New Orleans–along with Albuquerque and San Francisco–are a part of a new Living Cities’ cohort intended to tackle entrepreneurial barriers for people of color. The initiative–named Start Up, Stay Up, Scale Up [SU(3)]–is designed to connect high-growth business owners of color with the private equity and venture capital they need to scale.
New Orleans has a long tradition of entrepreneurship among people of color – the only city in the Confederacy of the American South that afforded slaves the opportunity to work for wages and to sell products and services in order to purchase their freedom. Adjacent to the first community of free people of color in America, Congo Square (originally the Place des Negres) was not only the marketplace for the slave trade, it was also the market where slaves gathered to sell their wares on Sundays and holidays when they were free to gather and conduct trade.
New Orleans today continues on the historic trajectory of entrepreneurship among people of color. And yet, in spite of a majority African American population and the fact that Black-owned businesses account for 40% of all businesses in the city, these businesses receive less than 2% of all business receipts – a margin that has remained constant since 1997.(1)
Race Is Not Risk
Our work with Living Cities and the Start Up, Stay Up, Scale Up [SU(3)] initiative has revealed both gaps and opportunities for building an entrepreneurial ecosystem to support entrepreneurs of color and to close the racial wealth gap in New Orleans – a gap that has been growing for the past 50 years.
While rich in entrepreneurs, innovation and cultural connections to the legacy and agency of people of color, the ecosystem of training and technical assistance is geared toward new starts, offering little to support scalability and growth. Non-profit and university providers are clustered around development and support of lifestyle businesses in consumer markets, while the city’s economy is growing producer markets in healthcare, biosciences, and green infrastructure, as well as professional services and tech solutions for a broad spectrum of corporate clients. Among businesses owned by people of color providing high-growth producer services, these businesses are generally competing for public sector contracts. Black businesses are participating at 29% of all City of New Orleans contracts, but receive only 1% of private sector contract opportunities, suggesting that government alone cannot close the racial wealth gap.(2)
In addition to training and technical assistance gaps, SU(3) exposed the critical role of (and gaps in) the capital market as a key component of the ecosystem. Notably, entrepreneurs of color have limited access to capital products beyond traditional debt capital – and even here are less likely to access capital than their White counterparts. Non-profit and mission-driven lenders encounter the same systemic biases in underwriting criteria as mainstream lenders, while angel investors, venture and private equity capital encounter the preponderance of unscalable businesses in the market and struggle to identify a pipeline of entrepreneurs with high-growth capacity.
Focused on a market rate of return and with similar constraints of bias in underwriting, venture and private equity investors are more likely to encounter gaps in management and market penetration among entrepreneurs of color, given the limited access to deal flow these business encounter. Reliant on receivables in the absence of growth capital, these firms appear to be a higher risk as they have limited resources to dedicate to sales, marketing, and management activities, with most of the staffing tied to production and service delivery.
While the gaps in the ecosystem are significant and daunting, SU(3) gives us the opportunity to test market-based solutions as viable strategies for curing the inequities of New Orleans racialized past. Post-Katrina New Orleans is not ambivalent to the mobility of capital in today’s global economy as the city continues to experience growth in both producer and consumer markets. While absent the financial command and control centers and the capacity for capital absorption of global cities, as an international city, New Orleans has an emerging network of diverse high net-worth individuals and a new attractiveness (or at the very least intrigue) to venture and private equity networks resulting from the influx of young entrepreneurs in the post-Katrina rebuilding efforts.
Capital Connection: Closing Gaps to Create Wealth
Combined with the historical and cultural contexts of self-organization of New Orleans’ people of color as a pathway to opportunity, entrepreneurship as a self-organizing strategy can be a movement toward economic inclusion in the 21st Century. At the same time, impact investment funds are amassing billions of dollars, and the impact investment industry continues to develop a common language, shared standards and metrics for measuring impact – also a “movement” for the 21st Century economy. These changes in capital, combined with the activity of self-organization, can promote reformation and cooperation across sectors of the economy, creating innovative behaviors by investors and entrepreneurs alike. All that is missing is the organized ecosystem that combines the two – capital and entrepreneurial agency – in a manner is market-driven, sustainable, impact oriented and intentional around race.
Next steps in this process requires convening, collaboration, consensus and change as we work to close the gaps and change the narrative around entrepreneurship, capital, access and race.
Assembling the members of the ecosystem that currently support entrepreneurs of color and the members of the ecosystem that don’t but can, and building consensus around shared ownership is an important first step. Closing the ecosystem gaps and building the training, technical assistance, incubation, acceleration, and mentoring capacity to support high-growth start-ups and scalable businesses is at the heart of the SU(3) work plan. Innovating the capital marketplace and leveraging non-profit, for-profit, philanthropic and investment capital to support entrepreneurs of color is also at the heart of the work, and organizing the current network of high net-worth individuals, non-profit CDFIs, philanthropic investors and private equity investors to support entrepreneurs of color is an integral component of the plan.
Key to this work is the identification of bias where it exists in capital allocation and eliminating the perception of color as representing risk. As well, changing the entrepreneurial behavior of people of color to reach for high-growth business models instead of focusing on lifestyle business models is a part of the narrative change work; distinguishing notions of venture capital exit from ‘sell-out’; and moving the needle from small business development, to middle-market growth and wealth creation as the outcome.
Toward a Thriving 21st Century Economy
The W.K. Kellogg Foundation’s 2018 Business Case for Racial Equity reveals that economic equity for businesses owned by people of color would result in the creation of nine million new jobs and over the long-term add trillions (with a T) to the American economy.
With so much at stake, new and disruptive strategies of capital deployment, entrepreneurial activity, innovation and behavior must be tested. SU(3) positions us to capitalize on this moment—applying market-based solutions in new ways and developing new tools not yet imagined—to establish a thriving, 21st century economy in New Orleans and nationally. This critical shift is essential to ensuring America’s future in the global marketplace.
Judith Dangerfield, owner of Metro-Source, provided additional writing support for this post.
1.The New Orleans Prosperity Index: Tricentennial Edition. The Data Center. April, 2018. 2.New Orleans Disparity Study Draft Report.