It's a simple formula: Investing in high-growth companies creates jobs while generating more wealth for investors. The formula has worked for America's private venture capital investment community for 65 years.
Unfortunately, no such active community exists in Black America.
This week, the National Venture Capital Association and the Angel Capital Association meets in Boston for the ACA Summit (April 4-6, 2011) and NVCA Annual Meeting (April 6-8). Together, these organizations are comprised of more than 500 groups of private equity investors who make up a large portion of the reason why the 21st century Innovation Economy races along at breakneck speed and offers solutions to the problems of high rates of unemployment and diminishing levels of wealth.
There are no such comparable gatherings in Black America.
Producing Jobs and Wealth
Between 1980 and 2005, all net job growth in America was produced by companies less than five years old. That doesn't happen without angel and venture capital investing in high-growth entrepreneurship.
Source: Pricewaterhousecooper's National Venture Capital Association 2010 MoneyTree Report: Data provided by Thompson Reuters
During the same time period, venture capital experienced its largest boon since it was first introduced in the '50s.
In the '50s and '60s Blacks were legally and institutionally barred from many facets of the American Dream. In the 70s, Americans were still consumed by widespread, overt racial disparities, some of which seeped underground during the '80s and '90s, when private equity capital enjoyed its heyday and the establishment of a firm economic investment infrastructure and high-growth entrepreneurial culture
None of that job- and wealth-creating infrastructure was built in Black America ... or any broad regions comprised primarily of any racial minority demographic groups.
Infrastructure: High-Growth Entrepreneurial Ecosystem
The culture of high risk-high return capital investment had been established by the 80's, which led to rapid growth in the technology sectors. This laid the foundation and established conditions in which high growth startups could emerge. These startups have gone on to revolutionize, if not create industries, including biotechnology (Genentech), personal computers (Microsoft, Apple) and eventually internet-based commerce including social networking sites like Google, Facebook, etc...
This type of high risk and explosive entrepreneurial culture has yet to take root in Black America, but not due to lack of an entrepreneurial, innovative or creative spirit among Black Americans. Rather, it has been the lack of understanding of the relationship between (high) risk capital, explosive entrepreneurship and economic growth that has hampered Black America's participation in the Innovation Economy.
The private equity capital investment community laid the framework for the high-growth Innovation Economy today, which has replaced the former manufacturing economy, which replaced the agrarian economy.
Power of Private Equity Capital Investment
Click on image to access interactive data graphic at Kauffman.org
Today, it is private equity capital investments from high net worth individuals and SEC-qualified investors (both known as angels), along with venture capital, that ignite the fire blazing into new technology frontiers. Fueling that fire is science, technology, engineering and math (STEM) education and those pursuing professions in the various STEM fields.
Since 1995, more than 50,000 companies have received a total amount greater than $439 billion in venture capital equity investments. That's not counting angel investments, which typically enter in the equation early and exit earlier than venture capital.
Much of this activity has somehow escaped Black America. However, it is also clear that very few of those companies are led by Black entrepreneurs. In 2010, Black tech entrepreneurs received just 1% of technology based equity investments.
America's Job Creators Meet in Boston
Likely few Blacks will find their way to the ACA and NVCA events in Boston this week, where many of the people responsible for the success of high-growth entrepreneurs (who have created jobs that reduced the unemployment rate and generated more wealth for investors) will come together to network, learn, share and improve their infrastructure.
Indeed, the private equity investment infrastructure is expanding. And President Obama has recognized the private equity investment community as the leading opportunity for job creation and wealth generation in America, as well as the solution for the U.S. becoming more competitive in the global marketplace.
So, where is Black America?
Missing: Black Capital Investments
While the recent unemployment numbers brought good news for the nation as a whole, with total unemployment dropping to a two-year low, it left a sour taste in the mouths of Black Americans, who must contend with the notion that the rate of unemployment today for Black Americans remains double the rate it is overall for the nation. That point hasn't changed much since Dr. King bemoaned being left out of the American Dream when he articulated his famous "Dream" speech in August of 1963.
Moreover, a May 2010 data report by the Institute on Assets and Social Policy reveals that wealth is being generated in America at an astounding rate, yet has managed to bypass Black America. This report shows a quadrupling of the wealth gap between Blacks and Whites over the 23 years the study was conducted (1984 - 2007).
It's not a secret how wealth is created in America on a mass scale. Other minority groups have managed to figure out the formula.
Asian Americans Invest in STEM / High-Growth Entrepreneurs
For example, Asian Americans, who own nearly one million fewer businesses than Black Americans, produced $2.5T in total gross receipts compared to $137 billion by 1.9 million Black-owned businesses.
Asian Americans have an investment infrastructure. They own hundreds of companies in Silicon Valley. They also produce STEM-educated professionals and high-growth entrepreneurs at a significant rate.
Black Americans are no strangers to entrepreneurship nor innovation. Our focus, however, has been on lifestyle entrepreneurship ventures primarily rather than high-growth equity backed enterprises that produce more fast-growing employer firms.
Government Solutions?
It is no secret the focus of economic activity in Black America has targeted conducting business with the government as a prime channel of activity. Thus, major investments of time, energy and money have been made in obtaining political cache in attempts to affect public policies that open doors of access and opportunities for a tiny percentage of Black-owned small businesses.
This focus on government solutions, which proved prudent during the 20th century battles over constitutional citizenship, must be transformed to fully engage in the 21st century quest for economic equity citizenship.
Today, Black America is missing out on a vital element required for job creation and wealth generation: an innovative infrastructure that focuses on high-growth entrepreneurship fueled by a pipeline of STEM ingenuity and risk capital. Such an infrastructure would be the foundation of capital investments necessary to fund an ecosystem of high-growth entrepreneurship.
Real Economic Solutions
If Black America is to change the current paradigm of a widening wealth gap compared to White America and a rate of unemployment consistently much higher than the national average, it must recognize an immediate need to establish its own private equity investment community and establish strong ties with the current infrastructure that has decades of experience.
Perhaps a step in the right direction would be to show such a significant presence at the equity capital investor gatherings in Boston this week to a degree that simply the sheer attendance numbers alone would raise eyebrows and interest. Or perhaps there should be a convening of the minds within our community to address this important issue?
What's preventing us from establishing such a valuable infrastructure and ecosystem?
The numbers speak for themselves. While the rest of America has figured out how to create both jobs and wealth, Blacks have consistently lagged behind in both. The missing element in Black America is a viable, growing equity capital investment community that can fuel high growth entrepreneurship and Black participation in the Innovation Economy.
Follow Mike Green on Twitter: www.twitter.com/amikegreen2
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Its better to succeed than to play victim !!
Do For Self. Be responsible for you and yours. The "system" doesn't teach how to read write and calculate. Your family does.
The system doesnt make sure you learn. You do. Your parents do. Your family does.
If Blacks are not getting ahead it is because they are not Doing For Self.
Stop Begging. Stop Blaming others. Assume responsibility for you and yours.
It is not easy - its not supposed to be. Its not fun..it not supposed to be.
A venture capitalist who considered the color of your skin, or any other equally irrelevant factor, would be a blithering idiot. And I don't know many VC's who qualify as idiots. (Especially since most of them are actually tasked with investing =other= people's money in the first place!)
Yes, there are some folks who probably do care extraordinarily (and, stupidly) about what color your skin is. Yes, there is still "Jim Crow" out there. (And there is equally horrible abuse of other races, such as Latino.) This is a part of human nature that may never end.
But ... it is possible to "play the race card" yourself. To internalize it. To say to yourself (even if you don't say it out loud), "well, so-and-so did/didn't do thus-and-such to me 'Because I Am Black.'(TM)." And so you believe it and there is no one out there to tell you "No." But maybe you are flat-wrong, and I think that, especially if you have a lot of melanin in your epidermis, you need to seriously consider that ... at all times.
"A man is most vulnerable to, and most hurt by, what he wants to believe. And, he is most vulnerable when he is hurt."
"The darkest hour is before the dawn."
Its seem that there are a number established businesses other then Black and when there are ones there are a few restaurants, barber shops, small convenience shops or a speciality store in central part of the city. If one can get established given there are "so few" and the service is good it can and will be successful.
For whatever reason there's just not much owned. Unfortunately Blacks are usually their own worst enemy. No club ever stays open for long given the fights and shooting...unless its a big name like Jordan, etc. on it!
it makes me sick to think about.
These days, You have to really leverage technology to make yourself stand out. Learn everything for yourself from the ground up. Take classes if you have to but don't go into business expecting these Venture Capitalists to hand you money like they would a person of non-color. They have their reasons for not supporting you and backing you and you have your reasons for never giving them a chance to take part in profits. At the end of the day it's all about the profits. If you can possibly get started without any help then go that rout. You'll get all the benefits in the long run. Like me!
Wouldn't hurt if this could get some televised attention from out an outlet that could communicate with Blacks, i.e. the BET network, TVOne, EbonyJet magazine, and perhaps some of those already higher up in mobility can help jolt this, i.e. Oprah Winfrey, Bob Johnson, Richard Parsons.
But alas I can only sit here at my computer and dream.
How about every entrepreneur start with their
1.self
2.friends
3.family
4.neighbors
5.school mates
6. church mates
7. significant others
Why are you content to help "convene black groups across the country " ...for what exactly ???
Be the change you want to be. The venture capital exists right on and in your very block, school, church,etc. Many large business concern were started by guys in their garage ??
Why so willing the rely on a "dream". Cast your bucket were you lie and "Do for self"
more power to them ... and the current system forces this approach anyway.
Do you have any idea what the purchasing power of the Black Community is ?
If Blacks have so much money to put into the pockets of Nike, Coke, McDonalds, Macy's, TimeWarner, Apple etc., and none to support their own entrepreneurs, then the problem largely lies within the Black community itself.
Almost all entrepreneurs get their initial financing from friends and family, neighborhood, church, synogoge, classmates etc. So why aren't Blacks doing the same ? If they cannot figure it out themselves, then I am not sure many outside can fix this too much.
They have to figure it out on their own. Apparently a slow and torturous process for them, but that is the only solution.
Just about every other group in America has figured this out one way or the other. Clearly the problems facing Blacks were/ are different do to unique nature of the racial caste history of the country, but the lesson is the same - and even more urgent for Blacks.
Do For Self.
So what I am telling you is that there is hope as new VC's like us are on the rise and will be leading the charge to not only address the NEED of creating wealth through investment,but also to INVEST in these entrepreneurs who may have flown under the radar for far too long.
B. Peters
Partner H360 Capital
It also shows that black consumers can be early adopters to this tech space, a potential user base, and an untapped market of both ideas and innovation. To us at H360 it only makes sense to diversify in all cases to ensure the highest return on investment and minimize risk. It is clearly a SOUND BUSINESS decision before it is a race or cultural issue.
Warren famously took a meeting with a young Bill Gates who tried for hours to describe personal computing and desktop software to no avail. He just didn't feel comfortable investing in something he didn't really understand. Of course this was still when an Operating System was largely unknown and we are a long from that point in time.
African Americans have embraced IT at the user level but we need to get more involved in development because think developers have an advantage in communicating what's possible in IT to laypeople.
Ahh, but we live strange times. Scientists can't convince half the USA about Global Warming and sadly this issue feels similar.
On a more positive note, I would love to find someway to get minority high school students and minority angel investors connected as a way of encouraging entrepreneurship. Something like America's got talent, or Top Chef but for start-up ideas.
Sigh,... anyway!