Within hours of some of Silicon Valley Bank’s biggest customers starting to withdraw, a group of black immigrant startup WhatsApp founders grew to more than 1,000 members.
Questions arose as the bank’s financial condition worsened. Some people desperately seek advice: Can they open an account at a larger bank without a Social Security Number? Others questioned whether they had to go to the bank to open an account, as they were visiting their parents abroad.
One obvious theme emerged: deep concern about the broader impact on startups of color led by people of color.
While Wall Street struggles to avert the following banking crisis the rapid demise of SVB — the nation’s 16th largest bank and biggest bank failure since the 2008 financial crisis — industry experts predict that people of color may have a harder time securing capital or a financial institution that supports their startups.
SVB has opened the door to such entrepreneurs, providing the opportunity to form important relationships in the financial and technology communities that were otherwise out of reach of larger financial institutions. But smaller players have fewer means to survive the fallout, which reflects the perilous journey minority entrepreneurs face while trying to navigate industries rife with segregation. race in history.
“All of these people have very unique circumstances based on their identity, it’s not something they can change about,” said Asya Bradley, a board member of many startups. themselves and that makes them inaccessible to the top four (big banks). watched the WhatsApp group grapple with the demise of SVB.
Bradley said some investors have called for startups to move to larger financial institutions to hedge against future financial risks, but it has not been an easy transition.
“The reason why we went to regional and community banks is because these (big) banks don’t want our business,” says Bradley.
Banking expert Aaron Klein, senior fellow for Economic Research at the Brookings Institution, said the collapse of the SVB could exacerbate racial disparities.
“It’s going to be harder for people who don’t fit into the traditional credit box, including minorities,” says Klein. “A financial system that favors the current holders of wealth perpetuates the legacy of past discrimination.”
Tiffany Dufu was gutted when she couldn’t access her SVB account and, therefore, couldn’t pay her employees.
Dufu raised $5 million as CEO of The Cru, a career coaching and community platform for women based in New York. It’s a rare feat for businesses founded by Black women, which receive less than 1% of the billions of dollars in venture capital granted annually to startups. She traded with SVB because it is known for its close ties to the tech community and investors.
“To raise that money, I’ve raised nearly 200 investors over the past few years,” said Dufu, who later regained access to his funds and moved to Bank of America. “It is very difficult to present yourself over and over again – you are told this is not appropriate. So the money in the bank account is very precious.”
ONE Crunchbase February news analysis identified Funding for black-founded startups fell more than 50% last year after they received a record $5.1 billion in venture funding in 2021. Total funding ventures dropped from about $337 billion to about $214 billion, while black founders were disproportionately hit, falling to just $2.3 billion, or 1.1% of the total.
Entrepreneur Amy Hilliard, a professor at the University of Chicago’s Booth School of Business, knows how difficult it can be to secure finances. It took three years to secure a loan for her bakery company, and she had to sell her home to get started.
Banking is based on relationships, said Hilliard, an African-American, and when a bank like SVB goes bankrupt, “those relationships go away.”
Some conservative critics affirm SVB’s commitment to diversity, equity and inclusion are the cause, but banking experts say those claims are false. The bank fell into insolvency as its larger customers withdrew deposits instead of borrowing at higher interest rates and the bank’s balance sheet became overspended, forcing the bank to sell at a loss. vouchers to cover withdrawals.
“If we focus on climate or communities of color or racial equality, it doesn’t,” said Valerie Red-Horse Mohl, co-founder of Known Holdings, a black, indigenous, Asian. has nothing to do with what happened to Silicon Valley Bank. The US-founded investment banking platform focuses on the sustainable growth of minority-managed funds.
Red-Horse Mohl — who has raised, structured and managed more than $3 billion in capital for tribal states — says most of the larger banks are run by white men and on boards. majority white leadership, and “even when they do DEI programs, it’s not really profound. a kind of capital movement.”
However, smaller financial institutions have worked hard to build relationships with people of color. “We cannot afford to lose our community and regional banks,” she said. That would be a farce.”
Historically, smaller and minority-owned banks have addressed funding loopholes that larger banks have overlooked or even created, subject to exclusionary laws and policies when they refused. reject customers because of their skin color.
Nicole Elam, president and chief executive officer of the National Bankers Association, a 96-year-old trade association representing more than 175 minority-owned banks, said the spillovers from the collapse of the bank SVB is also being felt in these banks.
Some customers have seen customers withdraw and move to larger banks out of fear, she said, although most minority-owned banks have a more traditional customer base. , with secured loans and minimal risk investments.
“You’re seeing a customer flight over people we’ve served for a long time,” Elam said. “How many people might not come to us for a mortgage or a small business loan or to do their banking business because they now think they need to bank with a bank? too big to go bankrupt? That is the first effect that erodes public trust.”
Black-owned banks were hit hardest when the industry consolidated. Most don’t have much capital to weather the recession. At its peak, there were 134. Today, only 21 remain.
But change is happening. Over the past three years, the federal government, the private sector and the philanthropic community have invested heavily in minority-run depository institutions.
“In response to this national conversation about racial equality, people really see minority banks as the key to wealth creation and the key to closing the gap between rich and poor,” said Elam.
Bradley is also an angel investor, providing seed money to a number of entrepreneurs, and is seeing new opportunities as people network in WhatsApp groups to help each other stay afloat and grow.
“I’m really hopeful,” Bradley said. “Even in the downfall of SVB, it succeeded in forming an incredible community of people trying to help each other succeed. They’re saying, ‘SVB was here for us, now we’ll be here for each other.’”
____ Stafford, based in Detroit, is a national investigative writer on race for the AP’s Race and Ethnicity group. Follow her on Twitter: https://twitter.com/kat__stafford. Savage has reported from Chicago and is a member of the Associated Press/Report team for the America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to cover confidential issues.
