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Investing in the Black community

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One of the most actionable ways to support the Black community is to put investment dollars to work in Black-owned businesses and other purposeful investments that make a direct impact. While buying from Black-owned businesses is a great first step, there are ways you can invest in Black-owned businesses that go beyond purchases and donations.

Here’s how to invest in the Black community, from frequenting Black-owned business to taking a direct stake in Black-owned business.

How to invest in the Black community

If you’re looking to make a positive economic impact in the Black community, you have a variety of ways to do so.

Regularly purchasing from Black-owned businesses is a good start to investing in the Black community. Whether this means dining at restaurants, purchasing from a store, or having personal services done, choosing Black-owned businesses for everyday needs is a solid first step.

From there, there are a number of ways to put your investment dollars to work. Investors can:

  • Choose Black investment professionals to work with
  • Learn how to invest directly in Black businesses
  • Invest in Black-owned stocks and start-ups
  • Invest in minority empowerment ETFs
  • Get involved in peer-to-peer lending

Investing in the Black community by the numbers

  • In 2019, Black- or African-American-owned businesses brought in an estimated $133.7 billion in annual receipts, according to census data.
  • That same year, there were around 134,567 Black- or African-American-owned businesses with more than one employee, with 1.3 million employees and $40.5 billion in annual payrolls.
  • The number of Black-owned businesses grew 8 percent from 2018, when the figure was 124,551.
  • Around 30 percent of those businesses were in healthcare or social assistance – the largest sector for Black-owned businesses.
  • In 2018, there were over 3 million Black-owned nonemployer businesses – up 5.6 percent from 2017.
  • About 17 percent of Black women are in the process of starting their own business or have already begun, despite only 3 percent running mature businesses, according to an article in Harvard Business Review.
  • Fayetteville, North Carolina has the largest percentage of Black-owned businesses, with 11.2 percent, according to census data.
  • $35,205 – the average amount of startup capital that goes to Black entrepreneurs, compared to the $106,720 for their White counterparts, according to the National Bureau of Economic Research.
  • In 2020, Black business owners and founders received only 0.6 percent of all venture capital that was distributed.
  • Although Black Americans make up just over 13 percent of the nation’s population, they account for fewer than 2 percent of total U.S. businesses.
  • Black-owned businesses also face larger odds of failure than normal, with 80 percent failing within the first 18 months, according to University of California-Berkeley.
  • Only about 34 percent of Black families own any equities according to a Federal Reserve Board study in 2019, compared with 61 percent of White families.
  • Of those who did own equities, the average value of stocks held by Black Americans amounted to $14,400 – about 25 percent of what their White counterparts owned, the same study found.

Determine the best way to invest

If you’re looking to invest in Black-owned businesses, you can do so using a number of traditional ways, including robo-advisors, financial advisors and even investing on your own.

  • Robo-advisors. Robo-advisors are automated “robot” financial advisors and can provide financial assistance for those just starting out at a lower price than traditional advisors. Black former Wall Street executive Trevor Rozier-Byrd created robo-advising app Stackwell with an all-Black management team to help the Black community invest smarter. The app’s creator said the management team at Stackwell “personally knows and has experienced many of the social, emotional and cultural barriers that have resulted in underinvestment in the Black community.”
  • Financial advisors. Financial advisors are licensed individuals who create and execute financial plans for you based on your investment goals. An advisor can offer personalized one-on-one service and is a good way to learn about investing if you are just getting started. You can support a Black-owned financial advisor by finding one through the Association of African-American Financial Advisors.
  • Invest on your own. If you’re thinking about investing on your own, you have several options. You can help Black business owners raise and find capital to launch their own startups. Investing in minority empowerment funds and the stocks of Black-owned businesses can also make a difference. Minority empowerment ETFs and ESG (environmental, social and corporate governance) investments help support companies that focus on social goals, among other criteria.

Learn how to invest in Black-owned businesses

Black-owned businesses are on the rise, but are still seriously underrepresented. To increase investment into the Black community, investors have a number of actions they can take. Finding Black businesses to support directly, and then further investing in Black businesses through startups, minority-empowered ETFs, and peer-to-peer lending are actionable ways to invest your money into the Black community.

There are several resources you can use to find Black businesses:

  • ByBlack, developed by the U.S. Black Chambers, with support from American Express, provides the only national certification exclusively for Black-owned businesses. Businesses must be at least 51 percent Black-owned and provide verification documents. Once verified, companies will have access to loan opportunities from the Accion Opportunity fund, in addition to being added to the ByBlack national directory.
  • Black Directory gives a directory of Black-owned products and services with over 50,000 consumers on its email list, giving Black business owners a solid base for exposure. The site allows you to search for a product and then connects you to the appropriate Black-owned business.
  • Black Woman Owned aims to increase visibility for businesses owned by Black women by leveraging social and digital media. Black women use social media to find products and services 12 percent more than average.
  • Eat Okra connects foodies to 9,000 Black-owned restaurants and food trucks in their local areas.
  • Official Black Wall Street allows business owners to create a listing with reviews and photos, and the app alerts users when they’re near a Black-owned business to increase foot traffic.

Investing in Black-owned stocks and startups

After finding Black businesses to support, you can see which businesses are publicly traded to further invest in their stock.

One well-known Black-owned stock is RLJ Lodging Trust (RLJ), a real estate investment company that focuses on hotels. Another is Axsome Therapeutics (AXSM), a company that specializes in treatments for central nervous system conditions. Unfortunately, according to the Impact Investor, there are only about nine publicly-traded Black-owned companies.

As such, another option is investing via Black-owned startups. It is also an area where Black business owners need significant help.

Investing helps breaking the debt cycle

According to a report by the Congressional Black Caucus Foundation, Black startup-owners overwhelmingly turn to credit cards as a source of funding for their businesses, more so than their White counterparts. About 17.6 percent of Black business owners turn to personal credit to fund their new businesses, compared to 10.3 percent of White non-immigrant startup owners.

Personal credit cards have higher rates of interest than bank loans, putting the Black owners that rely on them for business capital at a disadvantage from the start. And many Black business owners are constrained by their need for capital. Around 74 percent of Black business owners use their own cash to fund their businesses.

In contrast, White business owners relied more on bank loans than their Black counterparts, and the study suggests that easy access to capital correlates with a higher chance of business success overall. Just 1 percent of Black business owners obtain a bank loan in their first year of business, and the average level of startup capital is around $35,000.

Helping Black business owners achieve access to capital through private funding is one way to help overcome this barrier. AngelList Venture, a platform for startups, is a good place to start. For example, on the site investors could invest in the Global Black Syndicate, a global community whose goal it is to bridge the capital gap for Black businesses.

Investors can also use Republic to build a portfolio of private company investments. Republic allows investors to search directories of Black-owned businesses and startups and then see if it’s available on the platform to invest in.

Minority empowerment ETFs

If investing in individual stocks or startups is too granular or difficult, investors can invest in a basket of securities through a minority empowerment exchange-traded fund (ETF).

The Morningstar Minority Empowerment Index selects U.S. stocks that meet the NAACP’s criteria for companies that are committed to diversity and inclusion. Using third-party research on environment, social and governance (ESG) practices, the index whittles down companies in the Morningstar Large-Mid Cap Index to arrive at its final list.

For example, securities that are classified in the correctional facilities sub-industry are excluded “given racial inequities within the criminal justice system.” Businesses involved with tobacco, riot-control-related products and predatory lending are also out. Companies with social-related controversies are excluded as well.

Companies are given a score based on 18 different criteria, including gender pay equality programs, human rights policies, gender pay disclosures and discrimination policies. Qualifying companies are then weighted in the index by their overall size.

This index forms the basis for the Impact Shares NAACP Minority Empowerment ETF (NACP), which can be purchased on an exchange. In addition, the fund management company donates the net management profits from this ETF to the NAACP.

Peer-to-peer lending

Peer-to-peer lending allows people to access loans from other people instead of going through traditional routes such as banks. Usually done through online services and apps, peer-to-peer lending gives people who have been historically overlooked by financial institutions and traditional creditors the ability to access capital.

Peer-to-peer lending can be crucial for Black investors, who are already statistically less likely to have ready access to bank funding. Platforms like Kiva offer microloans up to $10,000 at a zero percent interest rate. These loans are crowdfunded and it goes directly to business owners.

You can become a lender on Kiva for as little as $5, and the platform allows you to choose what areas you lend into. Peer-to-peer lending is the funding of individual loans in real time. Often, the money comes directly from the lender’s bank account to the borrower’s checking account. For those who have a difficult time obtaining a traditional loan from a bank, peer-to-peer lending can be a wiser choice than going into credit-card debt.

Other peer-to-peer lending platforms include Prosper, which lends to people with a credit rating of 640 or above and Funding Circle, which is designed specifically to fund small businesses.

Famous Black investors

Robert F. Smith. Smith is the founder, chairman and CEO of private equity firm Vista Equity Partners. Before becoming a billionaire, Smith spent the first part of his career at Goldman Sachs in mergers and acquisitions. Since founding Vista, Smith has become a prolific philanthropist, donating millions of dollars to Cornell University to increase the number of African-American students and another $34 million to Morehouse University to pay off the debt of the graduating class in 2019.

Suzanne Shank. Shank is the CEO, president and co-founder of investment banking firm Siebert Williams Shank & Co. The firm is ranked among the most active underwriters of publicly traded equity, municipal bonds and corporate debt. The firm is one of the top-ranked minority-and women-owned investment banking firms in the country.

Mellody Hobson. Hobson acts as co-CEO of investment firm Ariel Investments and is the chair of Starbucks. She also serves on the board of the Chicago Public Education fund, works as a Chair of After School Matters and is a member of the executive committee of the Investment Company Institute’s Board of Governors.

John W. Rogers. Rogers is the founder, co-CEO, and chairman of Ariel Capital Management – the largest minority-run mutual fund firm in the country. He was featured alongside other legends like Warren Buffet and Ben Graham in the book “The World’s 99 Greatest Investors.”. He sits on the board of Exelon, McDonald’s, The New York Times Company and most recently joined the Barack Obama Foundation’s Board of Directors.

Daymond John. John is perhaps now best known for his role on the popular television show Shark Tank, but left his investment mark well before his TV role. John was the founder, president and CEO of fashion label FUBU (For Us By Us). He has since become a 2-time New York Times bestselling author, focusing on teaching entrepreneurs. He currently sits on the board of Petco, the UTSA Foundation and the Network for Teaching Entrepreneurship.

Travers J. Bell. Bell was the founder and owner, in 1971, of the only Black-owned firm on the New York Stock Exchange. With just $175,000, Bell formed Daniels & Bell, and grew the securities firm to a net worth of over $15 million. He achieved this by underwriting securities for minority-owned businesses in addition to being active in larger distribution syndicates formed by investment banks.

Bottom Line

Those looking to get started investing in the Black community have a number of resources. At the grassroots level, it’s as simple as making the conscious decision every day to frequent and support local Black businesses like coffee shops, restaurants, barbers and others. Further, it’s critical Black investors and young Black entrepreneurs receive access to capital, and investing through the appropriate channels to make sure investment dollars are being given directly to Black businesspeople is an important step in the right direction.

Written by
Georgina Tzanetos
Investing reporter
Bankrate reporter Georgina Tzanetos covers investing and retirement.
Edited by
Senior investing and wealth management reporter