How Small Businesses Can Qualify For Venture Capital
Black Girl Ventures Founder Shelly Bell Explains How Small Businesses Can Qualify For Venture Capital
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According to the Harvard Business Review, less than 1 percent of Black entrepreneurs are receiving less than 1 percent of venture capital. This alarmingly low number is what inspired serial entrepreneur Shelly Bell to launch Black Girl Ventures.
“We work to create access to capital for Black and brown women founders,” Bell told MadameNoire. “Prior to launching Black Girl Ventures, I got laid off from work. At the time, I was engaged to a man who did not want me to start a business because he thought it was too shaky. He wanted me to just get a job. I got another job. The job was great. Great money. One day, my boss called me in and said, ‘You’re great, but this is not for you.’ He laid me off again. I got laid off back to back. I was devastated. I went home and called California Psychics. The woman said, ‘When you find the thing you want to do, the money will come and you’re not going to be with that guy. Within a few months, my world was upside down and I had a new baby.”
While the transition was painful, it was during this time that Bell fully embraced her entrepreneurial spirit. Initially, she found success on Air B&B after building a teepee in her living room, and later, she launched a profitable t-shirt printing company using her mom’s retirement money and her personal tax returns. Then, she decided to double back to help other Black women in business.
“I was living my best life and then the news came out that Black women are not getting access to capital,” Bell recalled. “So I said I’m gonna pull a bunch of people together, throw some money in a hat and give it away and that’s literally how it went. Thirty women in a house in Southeastern DC, we put money into a bucket. We voted with marbles and coffee mugs. If you liked that person’s pitch, you put your marble in their coffee mug and that’s how we decided who was gonna win. People liked it so we kept doing it. ”
Black Girl Ventures has since evolved from its simple beginnings in that DC living room, but the spirit of the foundation remains the same.
“It’s like Shark Tank meets Kickstarter all in one,” explained Bell. “Women pitch live and then we help them influence. It’s so unique because on your standard crowdfunding site, the founder has to do all of the work. For us, we actually influence alongside you. Your pitch is the video, judges give feedback, the videos go up, and then you also influence people to give to you. Then we grant out the capital directly to the founder and then they use the capital the way that they see fit.”
Here are 10 things we learned from Bell about Black Girl Ventures and how small businesses can begin acquiring venture capital.
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What is venture capital?
“There are different levels of investment in a business. There is angel investing, which is just someone who is investing their personal money, and then there’s venture capital which is a way of investing other people’s money,” Bell explained. “There are also different personalities of these two types of investors. Angels, I know can be a little bit more involved and a little bit more patient. VCs are really all about investing to get a return. Everybody wants to get a return. But you know, you may not have a venture capitalist as invested timewise but you will get money, you can get the capital from them.”
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Venture capital is not free money
“The goal is to get that capital and to have a return on that capital,” said Bell. “I mean, ideally, people want that to be a ten-time return, but that’s like ideal and it doesn’t necessarily mean that that’s always gonna be the case.”
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Venture capital is meant to grow your business
“If your business plan is solid and your business is scaleable, then venture capital can be a way to get an infusion of capital that can help you to grow your business to the next level and bring in more capital,” shared Bell. “They’re infusing you with capital and getting equity for that capital, which means they own a part of the business as well with the idea that in five years, they’re going to get a 3x, 5x, 10x return.”
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To qualify for venture capital, the business must be scalable and profitable
“To be scalable, it is where the overhead doesn’t have to grow in order for the business revenue to grow. That’s why technology is heavily invested in,” Bell advised. “Let’s take Uber, for example. After the app is built, you can dump as many people into the app and using the app, bringing in revenue without having to consistently add extra overhead in order to make it work. A beauty salon, for example, may not be viewed as scalable because you can only make but so much money per chair, per person that works in that chair, according to the size of the space, so there’s a limit. When the level for the size of the growth of the business is unlimited and where the overhead can be lower than the revenue it brings in, it can be viewed as scalable.”
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You may have to invest your own money at first
“One of the challenges for Black and brown founders is that you may not have a rich uncle who is willing to give you $20,000 just to experiment,” said Bell. “You have to bootstrap and put your own money in, unfortunately. The lack of generational wealth due to being historically, legally disadvantage in this country has not allowed Black people to amass the level of wealth that would allow us to be able to support our own businesses off of our own dime.”
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When is a business ready to begin seeking venture capital?
You have to ask yourself, “have you put in the work, put in the capital, and began to learn lessons around building a team, having a viable business that is bringing in consistent revenue?” said Bell. Only then, is a business to seek VC funding.
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Venture capitalists primarily want to help you grow your business, not help you start one
There are investors to invest in early-stage businesses, but I would say, as a rule of thumb, investors want to fund you to grow not to go. They wanna fund you to grow, not necessarily to ideate and build.
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What should a business do if they’re not quite ready for venture capital?
“Getting started, for investors, is not ideation,” shared Bell. “So, it’s not necessarily getting started like, ‘Oh, I got an idea and I got a LLC.’ No, no, no, no, no. You’re not gonna be ready. And if you’re not quite ready for VC, you might wanna do incubators, grow your team, focus on building a business that makes money. Not everybody is gonna need venture capital. So you also can look at things like crowdfunding equity, which are platforms like Republic and Start Engine where if you have certain levels of revenues, people can actually give money for small equities. You might just need to go after grants. You might just need to use money from your paycheck. Depending on where you are in your journey, that’s going to dictate which capital you go after.”
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How to get involved with Black Girl Ventures
Bell went on, “Anyone looking to get involved should visit BlackGirlVentures.org. We have a community of women business owners who are active daily. They’re looking for new partners. They’re looking for people to grow their team. They’re looking for people to contract to do things for their companies. Join BGV Connect. We have virtual coworking every Wednesday and virtual pitch breakfast every Wednesday night. We also have a monthly Women in Business Support Group. We’re supporting you holistically.”
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