Editorial Note: Opinions are the writer’s own and not those of AfroTech.
There is a persistent myth that investing in Black businesses is a charitable endeavor rather than a profitable one. In fact, almost twice as much money is donated to BIPOC focused nonprofits vs. invested in BIPOC founded startups. This myth assumes that Black entrepreneurs are not capable of producing the same level of returns as their white counterparts. However, research has shown that investing in Black-owned businesses can be extremely lucrative. A report by McKinsey & Company found that companies with diverse executive teams are 33% more likely to have above-average profitability than those without diversity. Furthermore, a study by the National Bureau of Economic Research found that companies with Black CEOs receive higher valuations than those with white CEOs.
Despite these findings, Black founders continue to face significant obstacles when it comes to securing funding. In 2022, only 1% of all venture capital funding went to Black-owned businesses. The standard rational for this glaring issue sounds like this — “Well, there just isn’t a pipeline of Black Founders to invest in.” It’s also assumed Black businesses are not scalable. However, this is not true. The fastest-growing group of entrepreneurs in the country is Black Women, closely followed by Black Men. The power of Black influence on the global economy cannot be overstated, either. Black consumers and businesses play a significant role in shaping the economy, driving innovation, and influencing culture. In the U.S. alone, the Black community has a spending power of over $1 trillion, according to CNBC, making them a formidable force in the consumer market. Nielsen has also reported that Black consumers drive 80% of consumption choices. So, what are we missing? Black entrepreneurs are in abundance, Black influence is clearly measured, and Black entrepreneurs’ ROI has proven to be extremely high.
It’s time for VCs to recognize the value of investing in Black-owned businesses and actively seek out Black-owned businesses to provide them with the resources they need to succeed. This includes mentorship, networking opportunities, and access to capital. The value of Black ingenuity is rising daily, so it behooves investors to move with a sense of urgency. Because, as the great rapper Fat Joe once said, “Yesterday’s price, is not today’s price.”
Investors must also hold themselves accountable for their actions. They must track their investments in Black-owned businesses and report on their returns. This data can be used to dispel the myth that investing in Black-owned businesses is not profitable. Furthermore, investors must prioritize diversity within their own firms. This includes hiring diverse investment professionals and ensuring that diverse voices are represented in investment decisions. According to a report by the Knight Foundation, only 3% of investment professionals at VC firms are Black. The lack of diversity within the investment industry only reinforces the bias and misunderstanding Black businesses face.
Ultimately, investing in Black-owned businesses is not just the right thing to do — it is the smart thing to do. By investing in these businesses, investors can diversify their portfolios, increase their returns, and contribute to a more equitable society. By recognizing the value of these investments and actively seeking out opportunities to invest in Black-owned businesses, investors can create a stronger economy and a more just and prosperous world.
Keenan Beasley is a #girldad and visionary entrepreneur who excels at blending technology and creativity. He is the Founder/CEO of Sunday II Sunday, an active haircare brand. Keenan also champions diverse entrepreneurs through Venture Noire. As CEO of Supply Factory Brands, he oversees a portfolio of brands in development.
In addition to being a podcast host and contributor to Forbes, he lectures at USC Marshall School of Business. Keenan also holds a degree from the U.S. Military Academy at West Point.