent of (venture) capital flows to Hispanic or black entrepreneurs. Does anyone honestly believe these communities are the source of just 1 percent of our best business ideas?”
The New York Federal Reserve has partnered with local groups in New Jersey, such as the Statewide Hispanic Chamber of Commerce, to hold information sessions and present to entrepreneurs about the options they have for financing their future business growth.
Carlos Medina, chairman of the Statewide Hispanic Chamber of Commerce, said the New Jersey law is a good move.
“I think it is positive, as it recognizes the value of small and diverse business to the state and gives then an additional tool to access financing which continues to poll as one of the largest obstacles to growth for our members,” Medina said Tuesday.
U.S. Sen. Cory Booker (D-N.J.) has been a champion of efforts to create greater awareness of the obstacles to growth.
He has supported policies in the Senate, introduced the Startup Opportunity Accelerator Act, which included $25 million in funding for startups to compete for, written a letter to the SBA asking it to take a look at the issue and has hosted more than 10 small business forums around the state, including one in 2017 focused on women small business owners.
“Sen. Booker stands in strong support of efforts to level the playing field for women- and minority-owned businesses not only across New Jersey, but our entire nation,” spokesperson Thomas Pietrykoski said. “Increasing access to capital is important to helping some of our most underserved communities create a sustainable economic development strategy, boost job growth and spur innovation.”
But there is still more that can be done.
Barbara Kauffman, president-elect of the Executive Women of New Jersey, said the law only addresses one side of the equation.
“Women are the fastest growing group of entrepreneurs in the country,” she said. “Women-owned businesses generate $3 trillion in economic impact and employ 23 million Americans. Despite the tremendous economic and social value of women-owned businesses, access to capital continues to be a significant barrier to their reaching their full growth potential.
“Companies that have a woman CEO only receive 3 percent of venture capital dollars invested, and this disparity is far worse for women of color, which is why this legislation is important. While there are many reasons for this inequity, we cannot ignore the fact that there are very few women and people of color in the leadership of venture capital firms or lending institutions. This dynamic is one of the many reasons that our work focuses on increasing gender diversity on boards and in senior corporate governance.”
Kauffman, however, said the move is a step in the right direction.
“While there is more work to be done, we salute the New Jersey State Legislature, the governor, and, in particular, the sponsors of this legislation for the passage of this important law focused on ensuring that women and minority-owned businesses have equal access to opportunity.”