by Alan Hughes
Access to capital – whether through banking or investment – is a longstanding challenge for Black entrepreneurs looking to scale their enterprises. But some much-needed capital is entering the marketplace following a $400 million commitment from billionaire investor, L.A. Clippers owner and Detroit native Steve Ballmer.
The former Microsoft CEO, who according to net worth Fortune magazine has a net worth of $76.9 billion, announced that he would allocate $400 million to investment firms Goldman Sachs, Fairview Capital, JPMorgan Chase, Ariel Investment and GCM Grosvenor. These firms would, in turn, invest much of that capital with Black entrepreneurs. Hartford, Connecticut-based Fairview Capital, and Chicago’s Ariel Investment rank among the largest Black-owned investment management firms in the U.S.
The capital comes at a critical time. As economic and inflation concerns rise, investment capital tends to dry up – particularly in communities of color. Case in point, venture capital invested with Black-owned businesses totaled $1.2 billion in the first quarter of 2022 and plummeted to $324 million in the second quarter, according to Crunchbase data. When compared with the second quarter of 2021, during which $866 million was invested, capital investments continued to decline significantly. Crunchbase is a market research and business information provider.
And this lack of capital isn’t only a Black problem – it’s an American problem. Citi Global Perspectives & Solutions published a report in 2020 that concluded the GDP losses due to systemic and societal racism and discrimination faced by Blacks over the last 20 years totaled $16 trillion (about $49,000 per person in the US). The report, titled Closing the Racial Inequality Gaps: The Economic Cost of Black Inequality in the U.S., cited gaps in wages, access to housing and higher education and investment in Black-owned businesses as key contributors.
On the heels of the social unrest in 2020, the Ballmer Family Office, a private firm that handles investment and wealth management for families, decided to find a way to invest in black entrepreneurs. Through the office’s research, the team determined that Fairview Capital, which has invested with Black investment firms for some 30 years, should help determine how best to put some of that capital to work in a manner that is both impactful and generates healthy returns on that investment.
A fund of mixed financing, Fairview Capital invests with diverse asset managers who would take that capital and invest in those entrepreneurs whose ventures fit their respective investment strategies. “We’ve developed a skill set, knowledge-based experience, expertise … to find the best of the best funds that then, in turn, invest in the best entrepreneurs,” explains Kola Olofinboba, a managing partner at Fairview Capital. “We’re very optimistic about what this will engender on the backside in terms of forming businesses, but also generating returns that make this something that perpetuates as opposed to a one-and-done type of event.”
Olofinboba, a medical doctor who earned an MBA in Financial Management from the MIT Sloan School of Management is quick to point out that the capital is an investment with an expectation of healthy returns as opposed to a grant. “It’s very, very important for us that everything we invest in is for economic gains – for returns that are accretive to the portfolios of our investors,” he explained. “And that’s why we have investors [who] have chosen to partner with us over the years, and this is no different.”
The hope is that Ballmer, who has earned a reputation as a shrewd investor, creates a snowball effect and other institutions and high-net-worth individuals understand that there are strong investment opportunities within communities of color. “I believe if people take a serious look at this space, they will realize that it’s very undercapitalized, but it is chocked-full of opportunity,” Olofinboba asserts. “Again, if done properly, [it is possible] to generate returns that are as good as anything else they might otherwise put their capital into in other markets.”
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