Most people working in the start-up space know that founders from underrepresented backgrounds—Black, Latinx, LGBTQ+, women and other minority entrepreneurs—have long lacked access to the capital they need to grow and scale their businesses.
But not everyone understands a related and just as important challenge: lack of access to crucial professional service providers such as attorneys, accountants, financial advisers, and other experts who can help founders structure their companies efficiently with the future in mind. Even when underrepresented founders do connect with professional service providers and outside advisers, those partnerships don’t automatically yield success.
As a legal team that is often called in to help founders who have been poorly served by previous attorneys, we have seen firsthand why it is crucial for minority founders to work with consultants who truly understand the challenges they face and can provide the tailored services they need.
Following is what we know about the dynamic array of founders we’ve been privileged to serve.
They Have Different Goals
Founders from underrepresented backgrounds, like all founders, want to achieve financial success. In many cases they create products or services that are responsive to specific market demands in their communities, and they are able to meet these demands because of their familiarity with their community.
For example, a founder who creates plant-based braiding hair because she knows there is a demand for sustainable alternatives for synthetic braiding hair, or a mother who creates a more affordable solution for blending infant formula based on the experience of neighbors and friends.
These founders may have different world views that help them identify underappreciated problems, and they approach solutions to those problems differently. The passion they have for this work extends beyond just the product itself to encompass the way they want to run their companies, the kinds of leaders they want to be, and the sources they will look to for capital.
For example, we have worked with clients seeking to secure a majority of Black or LGBTQ+ investors. This goal creates exciting opportunities, but also requires careful planning.
It’s crucial for these founders to think creatively about the capital structure for their companies, and to connect with a syndicate of investors who can provide capital, and the diversity these founders want to maintain.
They Work Under Different Constraints
The business world talks more about structural inequality now than ever, but it bears repeating that founders from underrepresented backgrounds continue to face particular challenges and barriers.
And despite the increased attention paid to the issue of access to capital, particularly since the summer of 2020, minority-owned businesses looking for financial backing receive just a tiny fraction of all venture capital funding.
For example, for Black female startup founders, that number was 0.34% in the first half of 2021, and 2021 was one of the best years on record for venture financing.
Founders who are bootstrapping their businesses—often while continuing to work day jobs, pay down student debt, and act as primary caregivers to family members—face an uphill battle to secure funding from venture capital investors and business loans from banks. The pandemic has exacerbated this problem, as racial discrepancies appeared in the distribution of much-needed federal Payroll Protection Plan to aid to Black-owned businesses.
All well-intentioned service providers lament the existence of these barriers, but only some truly understand the deep systemic issues that have created the problems, and know how to counsel their clients through these challenges, to ultimately secure the necessary funding businesses need to move forward.
The Stakes Are Very High
Many conventional founders have a complex relationship with failure: While it is never comfortable to see your venture fall flat, countless successful entrepreneurs view an early misstep as a turning point that eventually launched their business on a path to greatness.
For many founders that are already independently or generationally wealthy and have access to power and influence— or simply aren’t saddled with student loans, debt, or financial obligations to family members—it’s much easier to welcome failure as a rite of passage.
Sometimes, founders from underrepresented backgrounds may not have the luxury of trial and error. As a result, they depend on their internal and external teams to help them identify and appropriately manage risk from the beginning.
For example, we help our clients manage risk by organizing issues by priority to determine what projects need to be addressed immediately and which ones can be dealt with over a period of time. That may mean making more conservative choices in some areas of the business in order to take a leap of faith in another, and having solid back-up plans for the inevitable surprises of entrepreneurship.
Whatever the business plan, it will likely look a bit different from a traditional founder’s—which presents a huge opportunity for the team that knows how to capitalize on it.
Most professional services firms use the term “trusted adviser” in their marketing copy, but to truly serve founders from underrepresented backgrounds, you need to earn that trust. That means understanding the structural barriers BIPOC, LGBTQ+ and female founders face, and creating resourceful strategies that help them go over, around, and through these barriers to deliver their innovative products and services to the markets eager to buy them.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Delilah P. Jenkins is a partner with Croke Fairchild Morgan & Beres in Chicago, where she serves as outside general counsel for businesses ranging from start-ups to Fortune 500 companies. She focuses on M&A, complex commercial transactions, commercial operations, contracting, procurement and vendor relations.
Paige Bolinger is an associate with Croke Fairchild Morgan & Beres, where she advises emerging companies, founders, investors and funds through venture capital-related and general corporate governance matters.