Silicon Valley bank collapse worries founders of color
By KAT STAFFORD and CLAIRE SAVAGE – Associated Press
Hours after some of Silicon Valley Bank’s biggest customers began withdrawing funds, a WhatsApp group of startup founders who were immigrants of color ballooned to more than 1,000 members.
Questions abounded as the bank’s financial situation worsened. Can I open an account at a major bank without a social security number? Others are visiting parents abroad and wonder if they have to physically go to the bank to open an account. I got
One clear theme emerged. It’s a deep concern about the far-reaching impact on startups led by people of color.
As Wall Street struggles to contain the banking crisis after the financial crisis, A swift demise of SVB — 16th-largest bank in the nation and the largest bankruptcy since the 2008 financial crash — Industry experts say people of color can secure funding or secure financial institutions to support startups is likely to become even more difficult.
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SVB opened the door to such entrepreneurs, offering them the opportunity to make important relationships in the technology and financial communities that were out of reach within large financial institutions. But smaller players have less avenues to survive the collapse, reflecting the perilous journey minority entrepreneurs face as they try to navigate a historically racist industry.
“All these people who have very special circumstances based on their identity are not things they can easily change about themselves and cannot be banked from the top 4 (big banks),” said a number of startup directors. Asya Bradley, who has seen WhatsApp groups address the demise of SVB.
Bradley said some investors are begging start-ups to switch to larger financial institutions to limit future financial risks, but it’s not an easy transition.
“The reason we go to local and community banks is because these[large]banks don’t want our business,” says Bradley.
Aaron Klein, a senior fellow in economic studies at the Brookings Institution and a banking expert, said the collapse of the SVB could exacerbate racial disparities.
“This will be more difficult for those who don’t fit into the traditional credit box, including minorities,” said Klein. “A financial system that prioritizes existing wealth holders will perpetuate the legacy of past discrimination.”
Tiffany Dufu is disappointed when she can’t access her SVB account and pay her employees.
Dufu raises $5 million as CEO of The Cru, a New York-based career coaching platform and community for women. For a company founded by a black woman, this is a rare feat, earning less than 1% of the billions of dollars of venture capital funding that goes to startups each year.SVB is committed to technology with her community and investors. She banked with her SVB because she was known for her close ties to
“I pitched to nearly 200 investors over the past few years to raise that money,” Dufu said. Dufu has since regained access to his own funds and moved to Bank of America. “It’s very difficult to expose yourself and I repeat it over and over again. People say this is not good. So the money in my bank account was very valuable.”
a February Crunchbase News analysis decided Funding for Black-founded startups fell by more than 50% last year after receiving a record $5.1 billion in venture capital in 2021. Overall venture capital fell from about $337 billion to about $214 billion, but black founders were disproportionately hit, with just $2.3 billion, or 1.1% of his total.
Amy Hilliard, an entrepreneur and professor at the University of Chicago Booth School of Business, knows how hard it can be to raise capital. It took him three years to secure a loan for his cake-making company and he had to sell his house.
Banking is based on relationships, and when a bank like SVB goes bankrupt, “those relationships are gone,” said Hilliard, an African-American.
Some conservative critics argued for SVB’s commitment. Diversity, equity, and inclusion were to blame, but banking experts say those claims are false. Banks went bankrupt as large customers withdrew rather than borrow at higher interest rates, bank balance sheets were overvalued and they were forced to sell bonds at a loss to cover their withdrawals. .
“If we focus on the climate or communities of color, it has nothing to do with what happened at Silicon Valley Bank. , an investment banking platform founded in the United States.
The Red-Horse Mohl has raised, built and managed more than $3 billion in capital for tribal nations, but most of the large banks are run by white men and majority whiteboards and are Even when they have a DEI program, it’s not that deep.” It’s a kind of capital movement.”
But smaller financial institutions have worked to build relationships with people of color. “We can’t afford to lose local or community banks,” she said.
Historically, smaller and minority-owned banks have addressed funding gaps that large banks have ignored or created by following exclusion laws and policies that alienate customers because of their skin color.
But the ramifications of the SVB’s demise are also being felt by these banks, said the president and CEO of the National Bankers Association, a 96-year-old trade group representing more than 175 minority-owned banks. One Nicole Elam said.
Even though most minority-owned banks have a more traditional customer base, with secured loans and minimal risk investments, some customers are withdrawing money out of fear and wanting to invest in the larger banks. She said she moved to
“You’re looking at customer flights of people we’ve been serving for a long time,” Elam said. How many people don’t come to us for loans or small business loans or banking?
Black-owned banks have been hit hardest as the industry consolidates. Most companies don’t have the capital to withstand a recession. At its peak he had 134, now he has only 21.
But change is underway. Over the past three years, the federal government, the private sector, and philanthropic organizations have invested heavily in minority-run depository institutions.
“In response to this national conversation about racial equality, people are really seeing minority banks as the key to wealth creation and the key to helping close the wealth gap,” Elam said. rice field.
Bradley is also an angel investor, providing seed money to many entrepreneurs, and as a network of people in WhatsApp groups sees new opportunities to help each other survive and grow.
“I am really very hopeful,” said Bradley. They said, ‘SVB was here for us and now they’re here for each other.'”
____ Based in Detroit, Stafford is a National Research Race Writer for AP’s Race and Ethnicity Team. Follow her on her Twitter. https://twitter.com/kat__staffordSavage reports from Chicago and is a member of the Associated Press/Report for America Statehouse News Initiative. Report for America puts journalists in local newsrooms to cover hidden issues. It is a non-profit national service program.
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