Othello

In the vast oasis of startup funding, streams of capital flow abundantly. Yet, for Black entrepreneurs, securing startup capital feels like wandering through a barren desert. Each step across the parched sand is a battle against the blistering heat of inequality and the scorching sun of systemic racism.

The scorching sun prevents lenders from seeing the true potential of Black entrepreneurs. Its harsh glare distorts their perceptions, leading to implicit biases, discriminatory lending practices and unfair assumptions about their creditworthiness. Like a mirage, the blistering heat evaporates hope, making access to capital seem distant and unattainable.  

In 2023, only 32% of Black-owned businesses were approved for a loan or line of credit, and they received less than 0.50% of all venture capital available in the US, marking a record low.¹

In this oppressive environment, Black entrepreneurs must use crowdfunding to quench their thirst. By following these steps, early-stage entrepreneurs can obtain the startup capital they need to launch and grow their businesses.

Step #1 – Set a Realistic Funding Goal

• Determine how much capital you need: Create a spreadsheet of your startup expenses, including legal and business registration, office set-up, marketing, website development and insurance.
• Do Market Research: Look into past campaigns. Analyze how much similar projects raised and if your target audience is willing to contribute.
• Factor in Fees: Crowdfunding platforms often charge a percentage of the funds raised, usually around 5–10%. Account for this when setting your goal.
• Keep it Achievable: It’s often better to set a slightly lower goal and exceed it than an overly ambitious target and fall short.

Step #2 – Identify the type of capital you’re looking for

Crowdfunding comes in various forms, each offering advantages based on your business needs.

Rewards-Based Crowdfunding: In exchange for contributions, backers get rewards, like early access to your products or services. The rewards often vary depending on the contribution level.

Equity Crowdfunding: Contributors invest in your business in exchange for equity (shares) or a percentage of future profits. Essentially, backers become part owners of your company.

Donation-Based Crowdfunding: Backers donate money without expecting any financial return. It’s driven by personal causes or community-driven initiatives.

Debt-Based Crowdfunding (Peer-to-Peer Lending): Instead of offering equity, you borrow money from backers and repay them with interest. It’s an alternative to traditional loans, often with more favorable terms.

Step #3 – Select a crowdfunding platform

Fundly: Like GoFundMe, this platform is used for causes, events, and charitable projects.

GoFundMe: Known for personal fundraising, but it’s also used by businesses with a strong social impact or cause.

Indiegogo: Offers fixed and flexible funding models, allowing you to keep funds even if you don’t meet your goal.

IFundWomen of Color: Provides access to crowdfunding and grant funding. The fund seeks women entrepreneurs of color and offers a supportive community, coaching, and resources to help them succeed.

Kickstarter: Focuses on creative projects with an “all-or-nothing” funding model (you must reach your goal to receive the funds).

Kiva: Offers interest-free loans, mainly targeting underserved entrepreneurs, including Black-owned businesses and women entrepreneurs.

Lending Club: Offers personal and business loans through a peer-to-peer lending network.

WeFunder: Allows investors to invest as little as $100 and is open to a wide range of businesses.

Step #4 – Create a Compelling Story

• Communicate Your Mission: Your campaign should tell a compelling story that resonates with your audience. Why does your business exist? How will the funds be used to make a difference?
• Use Visuals: Incorporate high-quality images, graphics, and videos that showcase your product or service. Videos, in particular, tend to attract more backers and drive engagement.
• Connect on a Personal Level: Highlight your journey. Discuss the challenges you’ve faced as a Black entrepreneur. Explain why supporting your business matters.

Step #5 – Launch Your Campaign

• Build Your Audience Early: Start marketing your campaign before you launch. Use social media, email newsletters, and personal outreach to build excitement. Engaging your network early can help build momentum when your campaign goes live.
• Leverage Your Community: Reach out to local business networks, advocacy groups, and minority business organizations that can help promote your campaign.
• Offer Early Bird Rewards: Consider offering special perks or discounts to early backers, giving them an incentive to contribute as soon as the campaign launches.
• Offer Attractive Rewards (for Rewards-Based Crowdfunding): Ensure that your rewards (such as products, services, or experiences) are worth the backers’ contribution level.
• Engage with Backers Throughout the Campaign: Provide Regular Updates. Keep your backers informed about your progress, challenges, and milestones. Transparency builds trust and keeps them engaged.

Conclusion

Crowdfunding provides an excellent opportunity for Black entrepreneurs to raise startup capital from their communities, supported by backers who believe in their vision and potential. It works best for smaller, early-stage businesses that appeal directly to consumers (e.g., product or service-based companies). However, there are some challenges to consider:

• Marketing-Intensive: Crowdfunding campaigns require significant marketing effort. You’ll need to invest time and resources into building and engaging an audience.
• Platform Fees: Most crowdfunding platforms charge fees ranging from 5% to 10% of the total amount raised. These fees reduce the funds you receive.
• Time-Intensive: You’ll need to update backers on progress, respond to questions, and possibly deliver rewards. This requires continuous communication and can take time away from other business operations.
• High Risk: Platforms like Kickstarter have an all-or-nothing funding model. If you don’t meet your funding goal, you receive nothing. Crowdfunding can be risky, especially if you set an ambitious target and fall short.

The barriers preventing Black entrepreneurs from securing capital are deeply rooted in structural inequality and systemic racism. Overcoming these barriers requires addressing racial bias, lack of networks, the wealth gap, and discriminatory lending practices while also utilizing creative ways to secure capital in the present moment.

Notes

1. https://peopleofcolorintech.com/articles/black-founders-received-less-than-0-5-of-all-vc-funding-in-2023/ ↩︎