CNN recently reported on the collapse of Silicon Valley Bank (SVB), which has raised concerns about lending discrimination and disparities in capital for people of color in the banking industry. The bank had a reputation for serving underrepresented communities, particularly founders of color. Arlan Hamilton, the founder and managing partner of Backstage Capital, stepped in to help some of these founders who were in danger of losing access to payroll funds when SVB collapsed. Hamilton explained that entrepreneurs of color already face challenges due to systemic inequalities, and when a crisis like this occurs, they are hit even harder.
SVB, established in 1983, was the 16th largest bank in America by the end of 2022 before its collapse on March 10. It provided banking services to nearly half of all venture-backed technology and life-sciences companies in the US. Hamilton and other industry experts stated that the bank was dedicated to fostering a community of minority entrepreneurs and provided them with social and financial capital. SVB regularly sponsored conferences and networking events for minority entrepreneurs and funded the annual State of Black Venture Report led by BLK VC, a nonprofit organization supporting Black investors.
Joynicole Martinez, an entrepreneur and member of the Forbes Coaches Council, emphasized the value SVB brought to entrepreneurs of color by offering discounted tech tools and research funding. Discriminatory lending practices have long made it difficult for minority business owners to access capital. Data from the Small Business Credit Survey showed significant disparities in denial rates for bank loans between Black-owned and White-owned companies.
Asya Bradley, an immigrant founder of multiple tech companies, shared her experience and the importance of immigrant founders supporting each other in finding funding alternatives. Community or regional banks like SVB are often chosen by women, people of color, and immigrants who are rejected by larger banks. These larger banks, referred to as the “top four banks” (JPMorgan Chase, Bank of America, Wells Fargo, and Citibank), have been criticized for not providing adequate services to these communities. The article highlighted the commitment of some larger banks to address economic and racial inequality, but it also noted that Black-owned banks, which play a crucial role in narrowing the lending gap, have fewer resources compared to the top banks.
Due to these disparities, entrepreneurs often turn to venture capitalists for funding. Arlan Hamilton, recognizing the lack of diversity in venture capital funding, established Backstage Capital to invest in underrepresented founders. Backstage Capital has since built a portfolio of nearly 150 diverse companies.
Despite the collapse of SVB, entrepreneurs like Bradley remain hopeful that community banks, regional banks, and fintechs will step up and continue supporting underrepresented founders.