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Starting your own beauty brand is never easy—but for Black founders, it’s especially difficult. “Seventeen percent of the Black population live below the poverty line and do not have generational wealth like our white counterparts,” says Camille Bell, cofounder of Pound Cake. “When the time comes for us to start our own business, we rarely have a net worth that allows us to tap into our own savings, stocks, or pensions to fund our initiative.”
Today’s cosmetics industry as a whole is said to be oversaturated, but Black-owned or Black-founded brands make up only about 4% to 7% of those sold in beauty stores, drugstores, grocery stores, and department stores across the US, according to a 2022 study by McKinsey & Company. This profound lack of representation is not due to an absence of talent or expertise; to Bell’s point, it’s largely a result of the country’s stark wealth gap.
The 2021 US Census discovered that white households held 10 times more wealth than their Black counterparts, a total of 80% of the aggregate wealth in the country. On the other hand, Black households held only about 4.7% of the wealth, while also being more likely to have unsecured debt—both factors that can make raising funds distinctly strenuous.
In addition to venture capital funds or seeking bank loans, many aspiring business owners tap friends, family members, and colleagues to help cover start-up costs. Given the existing wealth gap, though, depending on loved ones isn’t always feasible. “Most brands in the consumer packaged-goods industry need a significant amount of capital to even get started, which, traditionally, comes from a founder's network,” explains Simedar Jackson, who founded Of Other Worlds. “Black founders disproportionately have less network capital to call upon.”
With all these cards stacked against Black founders, external funding is critical, primarily in the form of grants, a sum of money given to a person, business, or organization that is not meant to be repaid in any form. Yet some initiatives that were specifically developed for this cohort are currently under attack.
In early June, a federal appeals court ruled the Fearless Fund’s grant program for Black women-owned businesses was “substantially likely to violate” 42 US Code § 1981, which prohibits the use of race as a deciding factor when awarding or enforcing contracts. (More specifically, it says that all people in the US should have the same rights as “white citizens” when it comes to contracts.)
“This is devastating for the Fearless Fund and foundation, and for the women in which we have invested,” Fearless Fund CEO and founding partner Arian Simone said in a statement to USA Today. “I am shattered for every girl of color who has a dream but will grow up in a nation determined not to give her a shot to live it. On their behalf, we will turn the pain into purpose and fight with all our might.”
Founders need anywhere from a few thousand to a few million dollars just to get started, and they must also factor in employee salaries, the rising cost of materials and ingredients, plus production fees to keep the business going. The current landscape and potential elimination of grants created for Black-owned beauty businesses will not only impact this community's opportunities for economic growth, it could also deter the beauty industry from expanding even more.
Understanding How Brands Get Funding
Brands can get funding through a number of means: Founders commonly tap into venture capital (VC), grants, loans, or fundraising through family and friends, among other methods. Each of these options has its share of pros and cons. Venture capital, for instance, doesn’t need to be repaid, but it does give investors the right to receive stakes of the company, which gives them some say over aspects of the business and means they can benefit from the success of the company.
In addition, recent surveys show that VCs seem to be less and less likely to share capital with Black-owned businesses. In February, Crunchbase reported that Black-founded start-ups in its database were granted less than 0.5% of the $140.4 billion of venture capital distributed in 2023 for start-ups in the US—the lowest number recorded for Black-founded start-ups since 2016, despite the fact that a McKinsey & Company report found that VC-funded Black beauty brands tended to outperform their non-Black counterparts.
“I believe there’s a disconnect between the perception of Black people and our actual intelligence and skills,” says Karen Young, founder and CEO of Oui the People. “Investors think we can only attract Black consumers and that they are also, inherently, not of much value. As in, not enough to carve significant market share for an upstart company.”
If a founder can’t get VC funding, they might opt for a business loan; historically, though, the approval process for Black entrepreneurs has been arduous, to say the least. Even when they are approved, Black business owners are often subjected to higher interest rates in comparison to their white peers.
Again, the option of reaching out to friends and family is often not realistic for many Black founders, due to that aforementioned wealth gap. Says Keta Burke-Williams, founder of Ourside, “It costs founders of color thousands more than their white peers to start a business, largely due to lack of friends and family investment rounds, as well as predatory loans.”
And then we have grants. Like venture capital, grants do not need to be repaid—but they also don’t require recipients to give away any stake in their company (otherwise known as non-dilutive funding). This makes grants ideal for many Black founders.
“It’s not that we’re reliant on grants, it’s that grants are where our support lies,” says Philomina Kane, founder of KIN Apparel. “The Black experience in business is unique. It’s filled with subjugation, prejudice, and endless exhaustion of having to do more just to get close to the same treatment. So there is a certain pride that comes with being able to say you’re a Black-owned business that’s still thriving.”
It should be noted that grants aren’t necessarily an “easy” way to get funding. For instance, the application process can be extremely time-consuming. “If you need the capital, it’s worth it,” says Aishetu Fatima Dozie, founder of Bossy Cosmetics. “The more you do them, the better you get at putting the applications together. Save the information as you go so that you don’t have to re-create the data each time you apply.”
With so many businesses looking to fundraise, it can also be a competitive process, and the lump sums of money grants provide tend to be lower than what you might get in a round of VC funding. “The pros of this approach include less dilution over time,” says Ciara Imani May, founder of Rebundle. “But a con is not having enough capital to really see growth. It’s a difficult balance that many of us are still figuring out.”
While grants don’t require founders to ever repay the money, May adds, some organizations that give them out require the company to provide business data—like profits, sales, how the money was used—for years for their own record-keeping purposes. “This can vary based on how much money you were awarded and how long you want or need to keep in touch with them,” she says.
And you may not get the grant money all at once. “You have this laundry list you have to finish before they give you the next little batch of money,” says Dorian Morris, founder of Undefined Beauty. “They can mandate a certain number of coaching calls, where you have to speak with a business coach, or they’ll have you map out a business plan, for example. They’re basically ensuring we’re educated on how to properly use the money, which is helpful for business owners. But the busy work [can be] very time-consuming.”
Why Grants Can Be Crucial for Black Founders
Despite all the paperwork and phone calls, the vast majority of founders who speak with Allure agree: Grants are the most accessible way for them to gain capital. Not only can they provide the necessary funding to get Black-owned beauty brands off the ground, they can also help to keep them afloat—with the founder still in the driver’s seat.
“Now that the economy has slowed down, the goalpost has moved even further,” says Jackson, “requiring brands to hit higher annual sales numbers before investors are willing to join.”
Says Dozie, her first grant was from the Fearless Fund, and securing that $20,000 made a world of difference for her business. “You take so many losses in business, so you have to really enjoy the wins. This grant gave me the oxygen that I need to keep going,” she recalls. “I needed the money at exactly that time, so there was a big sense of relief too.”
Kane shares a similar sentiment. Since launching KIN Apparel in 2020, she has won five non-dilutive grants totalling around $225,000. “I felt blessed, relieved, reassured, excited, and motivated,” she says. “It meant that I could buy inventory, pour cash into branding and marketing, and stop taking pre-orders. It meant I could build my business without worrying about funding—it was a release of stress.”
“I was one of 20 winners selected from 11,000 applicants,” says Burke-Williams, who received a BOTOX Cosmetic and IFundWomen grant this year. “This gave me a confidence boost. It meant we are on the right track with Ourside, and that what we are building matters.”
Money aside, being the recipient of a grant can also create a sense of community among other winners and the larger organization, which can create powerful networks for Black entrepreneurs. “I do want to give back and share my knowledge with other entrepreneurs about these opportunities,” says Abena Boamah-Acheampong, founder of Hanahana Beauty. “Most of the grants I won not only are beneficial for the financial portion, but also the mentorship and connections.”
Burke-Williams also notes that, on top of capital, her IFundWomen win provided “opportunities for mentorship with the Allergan Aesthetics [Botox’s parent company] executive, past grant recipients, and other women entrepreneurs, as well as crowdfunding opportunities.”
Undefined Beauty’s Morris agrees, recalling that, in addition to being awarded $100,000 from SheaMoisture and New Voices the Next Black Millionaires grant program, she was able to make some new connections, and gained exposure through the brand’s eponymous Roku Channel docuseries that followed the recipient’s respective journeys.
Why Black Founder-Focused Grants Are Under Attack
The so-called racial reckoning of 2020 led to more diversity, equity, and inclusion (DEI) departments and pledges across nearly every industry, but this year, we’re seeing some of these initiatives fall apart. Several tech companies have announced layoffs in these divisions, and within the beauty sector, the American Academy of Dermatology debated eliminating its DEI programs earlier this year, though the proposal to do so was ultimately shut down.
Now, some grants are in the hot seat, with programs like the Fearless Fund currently under attack. “The Fearless Fund is trying to bridge a critical gap in who receives this type of funding, given that the vast majority does not go to women-founded businesses,” says Jennifer Njuguna, Esq, co-CEO of Common Future, an organization that aims to create a more equitable economy. “For example, in 2022, women-founded businesses received 2.1% of venture capital funding.” Likely, it’s even more dismal for Black women: Three years ago, Crunchbase reported that “Black female startup founders have received just 0.34% of the total venture capital spent in the US so far [in 2021].”
Despite these stats, the Fearless Fund was recently sued by the American Alliance for Equal Rights (AAER), which alleged that the Fearless Strivers Grant Contest, which is focused on awarding $20,000 grants to Black women-owned businesses, is a “racially exclusive program” that violates 42 US Code § 1981, which derives from the 1866 Civil Rights Act. “This act prohibits discrimination on the basis of race in making or enforcing contracts,” Njuguna explains, “and it was one of many laws enacted after the Civil War, during the period of Reconstruction, to prevent discrimination and additional types of bondage for Black people.”
For context, Njuguna notes, AAER is presided over by Edward Blum, who has been known to orchestrate legal action to dismantle affirmative action and DEI programs. “The irony of using Section 1981 of the 1866 Civil Rights Act is that it is a Civil War-era law written to ensure formerly enslaved Black people had the right to secure economic freedom through the ability to enter contracts, and now it's being used to attack opportunities that promote racial and economic equity,” she explains. (When reached for comment, Blum confirmed that AAER believes the Fearless Strivers Grant Contest violates 42 US Code § 1981 and pointed to the 1976 case McDonald v. Santa Fe Trail Transp. Co., in which the Supreme Court ruled that “Section 1981 prohibits racial discrimination in private employment against white persons as well as nonwhites.”)
The Fearless Fund ruling was made by the 11th Circuit Court of Appeals, which covers Alabama, Florida, and Georgia. The case will now go to trial court, where it will be further evaluated. In response, the Fearless Fund has called on President Biden to create an executive order, which they hope will help protect DEI rights for marginalized groups as relates to business funding, though it wouldn’t necessarily guarantee these grants the right to exist.
“Due to our system of checks and balances, [an executive order] could certainly be challenged—invalidated by Congress, challenged in the courts, or revoked by the president,” says Njuguna. “But I am also assuming that the Fearless Fund is asking for this executive order in conjunction with legislation to put more weight and power behind the ask and to minimize the limitations of executive orders. They have also called on Congress to pass a Fearless Freedom Economic Civil Rights Act to further provide protection.” (In the interim, Fearless Fund cofounder Ayana Parsons has resigned, though she says her decision was not related to the lawsuit.)
While this ruling and its aftermath may paint a bleak picture, Aurora James, creative director of fashion label Brother Vellies and founder of the Fifteen Percent Pledge—an organization that encourages retailers to dedicate 15% of their shelves to Black businesses in addition to offering grants and awards—is committed to turning things around. According to James, the Fifteen Percent Pledge has distributed more than half a million dollars in grants since its inception in 2020, along with facilitating training programs for brands. But now, the designer says, her team is working even harder to bridge the widening gap: “[We’ve] prioritized collaborating with our partners, including Google, Sephora, and Nordstrom, to develop opportunities for direct funding to Black entrepreneurs.”
James continues, “We are experiencing concerted attacks on diversity, equity, and inclusion initiatives designed to eliminate decades of hard-fought progress. This coordinated campaign is rippling across universities and corporations—and the impact is hitting Black entrepreneurs hardest.”
What This Means for the Future of Black-Owned Beauty Brands
Of course, lack of capital can lead to the erasure of many Black-owned beauty brands, some before they even have a chance to launch. But this won’t impact only the Black community; the erasure of any type of Black-owned business could have negative impacts on the US economy as a whole.
According to BrainTrust Founders Studio’s 2024 Economic Advancement Report, American residents of all races and ethnicities purchased new beauty and wellness products from Black-founded brands—over $142 million worth from national retailers in the past 12 months. In addition, it’s a myth that these companies create products fit for only Black consumers, who make up just over 14% of the population. In fact, many Black-owned brands offer products that can be used by nearly anyone, regardless of race.
But for the sake of argument, if we want to talk specifically about the power of the Black dollar, Nielsen reported Black consumer spending in the beauty space reached $9.4 billion in 2023, up $1.3 billion from April 2022. And in 2020, there were more than 3.7 million Black-owned firms in the US, with $226 billion in revenue generated by Black-owned businesses, and more than 1.3 million employees in the US.
But that 11th Circuit Court ruling will undoubtedly have a ripple effect that negatively impacts Black-owned businesses. Njuguna speculates that we could see more organizations that are currently focused on one community open up their grants to all applicants. “Leaders of color, and Black ones especially, already receive less funding to begin with,” she says. Getting rid of grants that are specifically targeted toward those founders “minimizes the ability to create an equitable economy, address racial bias, and target resources where they are most needed.”
On a larger scale, this could result in the closure of several Black-owned brands—and very few new companies getting established. But the good news is that the Black community has fought, and won, many of these types of battles before. “This is not a time to retreat and accept what is happening,” says Njuguna, “but to really galvanize calls for legal, legislative, economic, and other tools that foster an equitable economy, racial inclusion, and a just society.”
Consumers, who often feel helpless when these types of issues arise, also have remarkable power—and it’s not always about buying a physical product. In 2020, Young saw a big spike in interest for her brand, Oui the People. “We ended up with quite a lot of attention being paid to the brand. We sold out of products, more investors were interested in our business, and there was more visibility for us,” recalls Young, who recently shared a video on Instagram warning followers that “your favorite Black-owned brand may close this year.” “So, while dollars are important, the attention economy is what got us there. Don't overlook likes, shares, engaging, comments—this all helps and makes a tremendous impact with volume.”
When it does come to spending, it has never been more vital to be a conscious shopper and support Black-owned brands. “[These brands] are experiencing a recession within a recession,” Young says in her video. “That is a recession of capital, that is a recession of ‘the flood of support,’ and that is a recession of visibility.” While there are undoubtedly systemic issues that need to be solved, it’s important that we, as consumers, don’t forget about the Black-owned brands we rushed to buy in 2020 so they can continue to exist, and so the US economy as a whole can become more equitable. Buying directly from Black-owned brands and supporting retailers who are committed to allocating space for these businesses sends a clear message: They are an essential part of the beauty landscape—now and in the future.
This story is a part of the Melanin Edit, a platform in which Allure will explore every facet of a melanin-rich life. Read more Melanin Edit stories here:
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