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BUSINESS: Speakers call for "a culture of risk capital" in urban communities

Posted by homewoodnation on March 15, 2012 at 1:15 PM

Black Americans need "a culture of risk capital" to bring Homewood and neighborhoods like it into the 21st Century economy, according a trio of speakers at Homewood's Carnegie Library yesterday.

 

The three men, Mike Green, Johnathan Holifield and Chad Womack, are co-founders of the America21 Project, described on its website as "an open, collaborative and innovative platform that fosters solutions-based approaches to 21st century community economic development."


The event was sponsored by Urban Innovation21, a Hill District-based public private partnership created to expand the Pittsburgh Central Keystone Innovation Zone. The PCKIZ, headed by William Generett Jr.,  was originally centered on the Hill, Downtown and Uptown; in January the agency announced Urban Innovation21, which reaches out to include Homewood.

 

In their presentation, "Best Practices for Connecting African-American Communities to Pittsburgh's Successful Innovation Economy," Green, Holified and Womack said that 21st century community economic development must focus heavily on education in four disciplines: science, technology, engineering and mathematics - a grouping commonly abbreviated STEM.

 

But their approach emphasizes not just STEM education, but STEM entrepreneurship, because the STEM disciplines foster so much of the innovation that yields outsized growth. Holifield noted that while African-Americans own many business, we own almost no high-growth businesses - of 1.9 million Black-owned businesses, 1.8 million are sole proprietorships, and fewer than 20,000 have annual revenues of $1 million or more.

 

One reason for that, he said, is that Black entrepreneurs lack access to the investors who typically provide the infusions of capital needed to keep an enterprise growing through its early stages. Angel investors and venture capitalists provide equity financing - that is, they offer cash in exchange for an ownership stake in a company. Without access to those sources, Black entrepreneurs rely on debt financing - they borrow money to keep their companies going. Such debt often proves crippling, as it eats away at profits.

 

One result: Black Americans make up about 13 percent of the nation's population, but generate less than one percent of its gross domestic product (GDP).

 

Holifield noted that in his experience, African-Americans who have the wealth to become angel investors are first-generation wealthy and don't pursue angel investing because they are "risk-averse." Angel investors don't like risk either, but they are "risk-astute." Which set up Mike Green to say later, "We need a culture of entrepreneurship. We need a culture of risk capital."

 

Green highlighted the role of capital formation in funding innovative enterprises, asking "What if Homewood developed its own urban innovation ecosystem?" - which I understand to mean, a complete network of relationships between entrepreneurs and investors within the neighborhood so that entrepreneurs' innovations and their companies' growth benefit the neighborhood, rather than companies needing to leave the neighborhood to grow, causing what he called "negative innovation flow."

 

Womack focused on the role that STEM education could play in economic development, pointing to his native Philadelphia for examples of how NOT to do it. There, he said, the worst-achieving schools sit next to universities, which could be partners in helping them to become much better.

 

He noted that the founders of some of the most successful 21st Century enterprises, such as Bill Gates (Microsoft) and Mark Zuckerberg (Facebook) were teenagers when they started their companies.

 

"There are thousands of Mark Zuckerbergs out there in our community," he said, because all children posess the curiosity and wonder that lead to the creation of such enterprises. But they need the education and the entrepreneurial support to start and grow the new companies that create nearly all the net new jobs in our economy.

 

"The Black community," he said, "needs to have a real conversation about our priorities."


Do you agree? If so, what would it take to make that conversation happen?

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2 Comments

Reply Johnathan Holifield
03:51 PM on March 24, 2012 
On behalf of my colleagues, America21 is grateful for the opportunity to advance our Inclusive Competitiveness narrative in the wonderful community of Homewood. We made several strong connections and look forward to helping Homewood develop new strategies to connect to Pittsburgh and Western PA's regional innovation clusters and 21st century economic opportunities.
Reply homewoodnation
04:49 PM on March 28, 2012 
Mr. Holifield, thanks for reading and responding - I look forward to tapping your wisdom for growing Homewood Nation, and to helping others see the possibilities for our neighborhood.

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