ImpactAlpha, June 3 – If the COVID crisis has laid bare longstanding inequities, the widespread protests over the police killing of George Floyd are pushing racial equity to the center of the COVID recovery.
Just as long-standing inequities have left black people disproportionately at risk to the virus, the lockdown has been particularly devastating to Black-owned businesses that are heavily concentrated in the service economy – in hospitality, retail, wellness and other high-touch businesses. The number of working African American business owners in the U.S. has fallen by more than 40% in the pandemic, far more than for other groups. And these are the same kind of businesses that have struggled to access federal relief.
Impact investors and corporate leaders are calling for bold action for racial justice. All businesses are being closely watched for how they treat workers, customers, communities and other stakeholders. A growing chorus is demanding a bailout of people, not just corporations.
Racial lens investing, with both private and public funds, both equity and debt, has never been more timely.
The blueprints for a racially inclusive recovery already are taking shape in communities across the country. In Oakland, Calif., Boston, and New Mexico, local funds such as Runway Project, Ujima Fund and the Boston Impact Initiative are doing the kind of deep, innovative, relationship-based work that is needed to begin to heal racial inequities and trauma.
Such “new revivalists,” are modeling solutions that can be rolled out widely, to speed the recovery of people and families, as well as businesses. That includes universal basic income for black founders, “people guarantee pools” and sharing power in investment decision-making and ownership — “the financial infrastructure that is going to love black and brown people” as Runway’s Jessica Norwood puts it.
“The pandemic is an accelerator and amplifier of everything,” says Deborah Frieze of Boston Impact Initiative. “If we can’t figure out how to respond now, when will we?”
Space to pivot
Runway was established to address the racial wealth gap. Its portfolio is an example of the potential for Black entrepreneurs when they have access to capital, mentoring and a support network that has too often been out of reach.
For Small Business Week in early May, the Runway Project had planned to celebrate the strides made by the Black-owned businesses in its portfolio, from Essence of Flowers, a locally-sourced floral business to Hox Uniforms, which makes custom team uniforms. Instead, the loan fund found itself scrambling to keep them afloat as the COVID crisis shut down large swaths of the economy.
“We were trying to grow businesses, now we’re trying to stop the loss,” says Jessica Norwood, who founded Runway in 2016 to tackle the gap in “friends & family” funding for Black entrepreneurs. “COVID has changed everything.”
Starting in Oakland, Calif. and expanding to Boston, Norwood and her team have spent the past few years modeling a different kind of financial system that is attuned to the needs of underserved communities and the historic legacy of social and economic discrimination they are trying to overcome.
When COVID hit, the first order of business was to speed relief to small businesses whose revenues evaporated almost overnight. Small, local funds were among the “parallel system” of first financial responders. Norwood and her team conducted “wellness checks” and immediately deferred all loans and interest payments from its 30 or so borrowers for six months. (Its standard loan terms include a 2-year interest-only period).
They helped portfolio companies apply for federal aid via banking partners such as Self-Help Credit Union and Berkshire Bank. And they offered strategic and marketing support through partner Uptima Business Bootcamp, an Oakland-based accelerator cooperative, so that businesses could retool for the new socially distant world.
Even more was needed to stem the loss of income for Runway’s business owners, many of whom are sole proprietors. The answer: six months of no strings attached payment – or, universal basic income for Black business owners.
“We wanted to create spaciousness to pivot, reimagine, create a new business plan for the post-COVID world,” says Norwood. “UBI reflects our belief in choosing trust and relationships over bureaucracy and evaluation, and doubling down on what it means to be friends and family.”
That support made all the difference for Ariana Marbley, the founder of Esscents of Flowers, a local flower delivery service in East Oakland. Marbley had entered 2020 with a full schedule of events and weddings, but as COVID took hold, one by once they cancelled or postponed. She reluctantly applied for loans, but was turned down by bank after bank.
The monthly payments from Runway have relieved the stress and allowed her to focus on marketing. “I felt for the first time in a long time that I was taken care of, that the business was taken care,” says Marbley. “It’s not until times like this that you realize how deep that support and love runs.”
She’s returning the favor, in a sense, by handing out yellow roses with a message of affirmation to Black East Oakland residents grieving over the killing of George Floyd.
Runway was inspired in part by Aisha Nyandoro’s Magnolia Mother’s Trust, which distributes $1,000 a month for a year to twenty families in Jackson, Mississippi. The city of Stockton, Calif., has also experimented with $500 universal basic income payments to low-income residents. In the face of the COVID crisis, Stockton has extended the program, which was set to wind down this summer, through January.
Runway was able to raise the money to fund these programs in less than a month from longtime funders including RSF Social Finance and Candide’s Olamina Fund.
In Boston, Deborah Frieze conducted “resiliency tests” with the 30 portfolio companies of the Boston Impact Initiative, the charitable loan fund she founded to help close the racial wealth divide. Only four have had to completely close (seven were deemed essential and a dozen or so were able to operate remotely). But some teetered on the brink after gearing up for big contracts with hard-hit industries like airlines that were put on hold. All told, 200 employees suffered a full or partial loss of income.
Her first imperative was to throw out a lifeline for workers, many of them women of color, undocumented immigrants, formerly incarcerated or part-time employees who lacked savings and might not be eligible for federal aid. Frieze worked with her lawyers to structure what she calls a People Guarantee Pool to provide a one-time $1,200 non-taxable gift to portfolio company employees (those who lost partial income received $600).
At the same time, she instituted a blanket three-month principal and interest forgiveness for business owners starting April 1, which could be extended, restructured or deferred further as circumstances required.
BII also worked with portfolio companies to help them preserve cash and renegotiate rents and other expenses.
“As a small fund, we can actually wrap our arms around the entire set of companies in our portfolio,” says Frieze, who raised $162,000 in grants to fund the people’s guarantee pool and another $230,000 in recoverable grants for the loan forgiveness programs. Some donations came from MBA 1200, where Harvard and other MBA students or alumni donated part of their government relief checks.
That kind of unconventional thinking is a hallmark of BII. The fund deploys a creative mix of debt and equity financing to achieve its goals. Rather than lavishing perks on its biggest investors, it prioritizes the small, retail investors with higher interest rates and more loss protection.
“Those that can least afford to lose the money should be de-risked the most,” says Frieze. “And those who have the most can take on more risk, either a lower rate or higher risk.”
BII helped incubate and launch the Boston Ujima Fund, which is democratically controlled by community members in Boston’s working class neighborhoods, who vote on impact objectives and investment decisions. Ujima has created its own relief fund, the Ujima Boston Worker and Resident Care Fund, that will issue one-time payments to voting members, businesses and employees impacted by COVID.
Now, Frieze is turning her attention to the recovery phase, which will be equally hard on business owners of color that have traditionally struggled to access capital but will need to invest in order to re-open. BII is looking to raise a $2.5 million Business Resilience Fund fund to originate zero-percent working capital loans to fund an inclusive recovery.
The recovery has just begun. But the models these small funds are designing and testing point the way to a recovery and system rooted in a different set of values and beliefs. “If we understood ourselves as interdependent, we’d be looking at, how can I ensure that my suppliers stay healthy? My customers and employees?” says Frieze.
The COVID crisis may speed up the development of infrastructure to nurture and support entrepreneurs of color. “We really leaned into our values at this time and it made all the difference,” says Norwood. “There is another way and world possible, and it’s happening right now. We all feel so much stronger.”
The kind of deep, relationship-based work does not necessarily scale. That’s why Runway is evolving its model to support more communities of practice and “moving the needle on what it means to build a repair economy and infrastructure that loves black and brown businesses.”
Frieze has launched a fund-building cohort to share BII’s experience with others looking to create their own place-based and racial justice funds. A dozen teams spanning Baltimore to the Twin Cities to New Mexico have been meeting virtually since April. Many are speeding up their timelines and prototyping funds in realtime to deal with the COVID fallout.
As Norwood says, “I don’t believe we will make it on the other side of this COVID crisis if we don’t all make it.”