Within hours of some of the Silicon Valley bank's biggest customers starting withdrawing their money, a WhatsApp group of startup founders that colorfully balloons to more than 1,000 members.
As soon as the financial condition of the bank deteriorated, a flurry of questions started. Some asked for dire advice: Can they open an account at a major bank without a Social Security number? Others questioned whether he needed to be physically at the bank to open the account, as he was visiting parents abroad.
A clear theme emerged: a deep concern about the widespread impact on startups led by people of color.
While Wall Street struggles to contain the banking crisis SVB's rapid demise – The nation's 16th largest bank and the largest to fail since the 2008 financial meltdown – Industry experts predict it will be even more difficult for people of color to secure funding or a financial home that supports their startups It is possible
SVB opened its doors to such entrepreneurs, providing opportunities to build important relationships in the technology and financial communities that were out of reach of larger financial institutions. But smaller players have fewer means of avoiding collapse, reflecting the perilous journey of minority entrepreneurs attempting to navigate industries historically plagued by racism.
“All these people who have very special circumstances by virtue of their identity, it's not something they can change just about themselves and that makes them unbankable by the top four (big banks),” Asya Bradley said. , who is a board member of several startups. Have seen WhatsApp groups grappling with the demise of SVB.
Bradley said some investors have pushed startups to move to larger financial institutions to reduce future financial risks, but it's not an easy transition.
“The reason why we're going into regional and community banks is because these (big) banks don't want our business,” Bradley said.
Banking expert Aaron Klein, a senior fellow for economic studies at the Brookings Institution, said the collapse of the SVB could exacerbate racial disparities.
“It's going to be more challenging for people who don't fit into the traditional credit box, including minorities,” Klein said. “A financial system that favors existing holders of wealth will perpetuate a legacy of past discrimination.”
Tiffany Dufue was heartbroken when she could not access her SVB account and in turn could not pay her employees.
Dufu raised $5 million as CEO of The Crew, a New York-based career coaching platform and community for women. This was a rare achievement for businesses founded by Black women, who receive less than 1% of the billions of dollars in venture capital funding awarded annually to startups. He banked with SVB as it was known for its close ties with the tech community and investors.
“To raise that money, I lined up about 200 investors over the years,” said Dufue, who has since lost access to his funds and moved them to Bank of America. “It's very difficult to put yourself out there and time after time after time you're told it's not a good fit. So, money in the bank account was very, very precious.”
A February Crunchbase News Analysis Scheduled Funding for Black-founded startups slowed by more than 50% last year after receiving a record $5.1 billion in venture capital in 2021. Only $2.3 billion, or 1.1% of the total.
Entrepreneur Amy Hilliard, professor at the University of Chicago Booth School of Business, knows how difficult it is to secure funding. It took three years to get a loan for his cake manufacturing company, and he had to sell his house to start it.
Banking is based on relationships and when a bank like SVB goes, “those relationships go too,” said Hilliard, who is African American.
Some conservative critics balk at SVB's commitment Diversity, equity and inclusion were to blame, But banking experts say those claims were false. The bank went bankrupt because its large customers pulled deposits instead of borrowing at high interest rates and the bank's balance sheet became overexposed, forcing it to sell bonds at a loss to cover the withdrawals.
“If we are focusing on the climate or communities of color or racial equality, it has nothing to do with what happened to Silicon Valley Bank,” said Noon Holdings, co-founder of a Black, Indigenous, Asian Valerie Red-Horse Mohl said. The US-founded investment banking platform is focused on the sustainable development of minority-managed funds.
Red-Horse Mohl — who has raised, structured and managed more than $3 billion in capital for tribal nations — said most large banks are led by white men and majority-white boards, and “even That when they do the DEI program, it doesn't really go deep into the transfer of capital.
However, smaller financial institutions have done the work of building relationships with people of color. “We cannot afford to lose our regional and community banks,” she said. “It would be a travesty.”
Historically, small and minority-owned banks have addressed the funding gap that larger banks ignored or created even after exclusionary laws and policies turned customers away because of the color of their skin.
But the ripple effects of SVB's collapse are being felt at these banks as well, said Nicole Elam, president and CEO of the National Bankers Association, a 96-year-old trade association that represents more than 175 minority-owned banks. Is.
Some have seen customers withdraw money and move to larger banks out of fear, even though most minority-owned banks have a more traditional customer base, with safer loans and minimally risky investments, she said.
“You're seeing a customer flight of people that we've been serving for a long time,” Elam said. “How many people can't come to us for a mortgage or a small business loan or to do their banking business because it's now in their mind that they need a bank with a bank that's too big to fail? To the public This is the first effect of destroying trust.
Black-owned banks have been hit hardest as the industry consolidates. Most do not have that much capital to weather an economic downturn. At its peak, there were 134. Today there are only 21.
But change is on the way. Within the past three years, the federal government, the private sector and the philanthropic community have invested heavily in minority-run depository institutions.
“In response to this national conversation around racial equity, people are really seeing that minority banks are important for wealth creation and important for helping to close the wealth gap,” Elam said.
Bradley is also an angel investor, providing seed money for several entrepreneurs, and is seeing new opportunities in WhatsApp groups as people network to help each other grow and thrive.
“I'm really hopeful,” Bradley said. “Even in the downfall of SVB, it has managed to create this incredible community of people who are trying to help each other be successful. They are saying, ‘SVB was here for us, now we are here for one. Will live for someone else.'”
____ Stafford, based in Detroit, is a national investigative race writer for the AP's Race & Ethnicity team. Follow her on Twitter: Savage reports from Chicago and is a core member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercover issues.