Conference Presentation, Panel
Walking the Talk: Investing in the Future of Black Banks, Entrepreneurship, and Opportunity
Milken InstituteEugene Cornelius, Jr, Henry Childs II, Emanuel Friedman, Tracy Gray, Joseph Haskins, Jr., Aron Betru
- Black businesses face elevated short- and long-term failure risks, evidenced by a 41% failure rate between February and April 2020 compared to a 20% overall average, and a historical disparity where Black entrepreneurs launch with one-third less capital than white-owned counterparts.
- A $9 billion federal allocation to minority banks and CDFIs offers a potential 10-to-1 leverage ratio to generate $90 billion in loans, contingent on the Treasury releasing rules without restrictive strings that could impede community distribution.
- Significant underrepresentation persists in venture capital, with Black founders comprising only 1% of over 4,750 funded companies in 2017, and less than 2% of the $69 trillion in global assets under management being managed by minority GPs.
- Future economic survival depends on rapid adaptation to the fourth industrial revolution, as firms lacking proficiency in AI, machine learning, and big data face extinction, while traditional five-year business plans are rendered obsolete by six-month technology disruption cycles.
- Mobilizing capital from pension funds and institutional sources could generate hundreds of billions of dollars; a mere 1% commitment would unlock substantial growth, potentially unlocking $1.6 trillion in economic potential by addressing the racial wealth gap.
- Strategic risks include reliance on high-cost private loans at 14-15% when 5-6% is available, premature equity dilution, and the failure of community banks that do not adopt dynamic, innovative, and data-driven models.
- Manufacturing is projected to be the fastest job creator with export roles averaging $94,000 in salary, while businesses that fail to innovate or leverage global markets in Africa, India, and China risk stagnation compared to peers exporting during the last recession who saw 37% higher revenues.
- Wealth accumulation trends indicate a shift away from traditional savings, with the top 600 billionaires generating $1.3 trillion in wealth during the pandemic and the wealthy adding $5 trillion in the first three quarters of 2020, largely through equities.
- Systemic biases in due diligence prevent diverse fund managers from securing capital, creating an information inefficiency that the sector aims to correct through dedicated diversity programs, technical assistance, and behavioral science nudges regarding capital stacks.
- Successful strategies involve aggregating capital to fund managers of color to create a trickle-down effect, utilizing hybrid models like debt, equity, and revenue share, and avoiding development in low-income areas where affordability cannot sustain profitability.