6 Tips for Black Entrepreneurs Looking for Startup Funding

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Almuhtada Smith has come a long way from his humble beginnings in New Jersey. Still, after more than a decade as a corporate attorney in Los Angeles, California, he’s decidedly clear on where he came from. “I’m originally from Passaic, New Jersey—more specifically, the Aspen Place Projects in Passaic, New Jersey,” Smith says as he introduces himself. “I went on to college at Morehouse, graduated from Morehouse, and then moved to LA before graduating from UCLA Law.”

Smith’s bio is impressive. After moving to The City of Angels and accepting his first job at The Cochran Firm, the HBCU grad went on to work at a number of big law firms. Before long his corporate profile was climbing, but Smith’s passion for law went beyond high-dollar cases. He wanted to be involved in impactful work that could push the Black community forward. He was determined to parlay his experience in the primary practice areas of corporate intellectual property and entertainment and engage with the thriving startup ecosystem in his adopted city. 

“So a little over three years ago, I developed a pretty vast network in Los Angeles and my thesis was to start a law firm that centers and caters to creatives and entrepreneurs of color,” Smith tells EBONY. “My idea was to focus on startups and middle-market companies. There has been a lot of chatter about diverse representation, and I had identified a gap there.” 

As Chairman of the Los Angeles Southwest College Foundation and a lifetime member of the Langston Bar Association, Smith was privy to a growing number of conversations around Black culture, ownership of intellectual property, and access to capital. Having those conversations led him to receive inquiries about representation. But given his role at a big law firm, he was not able to service the people who were asking him to represent them. “I was not an entrepreneur with boutique law firm rates and the ability to be creative and nimble,” admits Smith. 

Instead of staying on the sidelines, complaining about the problems that Black entrepreneurs and creatives were facing, he felt he had the tools to actually assist them and become part of the solution. And that’s how ARS Counsel was born. “I bet on myself and my network to support me,” Smith says. “And it brings me joy to think about our success thus far.” 

At the helm of ARS, Smith has been able to do the satisfying community work he had hoped for. Some of his wins as Principal include handling legal for over $2.5 million in funds raised by breakout skincare brand Topicals and its founder Olamide Olowe, serving as legal counsel on 16 franchise restaurant mergers and acquisition transactions valued at over $60M, and representing digital architect Iddris Sandu in partnership with Facebook (now known as Meta) to create an interactive mural that used augmented reality (AR) to celebrate young Black changemakers making a difference in their communities. 

Below Smith shares his tips for entrepreneurs who are looking to enter the fundraising process for their own start-up.

  1. Figure out how much money you need for 18 months of ‘runway’. 

In the startup world, “runway” is how long your company can survive before it runs out of money. Calculating this figure is one of the most essential steps to ensure your long-term success and will require you to evaluate your financial model. For early-stage startups, 18-months is an ideal amount of runway time to plan for. It gives you 12-15 months to hit key milestones and 2-6 to raise your next round. You may even realize in the process that you need less funding than initially thought. 

  1. Perfect your pitch. Know your value and how to present it.

Pitching a startup to investors is like modern online dating—people will make an instant decision about your pitch. Create a pitch deck that’s full of data and adaptable to different audiences, do your homework, set the stage, tell a compelling story and make sure to have a clear ask. Pitch competitions can be a great way to make connections, practice your pitch and win cash prizes or investment capital to help your business. As pitch competitions are also highly competitive, winning one will increase your visibility and credibility and may put you on the path to further funding opportunities. 

  1. Be mindful of who is on your cap table. Know who you want to raise capital from.

So you’ve got a VC firm interested in your business—great. Before you sign that term sheet, make sure you and your firm are prepared to ensure diversity on your cap table. People will notice, especially if you publicly claim to support your community. While it’s cool to get that big-time investment from Sequoia, you should also seek a smaller check from folks like Base Ventures, Harlem Capital, or Collab Capital.

  1. Find the right networking events. Where are the stakeholders?

Having a vast and diverse network is essential for any entrepreneur, let alone Black and minority entrepreneurs who routinely face a lack of representation and comparative resources. Look for conferences, workshops, and seminars that aim to connect and raise awareness for minority entrepreneurs. The annual AfroTech Conference is a great opportunity to get connected with like-minded engineers, venture capitalists, recruiters, technologists, and culture enthusiasts from all around the globe. These connections can help you identify the folks of color at various VC firms and develop a plan of attack in contacting investors.

  1. Seriously, protect your equity! 

Unless you want to become an employee of the startup that you founded, you’ll need to be diligent about implementing the right business principles early on to avoid over-reliance on dilutive funding measures. Other ways to protect your equity include: 

  • Not raising more money than you need: refer back to my first tip, know your financial model and runway figure to a tee
  • Keep it clean – properly document ownership structure. Consult with a lawyer.
  • Every founder, employee, consultant and advisor’s equity should be on a vesting schedule. Don’t allow people to leave your company with equity they did not earn. Most investors want to see vesting.
  • Have a strong business and marketing plan: Brand equity creates market demand
  • Drive revenue early. Revenue-based financing is a great option for founders who care about control. 
  • Don’t promise equity – be careful how you talk about equity in preliminary conversations with employees, consultants and advisors.
  1. Consider Crowdfunding.

Thanks to the 2012 JOBS (Jumpstart Our Business Startups) Act signed into law by President Obama, folks are able to leverage community support to reach their funding goals. Crowdfunding comes with many benefits for entrepreneurs. It can be helpful getting niche ideas off the ground that may not appeal to more risk-averse VC firms, as well as help generate public awareness and credibility. Successful equity-crowdfunded can also offer societal benefits like financial inclusion, community, and job opportunities. 

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