Hours after some of Silicon Valley Bank’s biggest customers began withdrawing funds, a WhatsApp group of startup founders who were immigrants of color ballooned to more than 1,000 members.
Questions abounded as the bank’s financial situation worsened. Can I open an account at a major bank without a social security number? Others are visiting parents abroad and wonder if they have to physically go to the bank to open an account. I got
One clear theme emerged. It’s a deep concern about the far-reaching impact on startups led by people of color.
in the meantime wall street After the rapid collapse of the SVB, the 16th largest bank in the U.S. and the largest failed bank since the 2008 financial crash, industry experts struggling to contain the banking crisis say people of color are losing money. and securing financial institutions to support them may become more difficult. Startup.
SVB opened the door to such entrepreneurs, offering them the opportunity to make important relationships in the technology and financial communities that were out of reach within large financial institutions. But smaller players have less avenues to survive the collapse, reflecting the perilous journey minority entrepreneurs face as they try to navigate a historically racist industry.
“All these people who are in very special situations based on their identities, it’s not something they can easily change about themselves, they can bank them from the top 4 (big banks). Gone. We’ve seen WhatsApp groups tackle the demise of SVB.
Bradley said some investors are begging start-ups to switch to larger financial institutions to limit future financial risks, but it’s not an easy transition.
“The reason we go to local banks and local banks is because these (large) banks don’t want our business,” Bradley said.
banking Expert Aaron Klein, a senior fellow in economic studies at the Brookings Institution, said the collapse of the SVB could exacerbate racial disparities.
“This will be more difficult for those who don’t fit into the traditional credit box, including minorities,” Klein said. “A financial system that prioritizes existing wealth holders will perpetuate the legacy of past discrimination.”
Tiffany Dufu was devastated when she lost access to her SVB account and was unable to pay her employees.
Dufu raises $5 million as CEO of The Cru, a New York-based career coaching platform and community for women. It was a rare feat for a company founded by black Women get less than 1% of the billions of dollars of venture capital funding that goes to startups each year. She banked on her SVB because SVB was known for her close ties to technology, her community and investors.
“I pitched to nearly 200 investors over the past few years to raise that money,” Dufu said. Dufu has since regained access to his own funds and moved to Bank of America. “It’s very difficult to expose yourself and I repeat it over and over again. People say this is not good. So the money in my bank account was very valuable.”
A February analysis in Crunchbase News found funding for Black-founded startups slowed by more than 50% last year after receiving a record $5.1 billion in venture capital in 2021. $2.3 billion, or 1.1% of the total.
Amy Hilliard, an entrepreneur and professor at the University of Chicago Booth School of Business, knows how hard it can be to raise capital. It took him three years to secure a loan for his cake-making company and he had to sell his house.
Banking is based on relationships, and when a bank like SVB goes out of business, “those relationships go away,” said Hilliard, an African-American.
While some conservative critics have argued that SVB is responsible for its commitment to diversity, equity and inclusion, banking experts say those claims are false. I’m here. Larger customers withdrew deposits rather than borrow at higher interest rates, and banks’ balance sheets were overexposed, forcing banks to sell bonds to cover their withdrawals at losses, so banks I went bankrupt.
“If we’re focused on climate or communities of color or racial equality, it has nothing to do with what happened. Silicon Valley BankValerie Red-Horse Mohl, co-founder of Known Holdings, an investment banking platform founded by Black, Indigenous and Asian Americans focused on the sustainable growth of minority-managed funds, said: said like this.
Red-Horse Mohl — who has raised, built and managed more than $3 billion in capital for tribal nations — says most large banks are headed by white men and majority whiteboards, and that “they Even when they are doing DEI programs, it’s really not that deep.” It’s a kind of capital movement.”
But smaller financial institutions have worked to build relationships with people of color. “We can’t afford to lose local banks and community banks. It’s a farce,” she said.
Historically, smaller and minority-owned banks have addressed funding gaps that large banks have ignored or created by following exclusion laws and policies that alienate customers because of their skin color.
But the ramifications of the SVB’s demise are also being felt by these banks, said the president and CEO of the National Bankers Association, a 96-year-old trade group representing more than 175 minority-owned banks. One Nicole Elam said.
Most minority-owned banks have more traditional customer bases, with secured loans and minimal risk investments, yet customers withdraw money out of fear and move to larger banks. Some people have seen the
“You’re looking at customer flights of people we’ve been serving for a long time,” Elam said. How many people don’t come to us for business loans, or banking?
Black-owned banks have been hit hardest as the industry consolidates. Most companies don’t have the capital to withstand a recession. At its peak he had 134, now he has only 21.
But change is underway. Over the past three years, the federal government, the private sector, and philanthropic organizations have invested heavily in minority-run depository institutions.
“In response to this national conversation about racial equality, people are really seeing minority banks as the key to wealth creation and the key to helping close the wealth gap,” Elam said. rice field.
Bradley is also an angel investor, providing seed money to many entrepreneurs, and as a network of people in WhatsApp groups sees new opportunities to help each other survive and grow.
“I’m really very hopeful,” said Bradley. They’re saying, ‘SVB was here for us and now they’re here for each other’.”
____ Based in Detroit, Stafford is a National Research Race Writer for AP’s Race and Ethnicity Team. Follow her on Twitter: https://twitter.com/kat__stafford. Savage reports from Chicago and is a corps member of the Associated Press/Reports for America Statehouse News Initiative. , a non-profit national service program that places journalists in local newsrooms to cover hidden issues.
