Minority-owned businesses have faced numerous challenges, not least among them is access to Capital. Often, by the time a minority owned company reaches $20 million or even $30 million in annual revenue, its debt-to-equity ratio is out of alignment.
Della Clark, CEO of The Enterprise Center, says it’s often the case that the projections and growth of minority founders from low-wealth or underserved communities are fundamentally different from someone who comes from a higher-wealth community or who have a network or support system that includes angel and/or equity investors. Clark says that means when it becomes a mature company, the balance sheet is often out of whack. To break that cycle, she suggest some reforms. One of them is the supplier diversity that exists today, which she says needs to be reformed because there's many structural inequities that are embedded in supplier diversity programs.
“We should not be focused on percentages,” she says. “We should be focused on looking at spend data, converting that spend data into usable management information to determine where is the point of entry to allow minority enterprises to compete for large-dollar-value, multi-year contracts. And that is that is not taking place today the way it should.”
A second reform she says needs to be in certification. She says minority businesses spend a great deal of money on getting certified because certifications are often requested. Certifications, however, are only associated with the public sector. But many for-profits hide behind certifications.
“We need to really take a look at that because that is also where structural inequities are embedded in certification,” Clark says. “We don't need certification. We just need to decide and verify that a minority is the decision-maker of the company. It is a serious pain point for minority businesses.”
A third reform is capital, where she says many structural inequities reside. Capital markets have not opened their doors to minority entrepreneurs, to a point where they willing to bet on them. That includes VCs, private equity and banks for both debt and equity.
“They have a tendency to have a set of lenses that they look at a business that are very traditional,” she says. “And when they look at a minority business, they just do not have the cultural intelligence to be able to calibrate their set of lenses to meet the needs of minority businesses. So, they say it’s outside of their investment strategy or they don't meet their criteria for a loan, and so it doesn't get done.”
Clark spoke on the Smart Business Dealmakers Podcast about ways to create better access to capital for minority entrepreneurs and her newest project, an SBIC fund aimed at mature minority owned companies. Hit play to catch the full conversation.
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