Silicon Valley Bank collapse concerns founders of color

A WhatsApp group of startup founders who are immigrants of color grew to over 1,000 members in the hours following the withdrawal of funds from some of Silicon Valley Bank's largest customers.

As the bank's financial situation deteriorated, questions poured in. Some people were desperate for advice: Could they open an account without a Social Security Number at a larger bank? Because they were traveling to visit their parents overseas, some people questioned whether they had to actually be in a bank to open an account.

There was a definite theme: a profound concern regarding the wider consequences for startups led by people of color.

Industry experts anticipate that it could become even more difficult for people of color to secure funding or a financial home supporting their startups as Wall Street struggles to contain the banking crisis following the swift demise of SVB, the nation's 16th largest bank and the largest to fail since the financial meltdown of 2008.

These business owners were welcomed into SVB, which provided them with opportunities to establish crucial connections in the technology and financial communities that were otherwise out of reach at larger financial institutions. However, as minority entrepreneurs navigate historically racialized industries, smaller players have fewer options for survival in the event of a collapse.

Asya Bradley, a board member of numerous startups who has witnessed the WhatsApp group struggle with SVB's demise, stated, "All these people that have very special circumstances based on their identity, it’s not something that they can just change about themselves and that makes them unbankable by the top four (large banks)."

According to Bradley, a number of investors have urged startups to switch to larger financial institutions in order to mitigate future financial risks; however, this is not an easy transition.

Bradley stated, "These (large) banks don't want our business. That's why we're going to regional and community banks."According to the Brookings Institution senior fellow in Economic Studies and banking expert Aaron Klein, the collapse of SVB may exacerbate racial disparities.

According to Klein, "that's going to be more difficult for people who don't fit the traditional credit box, including minorities." The discrimination that has existed in the past will continue if the financial system favors the wealthy.

When Tiffany Dufu was unable to access her SVB account and was unable to pay her employees, she was devastated.

As CEO of The Cru, a New York-based platform and community for women's career coaching, Dufu raised $5 million. It was an uncommon accomplishment for organizations established by People of color, which get under 1% of the billions of dollars in funding financing given out yearly to new companies. She banked with SVB because of its strong ties to investors and the tech industry.

Dufu, who has since relocated to Bank of America and regained access to her funds, stated, "I pitched nearly 200 investors over the past few years in order to have raised that money." Putting yourself out there is very difficult, and you keep getting told that this isn't a good fit. Therefore, the money in the bank account was extremely valuable.

A February Crunchbase News examination decided subsidizing for Dark established new companies eased back by over half last year after they got a record $5.1 billion in funding in 2021. Black founders were particularly hard hit, as their share of venture funding dropped to just $2.3 billion, or 1.1% of the total, from about $337 billion.

Business visionary Amy Hilliard, a teacher at the College of Chicago Stall Institute of Business, knows that getting financing is so troublesome. Her cake manufacturing business needed a loan for three years, and to get it started, she had to sell her house.

According to Hilliard, an African American, banking is built on relationships, and when a bank like SVB goes under, "those relationships go away, too."

SVB's commitment to diversity, equity, and inclusion was blamed by some conservative critics, according to banking experts. The bank's balance sheets were overexposed, forcing it to sell bonds at a loss to cover the withdrawals, which led to the bank's insolvency as its larger customers chose to deposit rather than borrow at higher interest rates.

"On the off chance that we're centered around environment or networks of variety or racial value, that doesn't have anything to do with what occurred with Silicon Valley Bank," said Valerie Red-Pony Mohl, prime supporter of Known Property, a Dark, Native, Asian American-established speculation banking stage zeroed in on the reasonable development of minority-oversaw reserves.

Red-Horse Mohl, who has raised, structured, and managed over $3 billion in capital for tribal nations, stated that "even when they do DEI programs, it’s not a really deep sort of shifting of capital" and that the majority of larger banks are led by white men and have majority-white boards.

However, smaller financial institutions have worked to establish connections with people of color. She stated, "We cannot lose our community and regional banks." It would be a tragedy."

Historically, smaller and minority-owned banks have addressed funding gaps that larger banks ignored or even created, adhering to laws and policies that excluded customers based on skin color.

According to Nicole Elam, president and CEO of the National Bankers Association, a 96-year-old trade association that represents more than 175 minority-owned banks, these banks are also experiencing the ripple effects of SVB's collapse.

She stated that despite the fact that most minority-owned banks have a more traditional customer base with secured loans and minimally risky investments, some customers have seen them withdraw funds and move to larger banks out of fear.

Elam stated, "You’re seeing customer flight of people we’ve served for a long time." How many people may not come to us for a mortgage, a loan for a small business, or banking services because they believe they must bank with a bank that is too big to fail? The first effect of losing public trust is that."

As the banking sector consolidates, black-owned banks have been hardest hit. The majority lack the financial resources to withstand economic downturns. There were 134 at its highest point. There are currently only 21.

However, change is coming. The federal government, the private sector, and philanthropic organizations have made significant investments in minority-run depository institutions over the past three years.

Elam stated, "People are really seeing minority banks as key to wealth creation and key to helping to close the wealth gap" in response to the national conversation about racial equity.

In addition, Bradley is an angel investor who has given seed money to a number of entrepreneurs. The WhatsApp group, where people come together to help each other stay afloat and grow, presents him with new opportunities.

Bradley stated, "I'm really so hopeful." Despite SVB's demise, it was able to build this amazing community of people who want to help each other succeed. "SVB was here for us; now we're going to be here for each other," they're saying.

For the AP's Race and Ethnicity team, ____ Stafford is a national investigative race writer based in Detroit. On Twitter, follow her: https://twitter.com/kat__stafford. Savage is a corps member for the Associated Press/Report for America Statehouse News Initiative and reported from Chicago. The nonprofit national service program Report for America places journalists in local newsrooms to report on topics that are not widely covered.