The quest for Black business owners and start-ups to gain capital comes with unnecessary difficulties, with some rooted in oppression and racism. Black Founders Matters Fund (BFM) took on the task of removing those obstacles and clearing the path for Black entrepreneurs to achieve their dream of ownership.
Himalaya Rao-Potlapally, Managing Director, talked with Our Weekly about BFM and why it’s different from other venture capital funding firms.
“In BFM Fund, we deviated from the typical venture fund model of unicorn hunting. Most venture funds have a hedged portfolio model where they make 30 investments and hope that 1-3 companies will exit at a “unicorn” valuation, returning capital for the entire portfolio. This means they are modeling for around 25-29 failures,” Rao-Potlapally said.
“We took a different approach; instead of having huge exits on a select few, with the remainder going bankrupt, we invested in companies that showed promise of a modest yet derisked return. In doing so, our goal is to return the same multiple of capital to our investors while decentralizing exits and distributing cash across more of our portfolio, namely the founders and their families.”
While receiving funding is a case-by-case study, whether you’re going to a bank, lender, or capital firm, you prove your business is an investment. According to a Goldman Sachs survey, Black small business owners are more likely to have applied for new loans or lines of credit compared to the national average (44 percent vs. 35 percent). However, they are also less likely to receive the full amount requested, with only 32 percent of those same small business owners receiving the funds compared to 40 percent nationally. Alarmingly, 37 percent of Black small business owners who have taken loans in the last year report experiencing payment terms that felt predatory compared to 28 percent nationally.
The second part of the BFM fund, the Emerge program, alleviates those concerns for business owners by moving to an integrated capital fund, which will employ grants, revenue-based finance loans, and some equity funding to support companies across a wider range of stages and life cycles. They also prioritize businesses that support local communities and have a pathway to profitability.
“We are working with several organizations and foundations that support the transition of businesses from a single owner to employee ownership,” Rao-Potlapally said about the benefits of the transition. “By helping more everyday businesses become viable candidates for employee-owned transition, we are supporting the goal of re-localizing community needs and keeping the economic and commercial power local to Tier 2 and Tier 3 US cities and towns.”
Rao-Potlapally and BFM understand the impact supporting Black businesses can have on Black communities, as the racial wealth gap between Black communities and others is far apart. “By understanding the broader picture of macroeconomics, we are utilizing those same principles to facilitate closing the wealth gap by not just thinking about cash accumulation but setting up long-term localized economic ownership pathways.”
BFM is seeking to help businesses that have evolved out of the infancy stage of ideas, have already been in business for at least one year, and have generated some cash flow with customers. The fund’s focus is to help ‘main street’ businesses that have an established customer base to scale upward, using grant and loan products for capacity and infrastructure building to help smooth out the revenue across the year. This model gives small businesses the leverage to employ more people and create a steady and sustainable cash flow into the business.
Please look at the following criteria for businesses looking for support:
1. You run a company that has been in business for at least one year.
2. You have an established customer base.
3. Have at least $50k in top-line revenue in the last year.
4. Are close to or have reached EBITDA profitability/breakeven
5. You need capital and resource support to buy equipment, increase your infrastructure, refine your product, and/or build your capacity to expand your offerings.
6. You have an interest in exploring employee ownership as a form of successful planning for your business.
If you’re interested in becoming a portfolio company or helping to support companies, reach out to us via our website form at www.bfm.fund.