This piece was originally published on WomenEffect.com, an independent knowledge hub about gender lens investing. Women Effect’s content is now part of the Wharton Social Impact Initiative. Read more about the transition here.
Founder and CEO of The Runway Project, Jessica Norwood discusses the use of capital to transform communities in the Southern States and beyond.
Could you tell us a bit more about starting the Runway Project?
I’m a Social Entrepreneur, I live in Alabama and I’m an African American woman. And I [am aware of] some of the challenges around supporting African American entrepreneurship, particularly in the South Border, all around the US. When I started talking to African American Entrepreneurs, one thing showed up in every piece of data: access to capital for their businesses was really difficult to get. Also the social capital, the social networks, which would help you get into the marketplace or know how to build or scale that business, were also missing. I also heard this other competing message, where people would say – “Well, you know, you’ve got a brilliant idea, you should borrow some money from your friends and your family to get yourself started.”
But African American wealth in this country is amongst the lowest [On average, African American families have $11,000 in net worth, while white families have $141,900], so not many friends or families have money to support an idea. I think this further feeds into the notion that there weren’t credible ideas coming from African American communities, whether in social entrepreneurship, technology, solutions around food access and lots of important things that business should be solving. So I set out to try to remedy that by using friends and family capital as a way of getting people to notice the inequity along the entire spectrum for these businesses. [I also wanted to show] why having more businesses in a local community could create more wealth for entrepreneurs, create liveable wage jobs and stabilise communities, put good business buildings into use.
How have you been aware of where women are in this picture – how is their experience different?
Our sweet spot of entrepreneurs are actually African American women. We are the fastest growing group of entrepreneurs in this country, period. And we are also the largest and most educated group of women in this country. So, when I talk to my partners in each of these different markets and ask for the profiles of who they’re serving with their business support programmes, they’re majority women. So, while we don’t expressly say that this is a project and programme focused on woman, [it has a gender lens] because of the demographic. Our sweet spot is typically between the ages of twenty-four and forty-five. But we have entrepreneurs that are eight years old, we have some entrepreneurs that are fourteen years old, that are women, and they’re plugging away and working on their businesses.
The people who are leading this, myself included, are women of colour and very much understand the intersection between women’s leadership and the ability to stabilise communities to grow well for the families that those women are anchors in. We’re really adding in that this is about taking care of yourself, but also taking care of the place and the people around you. I believe women’s leadership naturally intersects in those areas.
Are you thinking how to then get the entrepreneurs on the runway for venture capital?
Absolutely. It’s acknowledging that the starting point in capital raises tends to be more growth stage. Exits are what rules the day, but in order to get the diversity in those mixes, you actually have to go way down the stream. We haven’t made a significant investment into what happens at the very beginning, we haven’t really thought about the cultural differences, we haven’t really understood enough about how history has stopped a particular group of people from actually being able to create businesses. What I’m calling for is a different perspective. To use that early money as a way of then striving upstream into angel investment and VC, but to make sure those companies understand how to get there. It’s a twofold problem. It’s the capital early on and also the visibility of that runway. Making that plain and one-stop shop for a lot of those entrepreneurs.
Are you working with other partners in this space to support them in that journey?
Yes, absolutely. We started off in Oakland and ended up partnering with self-help Federal Credit Union which created a certificate of deposit product for us, where any person with five hundred dollars that wanted to put money in, specifically for African American entrepreneurship, could get an above market rate return, insured, it was very low risk/no risk. For the entrepreneur looking to get a loan, these are personal business loans, that we have available at around four percent. We’re not doing credit checks, it’s really on the strength of the business idea and those folks going through business support programmes, that we have associated with that loan product. The first two years are interest only payment, so it feels like what a friend or family would give you.
It’s by no means the only product we want to put out, we hope to have a suite of products that people from the investment community can access but also that entrepreneurs can take advantage of, that fit where they are with their businesses and what they feel they need as far as capitalisation, early on. And then further linking them to our partners like ICA Fund for Good Jobs, which does growth stage work and takes in the second wave of capital. We have Impact Hub Oakland, which is where we get the culture and where we give entrepreneurs the social networks they need. We partnered with Optimal Boot Camp, which does the business support training and they have customised modules that each entrepreneur goes through, before they get access to this particular loan product. We’re spreading that product from Oakland to five other markets in 2017, with the help of our National Partner, AEO, which is the the Association for Enterprise Opportunity. AEO work with black entrepreneurs and help them to scale, by looking at distribution, licensing, strategy. Each of the five new markets (including Cincinnati, Baltimore and Washington DC) has a business support organisation, like an accelerator or incubator or a co-working space, something that speaks to the social networks, something that speaks to who is training and giving trusted guidance to those businesses. So, we just don’t put money in. We also work with institutions and individuals to provide that friends and family kind of capital.
What kind of businesses are being started- are there particular sectors or themes that you look for to invest in?
We don’t look for particular themes. My hypothesis and this is what this national rollout is going to help me to demonstrate or debunk, is that at the beginning, at the ideation phase, the real challenge is getting the right kinds of network and support systems and getting the right kinds of money and no matter if you’re a technology business, that will eventually take in some beefy dollars, or a company that at some point will issue an IPO and go public, or you are a local, small bakery or caterer. The starting point for a lot of businesses tends to be very much the same. Which is that they’re still missing at the very early phases, somewhere between twenty and fifty thousand dollars, in very patient kinds of capital, that would feel like what you would achieve or get from friends and family and they’re still missing the network, that tells them how to build that business.
In terms of measuring impact or return, what processes have you got in place and what would you like to see happen?
We’re still figuring that part out. We’ve just created the first project in Oakland and still finalising the money for that, so we can actually get that into people’s hands. At the same time, we’re also looking at expanding into other markets. So right now, the team is looking at what that impact measurement process will be and how we want to roll that out into the community surrounding this project and to our business support partners, how we want to work with them to standardise operations so that we can have consistent measurement.
I would certainly look things such as job creation and whether or not income and revenue for those businesses increases, but I think that there are other things to really drill down in that we might not typically look at. I’m interested in hearing feedback from our larger community about what those things might be. I’d like to have some conversation with B Corps about how they looked at measuring the impact of their companies and how we might customise some of that. Recognising where businesses really are and really being mindful of the impediments that African Americans have faced, because of ritual inequity in investment industries and the ways they shaped the opportunities available. It will be interesting to do that in a way that honours the culture, honours the experience of those entrepreneurs but is also able to create for real impact versus arbitrary measurements of impact for investors.
If you could give one piece of advice to investors, who may not be people of color, what is the first thing they can do to start investing in this area?
I would say to get the level of impact that we want, who’s leading it matters. Just as we’ve used a gender lens, I think that we want an equitable lens, we want to address inequity, we want to address closing the racial wealth gaps. I think you have to have women of colour leading those conversations, leading those spaces, and I think that really matters.
I would also say that culture matters and there are ways that we can share culture, but we should be much more mindful around when we are asking for assimilation versus a recognition of culture. So the way that I do things as an African American women is not the same as someone else may do it, but in business we think that everything should be much more uniform, that it ought to look the same way and sound the same way and I would say that we have to slow that process down a little bit more to really hear what the other person is saying and figure out how we can meet them versus making them meet us as an investor.
I think creativity and how we think about capitalisation is going to be really important. If we’re trying to have an impact and talk about issues of inequity and closing racial wealth gaps and all of these different things, then we also really have to pay a lot of attention to the fact we’re charting new territory. Financial solutions might not exist until we put in money for the ideation phase, so we can start to build out a track record. Then we can start to back into what we think some of the modelling looks like. So thinking differently about how we place the investments, knowing that if we’re building a real field and we’re really being innovative in this phase, that some of the data of how you might build a financial modality won’t really be there. How do we show up and make sure that the leadership is reflective of the outcomes that we want to see and that third point, which was, making sure that we really honour culture a lot more? Are we respecting culture or are we asking for assimilation? Are we asking people to look and meet me where I am, or are we actually saying – “Let me hear from you and I really want it to be in a deeper relationship. Not allyship, not allies, but relationships, so I can understand it, so I can help make this work”. Those three things would make a significant difference down the road.