Closing Chicago's Racial Equity Capital Gap
Research Report by Next Street, at the request of Arc Chicago, LLC (an initiative of the MacArthur Foundation, The Chicago Community Trust, and Calvert Impact Capital)
Executive Summary
Nationally, white entrepreneurs attract 17 times more equity capital than Black and Latinx entrepreneurs. Chicago reflects this same pattern. At the request of Arc Chicago, LLC, Next Street assessed the gap between the supply of and demand for equity and equity-like capital among small and medium-sized businesses owned by people of color in Chicago, with a focus on South and West Side communities. Drawing on focus groups, interviews, and US Census data, the report examines the state of the local equity capital market and outlines concrete steps to close the gap.
Key Findings
A significant unmet need: Black and Latinx entrepreneurs in Chicago have 80% of their equity capital needs go unmet, compared to 46% for white-owned businesses.
A real dollar gap: There is a gap of at least $146 million between the supply of and demand for equity capital among Black and Latinx entrepreneurs in Chicago.
Too few providers at scale: Of the top 20 equity providers in Chicago, less than 5% of any given portfolio is allocated to Black and Latinx founders.
Limited friends and family capital: Lower levels of intergenerational wealth in Black and Latinx communities, along with cultural stigma around asking for money, mean this common early-stage funding source is often unavailable.
A product mismatch: Most capital targeted to entrepreneurs of color comes as debt or grants too small to move the needle, while revenue-based financing and other equity-like products remain scarce locally.
Strategic Priorities
Create New Sources of Equity Capital: Develop additional equity capital products focused specifically on financing entrepreneurs of color.
Expand Equity-Like Capital: Grow the availability of revenue-based financing and similar products that better fit moderate-growth businesses.
Diversify Investment Leadership: Hire, promote, and retain more racially and ethnically diverse general partners and staff at equity funds and other institutional investors.
Reframe the Business Case: Move beyond treating this as solely a social issue and recognize that closing the racial equity capital gap drives economic growth.
The Opportunity
Closing Chicago's equity capital gap is not just the right thing to do. It is an investment in jobs, wealth building, and a more resilient regional economy. Entrepreneurs of color represent an overlooked and undervalued opportunity for investors willing to act.
Read the Full Report
Explore the complete assessment for deeper insights into Chicago's equity capital landscape, the barriers entrepreneurs of color face, and national models for closing the gap.
