#256: Capitalism as an Antidote for Inequality: Collab Capital Raises $50 Million to Invest in Black Entrepreneurs
Access to capital is crucial in order to take a dream and turn it into a business, create wealth and build a future full of opportunities. Today’s show focuses on the impact access to capital (or lack thereof) has on a Black business owner’s ability to create wealth through equity in a business. Rachel Wilson and Elliott Holland from Collab Capital share why and how they raised $50 million to invest in Black entrepreneurs—with backers such as Apple, Goldman Sachs, Google, The Andrew W. Mellon Foundation, Mailchimp and PayPal—as their debut move, making it one of the largest funds closed from an entirely Black-led firm solely committed to Black founders.
Rachel and Elliott debunk the scarce Black tech founder myth, plus share the investment strategy that increases Collab Capital’s investors’ IRR while hitting the company’s goal to establish a path to economic parity for Black communities by giving Black entrepreneurs access to capital and establishing generational wealth in a community that has historically been denied it. Learn the biggest challenges faced entering the market as an investment firm, as well as the individual barriers Rachel and Elliott had to overcome — and how that compares to what their parents faced not so long ago. Be ready to be inspired by industry disrupters working to bring about real change at a crucial juncture.
What You Will Learn In Today's Podcast Interview
- The generational impact of compounding equity and access to capital has
- The great benefits capitalism can have when aligned with the right mission
- How home ownership is similar to owning a business when it comes to growing wealth
- What equality really looks like in the business world
- Stories to better understand the underlying causes of inequity in the market (and society)
- The unintentionally negative impact a ‘core group’ of people who control access to capital can have
- How solving the equity issue is going to require purposeful use and allocation of capital
- Why Black investors are more likely to have to go to friends and family to fund raise and what Collab Capital is doing to rectify this
- What impact recent social unrest has had on the market and Collab Capital
- The fallacy of uncorrelated, outsized returns
- What a shared profit and collaborative endorsement agreement is and how it can help grow a business
- What it was like for Elliott’s dad as a Black financial consultant and what has (and has not) changed since the ‘60s
- How focusing on lifestyle businesses allows Collab Capital to avoid the typical churn-and-burn of the industry
- Why Collab Capital’s return on investment is good for both the companies they invest in and their investors
- When celebrities and influencers can improve your business
- Where private equity overlaps with a portion of profit model
- How Collab Capital finds companies to invest in
Are You Growing The Value of Your Business
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- Are your company's current initiatives intentionally designed to increase the value of the business?
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- Do you know what your company is worth?
- Do you know the differences between Management, Family Transitions, PE Firms, ESOPs and Strategic Buyers?
- Does the business have a written strategic plan on how to achieve the desired normalized EBITDA and valuation?
About the Guest:
Rachel Wilson is the principal and head of operations at Collab Capital, where she helps organizations (including start-up companies) increase brand awareness, build strategic relationships, and creates programs that benefit consumers, staff, and stakeholders. She wants to create equal access and new opportunities for those who traditionally experience greater barriers to entry.
Elliott Holland is principal at Collab Capital and has more than 10 years of experience executing middle market deals as an entrepreneur, spending his own money on diligence. He fully understands the challenges in executing good deals and avoiding lemons. He trained at Harvard Business School and spent almost a decade as an independent sponsor and business buyer before starting Guardian Due Diligence, where he is still managing partner.
10:35 - “I’ve always been interested in helping Black entrepreneurs gain access to capital.” – Rachel Wilson
12:34 - “I thought it was a perfect opportunity to join forces and try to change the narrative around the Black founder.” – Elliott Holland
16:19 - “And even now, transitioned to 2021, we still see huge gaps in wealth, gaps in access, gaps in understanding and characterization of certain cultures.” – Elliott Holland
16:52 - “In a social realm, you want to be as equitable as possible. So that’s the social lens, right? But I’m also a capitalist. From the capital lens, we all know that businesses, people, situations, that get under-invested in and still thrive, have a likelihood of having an unfair advantage relative to competition once the capital access problem is solved.” – Elliott Holland
20:13 - “This is not about equal outcomes. This is about equal starting blocks.” – Ryan Tansom
21:54 - “The value of the dollar has reduced.” – Rachel Wilson
23:05 - “When does it make sense to go after investment and leverage what I’ve done already?” – Rachel Wilson
25:19 - “Home ownership is the same way. As long as you wake up, go to work, pay your bills. You're going to have an asset that is 60% of Americans wealth by accident. So it literally comes down to access and waking up and going to work.” – Ryan Tansom
26:15 - “After business school, I really was aware of how there's a piece of it that's pure sort of racism: Access. People purposefully prevent certain people from getting into certain places.” – Elliott Holland
31:05 - “We also had to think about our communities. They can sometimes be very conservative and risk-averse because they’re first-time wealth builders themselves.” – Rachel Wilson
34:33 - “One of the huge benefits of a Collab model is we built in the ability to get influencers for each company that we invest in to contribute to the growth of companies and participate in the growth of the companies on a per company, per activity, tailored basis.” – Elliott Holland
37:20 - “We want to maximize the number of Black millionaires and/or Black wealth that we create, and so doing it just for a select few in an outside way wasn't as interesting as doing it for the many in a more sustainable way.” – Elliott Holland
41:40 - “We’re optimizing for the IRR, baby!” – Ryan Tansom
46:58 - “Many limited partners doubted that there was a big enough pool of black founders for this to make any sense, to begin with. While raising capital, we had to prove that to them to even be considered in some instances.” – Elliott Holland
56:33 - “There’s riches in niches.” – Elliott Holland
Links and Resources:
Elliot’s previous episode: Episode 231: Why Buying and Selling Companies Is a Barbaric Sport
Reach out to me if you have questions about the boot camp!
Brought to you by Ryan Tansom of Intentional Growth