Closing the funding gap

Black, Indigenous and other diverse entrepreneurs often have a hard time getting their businesses funded. A new movement hopes to change that, with several Smith alumni leading the way.
Deborah Aarts

Through the Black Opportunity Fund, Colin Lynch is working to get more funding support to Black-owned businesses. “Our work is going to be transformational”

“It’s our response to some of the systemic discrimination and the unfortunate—but overt—anti-Black racism that we see in Canada.”

Colin Lynch, BCom’07, Artsci’07, is explaining the purpose of the Black Opportunity Fund (BOF), the charitable organization he co-founded in 2020 with 50 other Black business and community leaders (including Hazel Claxton, BCom’83, and Abdul-Aziz Garuba, AMBA’12). The BOF has a wide purview to raise and distribute capital—the goal is $1.5 billion in its first 10 years—and provide supports to elevate Black businesses and organizations.

In its short existence, the BOF has already secured several multimillion-dollar commitments from corporations, conducted research to benchmark the needs of Black entrepreneurs and launched multiple business and non-profit grant and loan programs. Lynch is especially excited about a new equity investment model the BOF is developing for Black entrepreneurs. The BOF, he explains, will “recycle” the returns into other Black businesses or non-profits: “I think of it like philanthropic venture capital.”

Lynch is deliberate in his language detailing the need for an entity like the BOF. The organization is working to correct pervasive and systemic inequities, and that won’t happen by obfuscating the reality of the situation. Across the board, Black entrepreneurs face disproportionate difficulties accessing capital for their businesses. Lynch cites an analysis conducted by the 12 Federal Reserve banks in the U.S. into race-based lending patterns, which revealed that Black entrepreneurs requested the least amount of money, were the least likely to get what they asked for and were the most likely to be denied funding outright. This, he adds, helps to explain a key finding of BOF-supported research conducted by Abacus Data and the Senate of Canada’s African Canadian Senate Group: many Black business owners distrust governments, banks and credit unions. “The vast majority feel disempowered,” he says. “And they believe that race plays a significant factor in the evaluation and outcomes of their applications for funding.” The BOF aims to change all that. Already, it has helped facilitate direct grants for more than 50 Black-run businesses and launched programs for Black entrepreneurs with funding from major banks, including TD, CIBC, National Bank and BMO.

Lynch has the resources and clout to contribute meaningfully to this cause. Just 15 years out of Smith’s Commerce program, he has forged a successful career in finance (including his current role as managing director and head of global real estate investments at TD Asset Management in Toronto) and earned national awards (including a spot on Canada’s Top 40 under 40 in 2020). He also has the intent: Eight years ago, he took a week-long retreat in North Carolina to “crystalize the modus operandi” of his life, and left committed to defining himself by his ability to positively change the lives of others. Helping to launch—and, in his current role as board member, lead—the BOF is in service to that mission. “Our work is going to be transformational. It will help to make the world a better place,” he says. “And I am very proud of that.”

The BOF is at the vanguard of a multi-faceted movement to right an entrenched wrong: It takes money to start and grow a business, and that money, whether it comes from banks, private lenders or governments, isn’t distributed equally in Canada. The situation, commonly known as the funding gap—in reality, it’s many cracks of varying depth and breadth—results in disproportionately smaller shares of capital for entrepreneurs who are gender diverse, Black, Indigenous and people of colour (BIPOC) and/or LGBTQ+. Correcting this is an overdue matter of fairness, yes, but also one of strategic national import. Without a diverse entrepreneurial ecosystem, Canada’s competitiveness in the global economy will stagnate. We need a more equitable funding environment than what has thus far emerged from outdated systems. The good news? A groundswell of changemakers like Lynch are building brand new ones.

A man in the tech sector

Canada has never been a straightforward place for any entrepreneur. Canadian financing can be a particularly meandering Choose Your Own Adventure story, comprising different types of cash (loans, grants, investments), funders (public, private, government) and processes (applications, pitches, old-fashioned networking). There’s plenty of money here, but complex bureaucracy means we routinely middle or lag in comparative global analyses into variables like ease of raising capital and access to R&D grants. Our banks are notoriously risk-averse. Our venture capital, private equity and angel investing scenes are relatively modest, especially compared to those in the U.S.

Mind the gaps

Diverse entrepreneurs are underserved by established funding systems

82% of Black business owners do not have a high degree of comfort talking to their bank about funding options

61% of gender-diverse entrepreneurs say current funding models don’t fit their needs

33% of women entrepreneurs seek and receive financing— compared to 38% of men

28% of LGBTQ+ entrepreneurs feel their businesses have faced discrimination because of their sexual or gender identities

.2% Share of Canadian capital accessed by First Nations and Inuit businesses—less than one-tenth of what the number would be if they were funded at the same rate as other Canadians

Navigating this Byzantine landscape is easier for some than others, thanks to decades of myopia in the financial community regarding who ought to get support in building businesses. “The archetype of entrepreneurship as ‘a man in the tech sector’ has stubbornly endured,” stated the authors of a 2021 report into the state of women’s entrepreneurship in Canada—an obsolete cliché that both limits the options and dampens the ambitions of those who don’t fit the description. “The role that bias plays in financing new ventures is well documented,” explains Elspeth Murray, director of the Centre for Business Venturing at Smith and CIBC Faculty Fellow in Entrepreneurship. “If you’re seen as a quintessential white male, you probably have a bit of a leg up. You have more opportunities to establish networks, find mentors and meet key decision-makers because those people are likely to have the same background as you do or think the same way you do.”

As for everyone else? “Under-represented entrepreneurs are in fact getting more opportunities to be mentored and trained, but that doesn’t correlate to funding,” says Nusa Fain, assistant professor and director of Smith’s Master of Management Innovation & Entrepreneurship (MMIE) program. “They need to show more proof. They need to have a business up and running, and have a strong, already proven validation that it will grow before they attract funding.”

To be fair, in 2022, most people making investing or lending decisions understand the need for change. The federal government has announced a slate of funding meant to provide loans, grants and equity investments for under-represented entrepreneurs. The government, through its various funding arms—most notably, the Business Development Bank of Canada—has earmarked hundreds of millions of dollars for programs to fund Black, Indigenous and women entrepreneurs. All of Canada’s major banks, under increasing environmental, social and governance (ESG) scrutiny, have introduced initiatives to remove barriers for entrepreneurs attempting to access money. Even the stereotypically bro-heavy realm of private capital—comprising venture, private equity and angel investing—understands that the days of all-male, all-white portfolios are over.

“I’m really encouraged to see how the ecosystem as a whole has responded to the need for diversity, equity and inclusion,” says Christiane Wherry, vice-president of research and product at the Canadian Venture Capital and Private Equity Association (CVCA), where she leads diversity, equity and inclusion efforts. “People understand that diversifying is not just the right thing to do, but a must. They are not asking me ‘Why is this important?’ They are asking me ‘How do we do it?’ ”

There are more examples to follow. Many financiers are making public their intent to diversify their portfolios: Dozens of funding organizations—including the equity-based Canadian Business Growth Fund, led by CEO George Rossolatos, BCom’95—signed the BlackNorth Initiative pledge in 2020, committing to specific actions and targets designed to end systemic anti-Black racism. Many are also working to diversify the people making investment decisions: For instance, in 2020, Nicholas Klimchuk, BCom’13, co-founded Out Investors, a global network for LGBTQ+ investment professionals that seeks to make the direct investing industry more welcoming. And others still are deploying technology to strip out human bias: Fintech unicorn Clearco, led by co-founder and president (and Dragons’ Den star) Michele Romanow, MBA’08, takes a blind, numbers-based approach to assessing which e-commerce brands get approved for the marketing and inventory capital it offers. Of the more than 5,500 businesses Clearco had invested in by mid-2021, 30 per cent were led by BIPOC founders.

Talent in a different package

“Trailblazing investor” was not a descriptor Erin Zipes, BCom’00, expected for herself. An accomplished and typically risk-averse lawyer, she never considered she had any place writing speculative cheques to back fledgling businesses.

Then, in 2014, Zipes joined Shopify. Over seven years of progressive advancement—most recently as vice-president and assistant general counsel, a role she held before leaving the company late last year—she amassed the wealth and experience that comes with leading a company through incredible growth. And several of her female work pals were in the same position. As they noticed more male colleagues investing in other businesses, they saw an opportunity: “We realized, well, we can do that too,” she says. “We’ve had a master class in building and scaling a company. Our thinking was: How can we pay this forward?”

With Backbone Angels, Erin Zipes wants to demystify angel investing and encourage more women and under-represented groups to offer money and ask for it

In the spring of 2021, she and nine of her fellow female Shopify veterans—including Atlee Clark, Artsci’06—launched Backbone Angels, a collective of angel investors dedicated to backing companies run by women and non-binary founders, with a focus on BIPOC women entrepreneurs. The aim is to apply the unique expertise, connections and, yes, chequebooks of the founders to serve underserved entrepreneurs in a direct and meaningful way. In its first year, Backbone Angels invested US$2.3 million in 42 different businesses.

Each Backbone founder makes her own investing decisions but provides support to every entrepreneur in the collective’s portfolio. There is a connective thread to everything that Backbone does. The unspoken rules that govern conventional investing decisions don’t apply. “Many of the male investors I know will talk a lot about the importance of betting on the jockey, not the horse. They ask questions like: ‘Is this person a killer?’ ‘Do they have what it takes to make me my money back, plus a return?’ ” Zipes says. For a male entrepreneur asking for money, these sought-after traits tend to manifest in outward confidence, big requests and chutzpah, she explains. For women and people of colour, they may present in less overt ways. “I don’t know if many male investors would recognize that talent and potential if it’s wrapped in a different package. But we can.” Traits that would be verboten in a Silicon Valley pitch room—vulnerability, admission of flaws, the words “I don’t know”—are not only tolerated by Zipes, they’re encouraged.

This perspective gives her access to opportunities she believes others might miss. Not long after Backbone launched, Zipes was pitched by the female founder of a circular-economy retail play that she thought was brilliant. Chatting excitedly about it with a few male colleagues, she saw a wall of blank eyes. “The penny dropped,” she says. “They just didn’t get it because they don’t shop that way. But I got it right away; it was part of my lived experience.”

Zipes has several goals for her work at Backbone. She wants a return on her investments, of course. But she also wants to demystify angel investing and encourage more women and under-represented people to both offer money and ask for it. There’s a well-worn management aphorism about individuals who get to the top and pull the rope ladder up behind them, preventing others from rising. With Backbone, says Zipes, “We’re sending the elevator back down.”

A broader funding flywheel

No meaningful transformation can happen in a vacuum. Grassroots efforts to back diverse businesses will better thrive when macro-level systemic impediments are removed.

One such impediment is the aforementioned complexity of our financing systems, according to Ashley Richard, MMIE’21. Richard is associate director, Indigenous at Women Entrepreneurship Knowledge Hub (WEKH), and the author of a recent national needs ana-

lysis on Indigenous women’s entrepreneurship, which identified convoluted and overwhelming financing processes as a key constraint. Much of her work at WEKH is to bring together different funding and support organizations to share ideas, pool resources and make things simpler for women entrepreneurs. “Our role is to be the connector,” Richard explains. “We’re working together because we understand the importance of lessening the barriers. I mean, if the ecosystem is confusing to us, it’s exponentially more confusing for a new entrepreneur trying to navigate it.”

Another systemic barrier is the narrow thinking of financiers, investors and policy-makers. There is a need for decision-makers to understand the real needs of diverse entrepreneurs and recognize the potential therein—essentially, to apply the Erin Zipes approach at scale.

Salima Shivji, Artsci’05, sees this every day. Shivji left a flourishing law career and currently leads Movement51. It’s the educational, not-for-profit offshoot of The51, a Calgary-based platform that connects gender-

diverse investors to established and aspiring entrepreneurs. Her team works on financial acumen-building—including a course called the Financial Feminism Investing Lab—designed to equip participants with tools and knowledge to make the funding process more accessible for all.

“It’s about changing the whole narrative,” she explains. “We offer participants a new way of considering and evaluating investments—through a feminist and gender-diverse lens.” Shivji considers her work to change minds as part of a broader funding flywheel, wherein education, cultivation of community and access to deals combine to produce propulsive, regenerative growth.

It’s hard work, all of it, but it’s gaining critical momentum. Program by program, deal by deal, Canada is evolving into a much more equitable place to fund a business. “If we look at all of the colliding macro and micro forces, there’s a lot of very good stuff happening,” explains Professor Murray. “A large train has left the station, and it’s going to be difficult to stop.”

So you want to invest?

Want to back under-represented entrepreneurs? Great! There have never been more options to get involved. Here’s advice from alumni experts at Smith and Queen’s to get started.

Listen first

If investors want to invest in the businesses of under-represented entrepreneurs, they should first work to understand their needs, challenges and stories, says Ashley Richard. She recommends attending events (online and virtual), listening to podcasts and reading about experiences before any money changes hands. “Listening and giving that space in your life to take in the words of others is really important.”

Start small

Many new investors hold the misconception that each deal has to be a blockbuster. But cheques don’t have to be massive to make an impact, says Erin Zipes—especially when they come with advice and connections. “Don’t discount your professional experience or your network,” she says. “They can be really helpful to a founder.”

Adapt as needed

The needs of diverse entrepreneurs can evolve, and so too should the approaches of their backers, advises Salima Shivji. “There’s no playbook,” she says. “It’s about recognizing a problem, and being adaptable and persistent in the work to fix it.”

Don’t go it alone

“Working collaboratively with other people is incredibly important when you’re looking to make positive change,” says Colin Lynch. He recommends seeking investment partners as you would a job. LinkedIn posts, cold calls and old-fashioned networking can yield surprisingly effective synergies. “The road is always unexpected,” he says, “but the reward is significant.”