Founders First Capital Partners, an accelerator and investment firm that provides revenue-based financing for small businesses, has received $100 million in debt funding, allowing it to expand its financial support for companies led by underserved and underrepresented entrepreneurs.
Community Investment Management, a San Francisco-based impact investment asset manager, provided the funding. With this financing, Founders First plans to launch its Fast Path Program, a lending initiative that targets companies generating between $1 million and $5 million in annual revenue, and needing up to $1 million in growth capital. The program will launch in January 2020 in San Diego.
The investment firm largely focuses on businesses led by people of color, women and military veterans, along with companies located in low to moderate-income locations — all of which have less access to the “traditional funding networks” of Silicon Valley and New York, says Kim Folsom, Founders First cofounder and CEO. “We focus on underrepresented businesses because there’s a huge financial opportunity, but there’s also a capital gap.”
Lack of access to capital is often cited as one of the primary barriers facing minority entrepreneurs and those in underserved markets. More than 83% of entrepreneurs do not have ready access to bank loans or venture capital, according to a report by the Kaufman Foundation — and access to capital presents an even greater challenge for people of color, women and individuals in possession of limited wealth.
Minority-owned firms are disproportionately rejected when they apply for additional credit and, on average, new black-owned businesses start with almost three times less capital than new white-owned businesses, according to a study analyzing the impact of race on entrepreneurial success. And unfortunately, this gap does not close as firms mature.
Underrepresented groups are also less likely to have a network of high net worth individuals that they can leverage. “White men who are running $1 million to $5 million companies are likely to know up to a hundred people who are also running $1 million to $5 million businesses. But when you compare that number to folks of color, it’s more like $10,000 to $25,000,” says Folsom.
Education is an important component of Founders First’s funding initiative. Entrepreneurs who receive financing must take part in a structured educational program that offers training in job creation, scaling a company and other small business skills.
Founders First invested a total of $1 million in its initial 2016 target fund, with each company selected receiving an average of $125,000. The new $100 million fund will help finance 500 companies, which will receive an average of $250,000 each.
Founded in 2015 with offices in San Diego, Dallas and Austin, Texas, Founders First plans to expand to Chicago and Miami in 2020. “We want to get to the point where we have a thousand new companies that we take in every year,” Folsom says. “We want to be the Amazon that solves the problem of there being such a small percentage of underrepresented founders with companies that generate over $1 million.”