Jul 152015

The issues of income inequality, race, and poverty have recently risen to national consciousness, becoming a topic of conversation for 24/7 media outlets, presidential candidates, corporate board rooms and now the hallowed halls of America’s private equity networks.

For most, the world of finance, as it is played in the high stakes game of private equity and venture investing, is very foreign. The training needed to successfully swim in the entrepreneurial shark tank is given to very few.  Successful entrepreneurs create ventures that impact markets, employ dedicated teams of people, create jobs, create tax revenue, create wealth for their employees and serve large growing markets.

Entrepreneurship as it is played out on a national level marries those with ideas that have national application to the investors that know they will get a good return if they provide the early “seed” funding to kick start a money making concept. These networks of investors connect entrepreneurs they select to both capital for growth and networks of expertise to help them build and grow quickly. If you are an entrepreneur, connect to the right investor or investor network and your business could go national overnight.

Finding funding is hard for most and nearly impossible for others

Finding a funding network is difficult for many budding entrepreneurs. For the Black and Latino entrepreneur, connections are nearly impossible. Private equity, as the name implies, comes from wealthy individuals looking for a better return on their wealth then a traditional investment would provide. These individuals are very sophisticated investors that may pool their funds together to increase their collective purchasing power. These pooled networks are a critical component of the new venture “eco-system.” Entrepreneurs unaware of the rules, protocols and expectations of these networks will be considered “risky” or not considered at all. Unfortunately Black/Latino entrepreneurs, with limited exposure, are rarely considered for investment or nearly always classified as too risky.

Entrepreneurs that attempt to take an idea from concept to market must build a team that can launch the company, product or service. The skills needed are broad, from finance to technology to marketing to service delivery. If a launch team for a new venture lacks these skills, these networked investors would think they are not ready and would simply not be interested. For the entrepreneur looking to go national, recruiting and funding the launch team generally requires investments of at least $1MM. Most in private equity funding  know that an entrepreneur’s good idea or concept is probably worthless unless there is a skilled team ready to take it to market.

Sources of “seed” capital have many people with so-called great ideas calling on them constantly. Since these very new start-ups are some of the most risky investments, the investors can be and should be very selective as to which firms they support and which ones they pass by. But what has become apparent to many that follow the rise and fall of new ventures and the flow of seed capital is the apparent lack of funding available to entrepreneurs of color. Many of these entrepreneurs are un-aware of the process, protocols, and networks needed to find the capital required for growth and scale up beyond “a good idea” and a few customers.

Entrepreneurs create tax makers

Business schools provide students with a glance inside the world of new ventures. But too few students of color are sitting in on these classes. Even with this training, until you have been in a start-up or watched one go through its stages, it is difficult to gain the understanding needed to find capital. This lack of awareness, leading to this lack of capital for entrepreneurs of color, is contributing to the perpetuation of poverty and lack of opportunity for so many. Entrepreneurs are needed in every community if the US is to rebound and create more tax makers than tax takers.

Private equity practitioners have to manage their risk carefully. For them it is easiest and safest to find new ventures within their known networks, among those that are familiar or those that have been already exposed to raising capital. Successful and prominent Blacks and Latinos have not organized their collective wealth so as to serve as a source of capital for budding entrepreneurs of color. And few private equity firms actually employ people of color and fewer are managed by people of color.

Find ways to enhance entrepreneurship in communities

But there is a new buzz among some private equity groups – as they are becoming aware of the growing lack of demographic diversity in their portfolios. CB Insights reported on the disparity in founding teams with a tragic statistic. Of those receiving venture funding only 1% are African American. Forbes reports that only 8.5% of those pitching their ventures to angels are minority entrepreneurs.   Large tech companies like Intel are taking on the lack of diversity in the entrepreneurial ranks head on. Intel announced that it has formed its own venture firm with $125M invested to fund minority tech entrepreneurs. We should all hope, for the benefit of our collective economic futures,  that the best and brightest entrepreneurs from communities that desperately need transformation and revitalization will be supported, bringing their businesses to market and creating jobs and economic wealth where it did not exist prior.  The old ways that have led to yet another example of  income inequality have to be updated – allowing new seats at a table that has been both exclusive and illusive.

Entrepreneurship, if channeled correctly, can help to bring communities out of poverty. Minority entrepreneurs are more likely to hire from their communities providing opportunities for other young entrepreneurs of color to learn by watching and participating in a start – up. We have many historical examples like Arthur G. Gaston, Madam C.J. Walker, Maggie L. Walker, Annie Malone, that clearly demonstrated how economic wealth from entrepreneurs can be used to enhance the lives of many from local communities.

Entrepreneurship is a calling for some people. Many will start their firms and struggle through the cycles of growth and scale. But when they are poised to become national, they need capital to hire the start – up team, to develop their products, to organize their companies and to legitimize themselves in the eyes of their future prospects.   There are few networks of wealth that Black and Latino entrepreneurs can call on. Few places where they can get the experience and exposure they need to swim in the shark tank. Until that changes, these communities, that are desperate for economic revitalization, will always be beholding to those from outside. It is time for private equity to catch on and catch up to the need to make more tax makers than tax takers and take the risk to aggressively recruit, train and fund ventures from qualified entrepreneurs of color.

Jun 302015

Education – Exposure – Employment – Entrepreneurship

Educators and non-educators are now pushing for serious and lasting education reform. At the same time, lower income boys are gunned down on a near weekly basis throughout the country. The most horrific shootings, often caught on video, are shown over and over on 24 hour news shows, boosting ratings. Poverty has impact. It creates a fertile ground in this 24/7 world for the hate mongers to recruit the disaffected, the forgotten and the lost, all hoping to find a community of like minded and often dangerous companions and supporters. What happens when the disaffected become the majority?

The urban inner city “gangs,” well known to most, have morphed, or better yet spread from the streets of the inner cities to the virtual online world accessible to nearly every child.

How many more tragedies do we have to see before we recognize what can happen when masses of young men are left out of the economic mainstream? Their receptivity to calls for glory from nefarious operatives, planting seeds of hate, increases dramatically when these young men lose hope and can not see themselves EVER participating in the mainstream economic future of the country. These lost young men come in all shades and come from all regions. Most are poor. Most have not been served well by public education. Many are facing challenges unknown to those setting policy; enacting legislation; creating new education ventures or offering well researched theories of change and school reform.

Many of the education reform movements over the past few years required massive increases in spending on new curriculum, new teacher training, or new facilities. But few investments in public education (public or philanthropic) actually flow to those most in need of hope and economic exposure at a time when they are eager to participate. The fact is, per pupil tuition and grant funds seldom flow to the child or their community outside of the school they attend. Many readers might refute this argument, saying that public schools across the country are funded by tuition dollars allocated per child from government (federal, state and municipal) to school districts. But the lower income child (and most parents) are so far removed from school funding and budgeting, they do not recognize the connection between their child’s attendance at a school and the school’s operational revenue.  The per pupil tuition and grant money flow supports a massive educational bureaucracy. There are very few, if any,  education lobbyists today advocating to divert some small portion of funds to create jobs for lower income public school children.

Motivation for Academic Persistence

In many of the neighborhoods that are served by dysfunctional and poor performing schools, jobs for young and old are nearly impossible to find. And if a job is available it may be working within a chain store of some type, often at the counter or cash register, gaining skills with limited applicability outside of the customer facing, low paying food service or retail trade. Not to say these are not good jobs. They are. But they often do not provide a living wage and they are not careers.  When parents, grandparents and children are all vying for the same meager opportunities, the young can directly and daily see a future for themselves that does not provide much motivation.

For far too many students stuck in persistently depressed neighborhoods, their life experience and the experience of those around them shape their future vision. What educators and policy makers don’t seem to understand is that our lower income children are actually acting as “rationale agents” as defined in economics. They are making choices based on what they know, what they have been told and more importantly what they have experienced.  Perhaps their level of engagement (or more likely disengagement)  in school  is directly related to what they see (or more likely do not see)  as their future.

In neighborhoods where parents have never been to college; where career jobs are impossible to find; where low income dead end job openings result in block long lines of applicants; where the school and the jail are among the largest and well known local employers; where unemployment is the norm and where hopelessness has become pervasive – what future vision and motivation should we expect?  Motivation enough to propel a child forward, pursuing the rigor and challenge of algebra, geometry, or uncovering the nuances of the plot line of The Great Gatsby?   They ask – to what end?   Why learn to swim when there is no water around?

Rationale Agents

Our children, are “rationale agents.” If we have taken away their hope at a young age, what choices will they make today about their future. If day-to-day survival is a battle in which they have to take up arms to feel safe, how much of a future do they see? If the dignity of life has been stripped away because of family subjugation to the welfare system how much respect would they have for others and themselves. If the media, with its glorified materialism, continuously makes them feel like a second or third class citizen because of their daily reality, how do they find and sustain basic human dignity and self respect?

The elephant in the room in education reform is poverty and the culture that it creates. A culture that may vary by region, city or neighborhood.   But at the core of this national poverty culture is the fact that our kids are losing the hope and drive that comes from striving for the so-called “American Dream.” Young men are more practical these days. They know early on what the “deal” really is. They see it in their homes as their parents often struggle, living with such dire and debilitating financial insecurity that creates households dealing with ongoing stress and mental humiliation.

Too much of this so-called education reform is simply funneling money from government to district/school budgets, to curriculum publishers, to national education vendors that have created business models around the lucrative flow of seemingly recession proof education dollars.  Our children, especially those from lower income communities, need jobs. They need to experience work. They need to understand, in the short term, what the impact of education can be. They need to see role models of educational success in their communities. They need to see local young community entrepreneurs creating jobs in the neighborhood for their brothers, sisters, fathers and mothers.

Day-to-day reality or future vision

Getting an education is hard work. It takes persistence. The motivation to pursue an education is often fueled by a compelling future vision. Exposing kids early to the benefits and challenges of the world of work will prepare them to become participants. Expanding employment opportunities for lower income children is critical. With education and exposure we can implant the seeds of hope that will push a young man to study and study hard. But if these capable young men are surrounded by others with a similar dream, unfortunately meeting to compare horror stories and frustrations on the unemployment or welfare line, can we blame them for becoming discouraged? When discouragement is the norm, the community suffers irreparable damage to its psyche,  self esteem and its hopes for the future.

Those few lower income kids that do succeed educationally often leave the community, taking a career focused job with a large stable employer. A choice that is both rationale and economically sound. But that means the best and brightest leave the community rather than focusing on finding ways to create wealth and jobs for themselves and their community as entrepreneurs.

We should expand our initiatives well beyond education reform. What is needed is economic revitalization for those communities that have been intentionally and persistently, neglected and forgotten.  The current future where hopelessness dominates has to be re-cast into one in which all can participate in the challenge of building and progressing toward a dream for their tomorrow. I propose that we focus on the 4Es which will provide a future vision of hope to many lower income children. We already have too many tax takers in our society. What we need is a new focus on the development of tax makers.

Education – Exposure – Employment – Entrepreneurship