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Tulane Report Finds Deep Racial Disparities For New Orleans Start-Up Businesses

By Tony Mcauley The Times-Picayune | The New Orleans Advocate

WWR Article Summary (tl;dr) As Tony Mcauley reports, "A new study from Tulane University finds deep disparities in the opportunities available to non-white entrepreneurs trying to start businesses in the greater New Orleans area."

New Orleans

The annual survey of New Orleans' start-up businesses by Tulane's A.B. Freeman School of Business, published on Monday, found that firms owned by Black, Indigenous and People of Color (BIPOC) entrepreneurs are only half as likely as white-owned firms to receive debt financing via traditional bank loans.

They also receive equity investments less than half as often in the earliest round, the report found.

"These facts should deeply concern us, both as a community and for economic reasons," said Rob Lalka, Executive Director of Freeman's Lepage Center for Entrepreneurship & Innovation and author of the report. "We should not look away when the data stares us in the face."

The Tulane survey reflects the situation nationally for minority-owned businesses when it comes to financing.

A 2018 study led by Sterling Bone of the Huntsman School of Business at Utah State University, for example, found black and Hispanic loan-seekers were treated differently from whites who had presented exactly the same credentials on paper to 17 different banks. The results, predictably, showed that non-white entrepreneurs faced much higher levels of scrutiny and were denied more often.

In the world of start-up funding, the disparities are even more stark.

Several studies, including a 2016 study by the Center for Global Policy Solutions, have shown that traditional sources of venture capital virtually ignore Black businesses even though Black-owned start-ups have contributed disproportionately to the economy since the 2008 financial crisis in terms of new jobs and other measures.

"The moral consequences of these inequities should be apparent to us," said Lalka. "We are residents of the port city that was once home to America's largest slave market. The legacy of so many injustices, as well as the inequities that clearly exist well into our present day, cannot be ignored."

In the report, Lalka points to evidence showing that a lack of diversity in start-up lending costs the economy in terms of the lost opportunity for innovative thinking and better working norms.

Tulane will host a panel discussion on October 22 to discuss the topic and what can be done to remedy that situation.

Quentin Messer President and CEO of the New Orleans Business Alliance, the city's economic development agency, said one particular problem facing Black entrepreneurs is that they tend to be judged more harshly and given fewer chances.

"What we find in places like Silicon Valley, Silicon Alley, and Silicon Hills (in Austin, Texas), is that entrepreneurs get better the more times they start businesses," said Messer. "But oftentimes BIPOC entrepreneurs aren't afforded that luxury: if they don't have that home run the first time, they're unlikely to get funded the second time around."

The Tulane survey also found that minority-owned firms are more likely than their white counterparts to fund their businesses through savings and less likely to receive traditional bank loans, angel investment or venture capital.

This also is a major constraint, Messer said. While most entrepreneurs rely on their own resources when starting out, their initial growth funding often comes from tapping friends and family for equity or loans. But opportunities to raise funds this way is often far more limited for Black entrepreneurs, he notes.

Lalka said that addressing the historical injustices in terms of access to capital is not only the right thing to do but it is the smart thing to do for the economy.

Tulane published its first study of New Orleans start-up businesses last year. But Lalka said that initial review significantly under-represented non-white businesses, which the 2020 study seeks to remedy.

He also said that they decided to publish this year, even though the poll of small business owners was conducted before the coronavirus pandemic, because it was important to both address the shortcomings of the inaugural study in terms of representing minority businesses, as well as to have a record of where the start-up community stood before the disruptions that followed. ___ Distributed by Tribune Content Agency, LLC.

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