Tiffany Dufu was gutted when she couldn’t access her SVB account and, in turn, could not pay her employees.
Dufu raised $5 million as CEO of The Cru, a New York-based career coaching platform and community for women. It was a rare feat for businesses founded by Black women, which get less than 1% of the billions of dollars in venture capital funding doled out yearly to start-ups. She banked with SVB because it was known for its close ties to the tech community and investors.
“In order to have raised that money, I pitched nearly 200 investors over the past few years,” said Dufu, who has since regained access to her funds and moved to Bank of America. “It’s very hard to put yourself out there and time after time — you get told this isn’t a good fit. So, the money in the bank account was very precious.”
A February Crunchbase News analysis determined funding for Black-founded start-ups slowed by more than 50% last year after they received a record $5.1 billion in venture capital in 2021. Overall venture funding dropped from about $337 billion to roughly $214 billion, while Black founders were hit disproportionately hard, dropping to just $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 financing. It took three years to secure a loan for her cake-manufacturing company, and she had to sell her home to get it started.
Banking is based on relationships, and when a bank like SVB goes under, “those relationships go away, too,” said Hilliard, who is African American.
Some conservative critics asserted SVB's commitment to diversity, equity and inclusion were to blame, but banking experts say those claims were false. The bank slid into insolvency because its larger customers pulled deposits rather than borrow at higher interest rates and the bank's balance sheets were overexposed, forcing it to sell bonds at a loss to cover the withdrawals.
“If we’re focused on climate or communities of color or racial equity, that has nothing to do with what happened with Silicon Valley Bank,” said Valerie Red-Horse Mohl, co-founder of Known Holdings, a Black, Indigenous, Asian American-founded investment banking platform focused on the sustainable growth of minority-managed funds.
Red-Horse Mohl — who has raised, structured and managed over $3 billion in capital for tribal nations — said most larger banks are led by white men and majority-white boards, and “even when they do DEI programs, it’s not a really deep sort of shifting of capital.”
Smaller financial institutions, however, have worked to build relationships with people of color. “We cannot lose our regional and community banks," she said. "It would be a travesty.”
Historically, smaller and minority-owned banks have addressed funding gaps that larger banks ignored or even created, following exclusionary laws and policies as they turned away customers because of the color of their skin.
But the ripple effects from SVB's collapse are being felt among these banks as well, said Nicole Elam, president and CEO of the National Bankers Association, a 96-year-old trade association representing more than 175 minority-owned banks.
Some have seen customers withdraw funds and move to larger banks out of fear, even though most minority-owned banks have a more traditional customer base, with secured loans and minimal risky investments, she said.