“Although the number of minority-owned businesses is increasing dramatically, America is currently forgoing an estimated 1.1 million businesses owned by people of color because of past and present discrimination in American society. These missing businesses could produce an estimated 9 million more jobs and boost our national income by $300 billion.” - Center for Global Policy Solutions

1.1M businesses and 9M jobs. That’s the cost of systemic racism in this country. It’s detrimental to the people it affects. It’s detrimental to our economy. It’s detrimental to our local ecosystems. When we don’t have everyone at the table, we miss out on so much. 

Removing barriers to make our ecosystems more equitable is not just a social responsibility, it’s an economic imperative. Like Victor Hwang says, “entrepreneurship is a fundamental right.” But the path towards entrepreneurship is still not the same for everyone. Access to resources, information, support, and influential networks are in no way equitable. These barriers will continue to exist until we make a concerted effort in our ecosystems to break them down and reimagine the system. 

Acknowledging the Systemic Barriers

Systemic racism has played a huge part in who has access, who has wealth, and where resources go. The only way to remove the barriers that have been put in place to keep certain people in power is to understand and acknowledge that they exist.

For example...

These are just a few examples of the ways Black Americans in the United States have been held back from obtaining quality education, creating generational wealth, and gaining power. Despite these systems of constant oppression, Black Americans over the years have achieved. They’ve started businesses, made incredible contributions, and made significant impact and social change to the America we know today. And yet, board rooms remain majority white and male, as do decision makers who hold power. There is simply no representation at the top.   

“We’re not represented in the venture capitalist pool and venture capitalists tend to invest in people who are like them. Don’t just look down, look up. Who owns the game? Who are LPs, The pension funds, the endowments, the foundations, the insurance companies, the high net worth individuals, the family offices?” says Mariah Lichtenstern during a panel on New Frontiers in Equitable Access to Capital and Credit at the 2020 SCN Summit. 

“Everything about the way our financial system was set up is not for supporting the Black entrepreneurs and entrepreneurs of color. In fact, back when the SEC was started, when Black Wall Street was being burned down and when redlining was happening, rules were put into place to keep us out,” she says.

A Call to Change the System

Mariah Lichtenstern is the Founding Partner of DiverseCity Ventures and Managing Director of the Founder Institute, Sacramento, California chapter. She’s working at the National level to break some of the barriers faced by underrepresented entrepreneurs, which are not solely caused by venture capitalists. There’s a larger, systemic problem that has to do with regulators who constrain capital formation.

As an Aspen Tech Policy Hub Fellow, Mariah did extensive research on the ways in which the U.S. Securities and Exchange Commission (SEC) limits the potential of Black and Brown entrepreneurs and investors alike by dictating who is "accredited" (Rule 501 of Regulation D). Their regulations inhibit wealth building in communities of color and widen the racial wealth gap - much like the racist real estate laws of the 1930s did (aka redlining).

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“Everything about the way our financial system was set up is not for supporting the Black entrepreneurs and entrepreneurs of color.”

As a Black and multi-ethnic woman founder of a venture capital firm, Mariah is up close and personal with the regulations that hold underrepresented founders back. 

“The SEC regulates how founders raise capital, including whom they raise from, how, and how much they can raise. Rule 501D defines what constitutes an accredited investor. To be accredited, investors must meet established thresholds for income and/or net worth. Less than 15% of Americans meet the criteria. Of that, less than 5% are Black or Latinx. Because of the wealth gap, this makes it even harder for underrepresented founders to bootstrap or raise capital from their own communities - even those with financial resources and the risk tolerance to invest,” explains Mariah.

Mariah says there are a handful of rules that govern private offerings that are not only unfair, but don’t make sense. Regulation D, C, A, and A+ all include rules around the accredited investor definition.

“There’s a handful of different regulations that all involve the accredited investor rule but even within those regulations, there are separate and unequal criteria that really correlate with class - which disproportionately impacts women and people of color,” explains Mariah.

“It’s keeping people who don’t meet that accredited investor definition out of the vast majority of those really high upside investment opportunities and limiting those opportunities to a privileged class. The SEC really isn’t in a position to make a determination around someone’s risk capacity or their sophistication. You could be illiterate and sophisticated enough. If you look at the Black Wall Streets of the early 20th century, you’re seeing communities that are one and two generations - if that - removed from slavery and they were thriving communities. Such that there were adjacent communities that were jealous and indignant that literally burned them to the ground because they were so successful. So it’s really not the government's place to dictate what our intellectual capacity or our ability to make financial decisions really is.”

Mariah has two projects in the works to dismantle these restrictions and make an impact on the Tech Funding Gap. First, she’s calling for the SEC to amend the accredited investor definition. She has a petition on her website, Tech Funding Equity, and is encouraging others to not only sign, but go to the SEC website and add comments. The SEC does in fact listen and is interested in knowing why this matters to others and how it affects you. 

Her other project is called the Opportunity Pledge. The pledge and its corresponding framework is designed to serve as the first step for institutional investors and ecosystem builders to analyze their role in and optimize their progress toward achieving tech funding equity.

“This is not a pledge where you just sign it, get a badge, and say I’m a good person with good intentions. There’s a framework. It’s too easy for people to go back to the status quo.” 

Mariah says they will be publishing who they’ve invited but will not be publishing the results because the framework is meant to be a support system that allows others to grow and change the industry together. 

“People are very comfortable not having to do the work because they're going to make money anyway. This is our nudge. Once people sign on and go through the assessment, that’s their internal information. We don’t share that information. We don’t name, shame, or blame. What this is designed to be is a support system where through the information we collect we can say here’s what people are doing and not doing.”

The goal is to increase investment to underrepresented founders and fund managers 10X by 2025 industry-wide. 

Changing the regulations around investment and providing a framework that holds those in power accountable can make a huge difference by eliminating barriers to wealth building and business growth. But it’s only one piece of the puzzle. Things also need to happen on the local level to change the dynamics of who has access and who holds power. In Part 2, we will explore some solutions on a local ecosystem builder level. Stay tuned!