Two community leaders from Oakland, California, with backgrounds in real estate and impact investing launched a new investment platform Tuesday to provide capital and technical assistance to Black-owned businesses.
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Elisse Douglass and Trevor Parham founded the Oakland Black Business Fund in June with an aim to raise a $10 million relief fund to help Bay Area businesses impacted by COVID-19, as well as a $1 billion investment fund to support Black entrepreneurs across the country, Parham told Crunchbase News.
Current capital partners and technical assistance providers include Alliance for Community Development, The Clorox Company and Okta.
Most recently, Parham was serving Black entrepreneurs through OakStop, which he started in 2014 as a coworking and incubator space. He started with 4,000 square feet and scaled to three locations and 30,000 square feet, he said.
Parham and Douglass started the fund after Douglass created a community-oriented crowdfunding site for businesses affected by the protests following George Floyd’s death in late May.
“That took off and we brought in $100,000 in less than a week and a half,” Parham said. “We felt that with the influx of capital and coverage, we had more money than we initially set out to deploy, we immediately realized that there was more we could do. We knew the overall approach could be a bigger impact with much bigger dollars.”
The relief funding will assist recipients and provide resources and technical assistance to help them pivot in the new COVID-economy.
The investment side will offer business ventures and real estate investments. The fund is focusing on seed and pre-Series A for companies that have potential for growth and scale, but may be lacking resources or a network to get to that stage, Parham said.
In addition, the fund will provide investors with a bridge to Black-owned businesses, while providing businesses with resources to get to a Series A investment and to scale, following the incubator model Parham has experience with.
Balancing the business landscape
The Federal Reserve Bank of Atlanta reported in its 2019 Small Business Credit Survey, that “on average, Black-owned firm applicants received approval for smaller shares of the financing they sought compared to White-owned small businesses that applied for financing.”
In addition, “larger shares of Black-owned firm applicants did not receive any of the financing they applied for—38 percent—compared to 20 percent of White-owned business applicants.” And, according to the Transparent Collective, Black founders receive less than 1 percent of venture capital.
Many of the companies the new fund will help are already profitable, but like all startups are trying to figure out how to get to the next level.
On one hand, it may be a lack of network to get to potential investors, but could also be understanding how to frame the value of their business, Parham said.
“There is a disconnect between mainstream capital markets and the value of Black businesses, especially if they are not doing a tech product that falls within the mainstream of other tech products,” he said.
“What I have seen is that there are two factors: bias and racism, and that is valid, but another part is interest and intention,” he added. “Investors might not truly know how to find them or plug-in in a way that is financially sound or feel like they are steering too much.”
What comes next
Parham and Douglass have already raised more than $150,000 toward the $10 million relief fund. Parham expects the fund will make its first investment by the end of the year or early in 2021. On the investment fund side, there is interest from investors in the tech community, and the goal is to deploy $10 million, which could mean approximately $500,000 for 20 businesses, he said.
Initially, brick-and-mortar businesses will be the focus, mainly because they comprise the majority of Black-owned businesses. Brick-and-mortar businesses, i.e. real estate ownership, also represent Black upward mobility and prominence in cities, especially in creating a sense of community, Parham said.
Next up, the fund organizers will be working to find limited partners to invest in the first cohort of businesses. They also plan on deploying capital from the relief fund and computing the outcomes over the past few months.
“We are aware of the conversation around Black Lives Matter and racial injustice and we are doing something that takes a business approach to addressing some of the larger societal concerns people have,” Parham said. “Economics is not the only answer, but by investing in Black businesses, we are creating a response to overcome a lot of the challenges.”
Feature photo of Elisse Douglass and Trevor Parham courtesy of Pete Rosos
Blogroll illustration: Dom Guzman