Is the future of fintech founders diverse? Bank of America says, yes.
Too often entrepreneurship involves undetermined risks and struggles. These roadblocks are further magnified when founders of color or diverse backgrounds are involved – damping their hopes of starting new businesses.
The most marked impediment facing underrepresented entrepreneurs is the lack of access to capital and funding opportunities when it comes to highly regulated financial services. A majority of traditional funding providers — banks, credit unions, venture capitalists, and others consider credit scores, for example, among other criteria when evaluating potential investments. As a result, the potential profitability of businesses takes a backseat. This throws a spanner in the works and weakens the argument for underrepresented entrepreneurs seeking to secure funding, who may not have inherited generational wealth or face gender or racial disparity.
Bank of America, however, is en route to creating a new narrative.
To address these stumbling blocks and shine a light on fintech founders identifying as female, Black, or Hispanic-Latino, the Wall Street bank is devising an accelerator program called ‘Bank of America Breakthrough Lab’.
What does the program offer?
The bank is accepting applications for the six-month accelerator program commencing in September 2023 before the enrollment deadline in June. The program applies to pre-seed stage startups founded on or revolving around fintech or tech-enabled designs like HealthTech, WealthTech, EdTech, and housing at no cost.
The program centers on enabling inclusion and increasing funding opportunities for underrepresented groups but all other eligible entrepreneurs can apply as well.
“The Lab is managed by the Global Transaction Services team, the group that manages wholesale payments – an area that is rich in innovation. The Lab offers an opportunity for us to get to know a much broader group of entrepreneurs working in payments and other areas of finance,” Rina Arline, Breakthrough Lab Program director in global transaction services at Bank of America told Tearsheet.
The program will offer briefings and guidelines pertaining to a wide range of business management topics, in addition to how to partner with or sell to large enterprises. Counseling and tips will be provided by mentors at the managing director or executive level from Bank of America. Among other things, they will also provide technical support extending to branding packages including website and logo design. Finally and most importantly, toward the end, startup entrepreneurs will have a window of opportunity to establish connections with industry investors and capital providers – coupled with a pitch day where participants can put their business ideas on the map.
This is the third time Bank of America will be running the accelerator program in the latter half of the year. The bank initiated the pilot project with five New York-based startups in 2021. After experiencing a favorable outcome of the opening program, the bank scaled up its endeavors by enabling 17 companies from the US, Mexico, the UK, and France to partake in the second installment of the program in 2022.
Tearsheet Take: The need to build a fairer and more diverse venture capital
Many small businesses are phasing out every year in the US.
The latest data from the US Bureau of Labor Statistics (BLS) found that 1 in 5 or nearly 22% of US small businesses fail within their first year of operation. 45% of these businesses fall flat after 5 years, and 63% come to nothing after a period of 10 years. These numbers haven’t faltered with time, in fact, they have grown ever since 1994.
Although it can be argued that there are many reasons that may contribute to the failure of these businesses but inaccessibility to funding appears to be one of the root causes.
Venture capital (VC) is a fairly male-dominated space, as is evident from the fact that only 8% of VC-funded startups have female founders. Women are underrepresented among both venture-backed entrepreneurs and VC investors, with companies founded solely by women receiving less than 3% – 2.1% to be precise – of all venture capital investments in 2022. The situation for Black and Latinx founders is no different, garnering only 3% of venture funding.
These statistics haven’t improved over time, but lately, they have attracted attention from industry leaders, challenging the status quo. Advocates are pulling the plug on disparity arguing that when women have a seat at the table, more female founders should likely be able to get the funding they need.
Driving inclusion means more opportunities for underrepresented founders, and more financial well-being for everyone involved – because a majority of new employment opportunities in the US are created by small and new businesses. Over the span of the last 25 years, small businesses have added nearly 13 million or two-thirds of jobs to the economy.
Some investor groups including Kapor Capital, which has led funding rounds for women-led companies like TomoCredit, and firms like Bank of America are trying to move the needle on a more inclusive VC industry. While the current landscape of venture funding may be far from providing equal footing for entrepreneurs belonging to underrepresented communities, the odds may change — given a growing range of accelerator programs, networking groups, and mentoring communities are organized regularly to tackle this inequity.
Research also shows that women-led startups outperform those led by men in almost all areas, which translates to the idea that women-owned startups can be a better bet for investors. This might make the case for why more male-owned investor groups and prominent financial institutions likely need to adjust their sails and start thinking about investing in minority-led businesses.