Ben Hecht and Ellen Ward: Closing the racial wealth gap with early capital and innovative finance



New Revivalists is a series from ImpactAlpha and Village Capital profiling the people, places and policies reviving entrepreneurship — and the American Dream.

New Revivalists: Ben Hecht, president and CEO, and Ellen Ward, chief of staff, Living Cities
Place: Headquartered in Washington, D.C., Living Cities focuses programming in New Orleans, Baltimore, San Francisco, Albuquerque, and Minneapolis
Mission: Living Cities is testing entrepreneurial models like “mobilization funds” that can help entrepreneurs of color win contracts and create jobs.
Follow: Ben Hecht and @ellen_e_ward

Living Cities, better known for its work on affordable housing, is doubling down on entrepreneurs of color.

Why? New small businesses create most new jobs in America, but most of those jobs have been created by white-owned businesses. As the U.S. population mix changes, more investment is needed to ensure that the entrepreneurial mix keeps pace.

“If we’re going to get more jobs, it has to come from people of color,” CEO Ben Hecht and Ellen Ward, Living Cities’ chief of staff told ImpactAlpha.

To help entrepreneurs of color access capital, grow revenues and create good jobs, Living Cities is pioneering initiatives like the BuildNOLA Mobilization Fund for entrepreneurs of color in New Orleans. Says Hecht, “We invest very intentionally in a limited number of cities, like New Orleans, so we can prove models and then try to get those adopted elsewhere in the country — so we can have conversations with people about launching mobilization funds in 20 cities, not just one.”

ImpactAlpha: Living Cities is known for its work in affordable housing. How did the shift toward other issues like job creation and entrepreneurship come about?

Ward: Affordable housing is now an established market. There’s isn’t as much of a need for philanthropic capital to serve a catalyzing role. There is that need in job creation and entrepreneurial ecosystems, especially for entrepreneurs of color.

Jobs in America are largely created by companies that are less than five years old. But looking at the national entrepreneurship trends, entrepreneurship is actually going down. In 2014, the number of business starts was surpassed by business exits. At the same time, the demographics in the country are changing. There needs to be a massive investment in businesses [founded by] people of color for our entire economic engine to keep going.

ImapctAlpha: Can you enlighten us, statistically-speaking?

Hecht: In 1996, 77% of new business starts were by white entrepreneurs. Two years ago, that was down to 57%. That’s a loss of 150,000 startups. Latino and black entrepreneurs have tripled the number of businesses they’ve started [in that time], but that only filled 15,000 of the 150,000 lost. We’ve wrung most of the job creation potential out of white people in America. If we’re going to get more jobs, it has to come from people of color.

ImpactAlpha: Living Cities is testing this in five cities. How do you translate mission into action in different cities, which each have unique challenges?

Ward: In New Orleans, for example, our main effort is reducing unemployment for working age African American men. [Forty-four percent are out of work.] That takes many different strategies. We have a hiring policy strategy and a contract awards strategy and an access to capital strategy.

Hecht: As we got into the work there, we realized there were two big gaps to getting people into good jobs. Not enough early capital for entrepreneurs of color and not enough opportunity for revenue growth.

We’re attacking those barriers through the Propeller Fund, [which provides] access to early-stage capital, and through the BuildNOLA Mobilization Fund.

New Orleans has been spending billions to turn the city around [since Hurricane Katrina]. The city has a goal of contracting a certain number of people of color for the improvement and infrastructure work, but most of the companies that can do the work are too small to win those big contracts. Many roofers can do five roofs, not 500,000 square feet of roof. They don’t have the capital available to mobilize the employees, or equipment or inventory.

Propeller: Helping local entrepreneurs rise with New Orleans’ revival

ImpactAlpha: It almost sounds like what’s needed is a cooperative for small construction companies…

Ward: That’s basically what the mobilization fund is. It evolved from the question of how to build capacity among contractors of color to be able to bid on and execute on billion-dollar contracts.

We made a loan to NewCorp Inc., a local CDFI, and NewCorp then made loans to five different contractors of color. We recently did an evaluation on the project, asking if the increased access to capital helped the contractors’ ability to deliver on contracts, and the answer was overwhelmingly yes. One of the entrepreneurs, for instance, told us he’d been denied from three different banks, even though he has a FICO score of 720, while a white colleague had a million dollar line of credit and a much lower credit score.

ImpactAlpha: This was the pilot phase for the fund, right? $1.5 million to test it out and bring in private investors so it can grow to $10 million?

Hecht: Right. This isn’t the first mobilization fund, but then, we aren’t necessarily trying to invent new ideas. We just want to help good ideas land in places that need them. We’re often the first capital in. In New Orleans, we were the first capital in, in both Propeller and the mobilization fund. But that’s how we use our capital, so that we can then go to others and say, “If you really want to help entrepreneurs of color, why not support the creation of mobilization funds in 20 cities.”

In the last month, that’s exactly what we’ve done. We’ve had conversations with people who have never heard of a mobilization fund, and then when they learn about it and see the evaluations, they wonder why this isn’t happening everywhere.

Ward: Our work is also about building local capacity. For example, NewCorp never borrowed money to lend money before.

ImpactAlpha: How did racial equity become the lens through which Living Cities is doing all of its work, compared to other organizations that consider race one part of economic opportunity and inclusion?

Hecht: When you look at the root causes of disparity in America, it really [does] come down to race.

Ward: It’s a systems issue. Our entire country was built on [a form of capitalism] that had racism baked into it. It’s reflected in underwriting practices, where bank branches are located, etc.

Hecht: Our capitalist system was supposed to be moderated by our democracy and to enable shared prosperity. It’s supposed to work for the majority. If you have a system that doesn’t work for five out of 500,000 people, that’s one thing. When the system isn’t working for 200,000 of 500,000 people, then there’s something really wrong. [Today], the ability for the majority of the population to build wealth, that’s been lost. This work gives us a chance to redefine capitalism for the 21st century.

ImpactAlpha: If racism and racial bias is a system-level problem everywhere, why is Living Cities taking such a localized approach?

Hecht: You can’t come up with an idea and sell it everywhere and then hope it lands. It has to start somewhere. We invest very intentionally in a limited number of cities, like New Orleans, so we can prove models and then try to get those adopted elsewhere in the country — so we can have conversations with people about launching mobilization funds in 20 cities, not just one.

Ward: Our racial equity focus externally stems from how we as an organization have built intention internally — people of color form a majority of our staff — and how every person at Living Cities sees and applies that lens individually. That “behind the curtain” part is critical for us to do anything in front of the curtain.

What they’re reading:

  • Divided by Faith: Evangelical Religion and the Problem of Race in America by Michael Emerson and Christian Smith
  • The Republic for Which It Stands: The United States during Reconstruction and the Gilded Age, 1865–1896 by Richard White, part of the Oxford History of the United States series
  • Exit West by Mohsin Hamid
  • My Brilliant Friend, book one of the Neapolitan Novels by Elena Ferrante

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