Being a business owner of color just got a little bit easier for the winners of the “Meda $1 Million Challenge.”
Last week, the business incubator awarded a total of $1.475 million in financing to nine small businesses from around the country, including Minnesota’s own HabitAware, Vemos, Cytilife, Mobility 4 All, LegacyArmour and Virtue Analytics Inc. Additional businesses include Ilerasoft (IL), PopCom (OH), and SquarePac (GA).
The Shark Tank-like competition — which asks applicants to make the case for why their business is investment-worthy — was created to provide businesses owned by people of color access to traditionally limited investment opportunities.
Minnesota minority-owned businesses grew by 58 percent from 2007 to 2012 — with women of color representing the fastest growing segment, yet they are getting the fewest dollars, said Gary Cunningham, president and CEO of Metropolitan Economic Development Association (Meda).
“Less than one percent of the investment dollars nationally go to businesses of color,” said Cunningham. “Because the market isn’t working well for people of color, we need to create mechanisms so that we can get the market to actually invest in businesses of color.”
He said that type of change comes about in two different ways. “One is [to] highlight these folks just like we did with the challenge. The challenge was nationwide, so people all over the country have seen what we’ve been able to do and now they want to be at the table,” he added.
“Number two, you show the market that investing in minority business pays,” he said.
Meda has a roughly $20,000,000 lending pool, which provides business consulting, marketing and capital to nearly 850 minority business owners. Of those, said Cunningham, 60 percent are African American and the overwhelming majority (“95 percent”) have been turned down by banks.
“Yet, in the last three years, our loan loss was 1.1 percent,” said Cunningham, noting that Meda uses its own special algorithm to determine credit-worthiness. “We figured out a way to lend money to customers that are being turned down in the regular market. And, we’ve lost less than most banks. In terms of a loan loss, 1.1 percent is a remarkable number — particularly for high-risk customers,” he continued.
“So we’re actually demonstrating that there’s a way to get resources to businesses of color and that they can actually do well with those resources.”
Meda also works with clients to make them “bankable” by building relationships with larger banks, such as US Bank, Bremer, Wells Fargo and Sunrise.
“Discrimination in the lending market is pretty widespread. We’re giving them a leg up to help them equalize the playing field so that they can actually play and get their loan approved,” he said. “Once you have a relationship…, the money is green. There isn’t ‘Black’ money — it’s green and that’s what everybody is in this for.”
Cunningham said Meda’s client success is also based on expanding their networks.
“We’re not only helping these businesses build relationships with the regular banking industry;
Beyond minimal loan loss, Meda’s numbers are strong across all fronts. “Meda’s clients had revenues of over one billion dollars combined, employed over 6,000 people and the average salary was over $22 an hour,” shared Cunningham.
That kind of success is expected to spill over onto the challenge’s winners’ circle. Each of the nine winners will receive financing via a five-year patient capital investment based on equity, which requires interest-only payments for five years.
If a business sells during that time, Meda and its partners would get a percentage. Other than that, after five years, it turns into a regular loan if it hasn’t been paid off or it can be re-upped for another five-year investment.
“It’s a unique product,” explained Cunningham. Its innovation is how Meda got an investment from the Opportunity Finance Network to launch the challenge. “They have an award every year for a million-dollar program-related investment that they make in organizations like ours for the most innovative product,” he said. “We were the most innovative.”
The challenge also caught the eye of investors across the country, who also signed on as judges, as well as Chase Bank, which co-sponsored the challenge and offered an additional $250K that Meda matched to bolster its original prize pool from $1 million.
With year one under its belt, Meda is now gearing up for its second challenge later this year. For those interested in applying, he recommends refining your pitch deck — “everybody should have one — and diving into the details of your business.
“Getting an application that’s clear and certainly spells out your business plan,” he said is important, along with presenting clear financial projections. “We have some very savvy business people, they just don’t have the technical knowledge and those things help when you’re giving somebody else something to review,” he said.
Cunningham said he is excited for the 2019 challenge to help bring the next great inventor or entrepreneur to the forefront. “People of color are very innovative,” he said, calling attention to such Black inventions as refrigerated boxcars, snowmobiles, and pacemakers. “Somewhere, there are people in their garage or basement or wherever right now, working on something that might blow everybody’s mind.
“We don’t even know about it until they bring it out. We want to help them get with folks that know how to pitch and sell in order to get their product off the ground.”
For more information on Meda’s next challenge, visit meda.net.