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   1	
  
21st
Century Strategies for Financial
Inclusion
by Jon Gosier
Jon Gosier, General Partner
Cross Valley Capital
URL http://crossvalley.vc
Email jon@crossvalley.vc
Phone (520) 301-7906
 
	
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Closing The Black Wealth Gap
The growing wealth gap between white and black communities is a
worsening scenario that has many consequences for society. It has
been a growing problem for decades and can be directly related to a
difference in how black-American households invest their wealth
versus their white-American counterparts.
A recent article at Quartz.com points this out…
Brandeis University’s Institute on Assets and Social Policy
shows rich black Americans put their money to work very
differently from rich whites.
Given the overall disparity in wealth levels between the two
communities, it’s perhaps unsurprising that the 95th percentile
of African Americans has a net worth—$357,000 and up—
roughly in line with just the 72nd percentile of white
Americans. The richest white 5% are 6.5 times wealthier than
the richest 5% of black household.
And the difference isn’t just a matter of scale. Researchers used
their own data and bits from the Federal Reserve’s Survey of
Consumer Finances to examine the different contributors to
each group’s net worth. They found that, on average, the
black 5%—their sample was too small to examine the black
1%—allocate their money much more conservatively than
white families worth the same amount.
The following charts illustrate how white and black communities
invest (and therefore earn) differently.
 
	
   3	
  
Chart 1 – Percentage of Black Wealth In Real Estate
Chart 2 – Percentage of Black Wealth In Financial
Products
 
	
   4	
  
Chart 3 – Percentage of Black Wealth In Conservative
Assets
Chart 4 – Percentage of Wealth In Business Assets
 
	
   5	
  
The takeaways from the above charts should be that Black Americans
over-invest their wealth in traditional financial products which, over-
time, have become way less lucrative or far more risky. This includes
the following:
• Real-Estate (First or Primary Homes)
• Real-Estate (Other Residential)
• Life Insurance
• CDs
• Mutual Funds
• Stocks
Why? There are many reasons…
In the case of residential real-estate, the market reset in 2008 was
particularly disastrous for black-American households.
United for a Fair Economy estimates that borrowers or color
have collectively lost between $164 billion and $213 billion
in housing wealth as a result of sub-prime loans taken during
the past eight years.
- Melvin Oliver, Prospect.org
Life-Insurance and Certificate of Deposits tend to be illiquid or
have long maturity times. They tend to be great vehicles for saving
and planning for the future, but not for short-term wealth creation.
Mutual Funds and the Stock Market are both highly-liquid but (due
to the volatility of the global and domestic stock markets) have
under-performed in many cases.
 
	
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So what are the viable alternatives?
• Bonds
• Fixed Income
• Business Assets (Venture Capital, Loans, Private Equity)
• Foreign and Emerging Markets
• Hedge Funds
• Currencies and Crypto-Currency (Bitcoin)
Historically, these were considered riskier than other investment
vehicles but three trends have changed their viability for the better:
1- Changes to SEC compliance law limited most private equity
investing to ‘accredited investors’, people who have an annual
income of $200,000 or more, or a net worth of $1,000,000 or
more.
2- The rise of the venture capital industry (which is linked to the
over performance of the tech and health sectors) has made
venture capital the place where young millionaires and
billionaires in Silicon Valley are increasingly investing their own
money and compounding their wealth as a result.
3- The over-regulation of the public markets has made private
equity, foreign investing, and venture capital far more
attractive to investors who don’t want to be forced to comply
with policies they don’t agree with.
In other words, the market has self-corrected and wealth is no longer
being generated in the way that it was prior to the late 80s.
 
	
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Better Strategies for Investing
Old investment strategies aren’t working as they once did for
creating short-term wealth. For the poor and middle class this has
been especially crippling, as there seems to be fewer paths than
ever to financial mobility. For the wealthy, bad investing can lead to
the loss of earned wealth.
Venture Capital and Hedge Funds can be used as a means to reduce
inequality if used wisely. It’s important these funds perform at or
exceed industry norms, and therefore they can’t be designed to
exclusively target any specific community or group or be completely
philanthropic in purpose. Rather the purpose has to be to earn and
perform as a fund, otherwise the investors won’t take the these effort
seriously and they may treat it as philanthropic activity (which they
will ultimately pay less attention to).
Strategies that can work:
1- The Social Carry Model
Each fund can be designed to dedicate a portion of their
returns to social causes or programs designed to help minority
businesses. For instance, if a $100M venture capital firm
generates $150M in earnings, a percentage of the profit
(known as the carried interest) might be reserved for impact
activities like business plan competitions, investing in
companies emerging from underserved communities, or grant-
making activity. So some percentage of the $50M profit would
be used to support this activity.
2- Set Aside Model
 
	
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The funds can be asked to set aside a specific portion of their
deal-flow (1% to 5%) for investments into qualifying minority
companies. There needs to be some method of qualification
because to keep the fund viable for its backers, each
investment has to stand a good chance of performing. This will
allow the fund to operate normally and not be conserved a
liability.
3- Low-Interest Loan Model
Many small businesses, but especially startups, struggle to find
access to capital because they have no assets. Banks and
traditional lenders consider them too risky for loans and many
entrepreneurs do not have sufficient credit scores for banks.
A venture capital fund can be designed to have a portion of it’s
assets reserved for low interest loans to companies that aren’t
yet ready for equity capital but can demonstrate that they can
repay the loan. This should not be the primary activity of the
fund otherwise it will under perform, but as a supplementary
activity this is fine.
4- Community Hedge Fund Model
Hedge Funds tend to be investment vehicles reserved for high-
net worth investors who invest their capital into funds that
money managers then invest on their behalf. They differ from
venture capital because they will invest in a more diverse
portfolio of opportunities (real-estate, currency, infrastructure
and other things). While hedge funds are limited to accredited
investors, the fund can choose to honor partnerships with
unaccredited communities who also put up money. These
communities would offer their capital to the fund as a loan and
 
	
   9	
  
the fund manager would choose to honor an interest rate that
matches (but never outpaces) the performance of the fund
itself. This is a SEC compliant way of circumventing the
accredited investor criteria which will by default be inclusive of
more black-American households.
5- Split-Interest Trust
Another strategy would be to manage funds on behalf of high-
net worth individuals and institutions who agree to allow a
money manager to hold their money in illiquid, but high
interest accounts. The interest earned from this capital would
be split between some community-driven cause and another
beneficiary.
These ideas are smart because they are fiscally responsible
investment strategies. Investors will love them because they see this
as helping them to compound their own wealth, while entrepreneurs
and the communities impacted love them because capital is
unlocked and used to solve real-problems.
This makes what might otherwise be seen as purely philanthropic
activity completely sustainable and lucrative. It transforms that is
thought of as wealth reducing (philanthropy), into something that is
potentially wealth generating for all involved.
 
	
   10	
  
About the Author
Jon Gosier is a globally recognized serial tech entrepreneur,
investor, and philanthropist. He is the Founder and General Partner
at Cross Valley, an innovative venture capital firm with offices in
Philadelphia and San Francisco.
He has been listed among the ‘Most Influential Blacks in Technology’
by Business Insider 2013 and once again in 2014. He’s also been
listed among the ‘20 Angel Investors Worth Knowing’ and among
the ‘Innovators of the Year 2013’ by Black Enterprise Magazine. He is
a TED Senior Fellow and graduate of the THNK School School for
Creative Leadership.
Throughout his career, Jon has lead investment into over 30
technology companies across three continents. Jon is also the
Founder and manager of The Appfrica Fund, which makes
investments into early-stage technology companies in Africa, and
Third Cohort Capital, which makes investments in companies in
North America. Third Cohort is made up of partners who graduated
from the Goldman Sachs 10,000 Small Businesses program.
 
	
   11	
  
In addition to his work in venture capital, Jon is passionate about
philanthropy and social entrepreneurship. He actively supports
numerous non-profit initiatives in Africa, North America and Europe.
Previously he’s held Executive leadership roles at Ushahidi (a
technology company that makes data tools for disaster response)
QuestionBox (an non-profit focused on last mile internet accessibility
in Asia and Africa) and Market Atlas (which makes private equity
transactions more transparent and reliable in emerging markets). He
went on to found or co-found various companies including civic data
firm D8A Group, and the non-profit organizations AfriLabs,
HiveColab and Abayima.

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21st Century Strategies for Financial Inclusion

  • 1.     1   21st Century Strategies for Financial Inclusion by Jon Gosier Jon Gosier, General Partner Cross Valley Capital URL http://crossvalley.vc Email jon@crossvalley.vc Phone (520) 301-7906
  • 2.     2   Closing The Black Wealth Gap The growing wealth gap between white and black communities is a worsening scenario that has many consequences for society. It has been a growing problem for decades and can be directly related to a difference in how black-American households invest their wealth versus their white-American counterparts. A recent article at Quartz.com points this out… Brandeis University’s Institute on Assets and Social Policy shows rich black Americans put their money to work very differently from rich whites. Given the overall disparity in wealth levels between the two communities, it’s perhaps unsurprising that the 95th percentile of African Americans has a net worth—$357,000 and up— roughly in line with just the 72nd percentile of white Americans. The richest white 5% are 6.5 times wealthier than the richest 5% of black household. And the difference isn’t just a matter of scale. Researchers used their own data and bits from the Federal Reserve’s Survey of Consumer Finances to examine the different contributors to each group’s net worth. They found that, on average, the black 5%—their sample was too small to examine the black 1%—allocate their money much more conservatively than white families worth the same amount. The following charts illustrate how white and black communities invest (and therefore earn) differently.
  • 3.     3   Chart 1 – Percentage of Black Wealth In Real Estate Chart 2 – Percentage of Black Wealth In Financial Products
  • 4.     4   Chart 3 – Percentage of Black Wealth In Conservative Assets Chart 4 – Percentage of Wealth In Business Assets
  • 5.     5   The takeaways from the above charts should be that Black Americans over-invest their wealth in traditional financial products which, over- time, have become way less lucrative or far more risky. This includes the following: • Real-Estate (First or Primary Homes) • Real-Estate (Other Residential) • Life Insurance • CDs • Mutual Funds • Stocks Why? There are many reasons… In the case of residential real-estate, the market reset in 2008 was particularly disastrous for black-American households. United for a Fair Economy estimates that borrowers or color have collectively lost between $164 billion and $213 billion in housing wealth as a result of sub-prime loans taken during the past eight years. - Melvin Oliver, Prospect.org Life-Insurance and Certificate of Deposits tend to be illiquid or have long maturity times. They tend to be great vehicles for saving and planning for the future, but not for short-term wealth creation. Mutual Funds and the Stock Market are both highly-liquid but (due to the volatility of the global and domestic stock markets) have under-performed in many cases.
  • 6.     6   So what are the viable alternatives? • Bonds • Fixed Income • Business Assets (Venture Capital, Loans, Private Equity) • Foreign and Emerging Markets • Hedge Funds • Currencies and Crypto-Currency (Bitcoin) Historically, these were considered riskier than other investment vehicles but three trends have changed their viability for the better: 1- Changes to SEC compliance law limited most private equity investing to ‘accredited investors’, people who have an annual income of $200,000 or more, or a net worth of $1,000,000 or more. 2- The rise of the venture capital industry (which is linked to the over performance of the tech and health sectors) has made venture capital the place where young millionaires and billionaires in Silicon Valley are increasingly investing their own money and compounding their wealth as a result. 3- The over-regulation of the public markets has made private equity, foreign investing, and venture capital far more attractive to investors who don’t want to be forced to comply with policies they don’t agree with. In other words, the market has self-corrected and wealth is no longer being generated in the way that it was prior to the late 80s.
  • 7.     7   Better Strategies for Investing Old investment strategies aren’t working as they once did for creating short-term wealth. For the poor and middle class this has been especially crippling, as there seems to be fewer paths than ever to financial mobility. For the wealthy, bad investing can lead to the loss of earned wealth. Venture Capital and Hedge Funds can be used as a means to reduce inequality if used wisely. It’s important these funds perform at or exceed industry norms, and therefore they can’t be designed to exclusively target any specific community or group or be completely philanthropic in purpose. Rather the purpose has to be to earn and perform as a fund, otherwise the investors won’t take the these effort seriously and they may treat it as philanthropic activity (which they will ultimately pay less attention to). Strategies that can work: 1- The Social Carry Model Each fund can be designed to dedicate a portion of their returns to social causes or programs designed to help minority businesses. For instance, if a $100M venture capital firm generates $150M in earnings, a percentage of the profit (known as the carried interest) might be reserved for impact activities like business plan competitions, investing in companies emerging from underserved communities, or grant- making activity. So some percentage of the $50M profit would be used to support this activity. 2- Set Aside Model
  • 8.     8   The funds can be asked to set aside a specific portion of their deal-flow (1% to 5%) for investments into qualifying minority companies. There needs to be some method of qualification because to keep the fund viable for its backers, each investment has to stand a good chance of performing. This will allow the fund to operate normally and not be conserved a liability. 3- Low-Interest Loan Model Many small businesses, but especially startups, struggle to find access to capital because they have no assets. Banks and traditional lenders consider them too risky for loans and many entrepreneurs do not have sufficient credit scores for banks. A venture capital fund can be designed to have a portion of it’s assets reserved for low interest loans to companies that aren’t yet ready for equity capital but can demonstrate that they can repay the loan. This should not be the primary activity of the fund otherwise it will under perform, but as a supplementary activity this is fine. 4- Community Hedge Fund Model Hedge Funds tend to be investment vehicles reserved for high- net worth investors who invest their capital into funds that money managers then invest on their behalf. They differ from venture capital because they will invest in a more diverse portfolio of opportunities (real-estate, currency, infrastructure and other things). While hedge funds are limited to accredited investors, the fund can choose to honor partnerships with unaccredited communities who also put up money. These communities would offer their capital to the fund as a loan and
  • 9.     9   the fund manager would choose to honor an interest rate that matches (but never outpaces) the performance of the fund itself. This is a SEC compliant way of circumventing the accredited investor criteria which will by default be inclusive of more black-American households. 5- Split-Interest Trust Another strategy would be to manage funds on behalf of high- net worth individuals and institutions who agree to allow a money manager to hold their money in illiquid, but high interest accounts. The interest earned from this capital would be split between some community-driven cause and another beneficiary. These ideas are smart because they are fiscally responsible investment strategies. Investors will love them because they see this as helping them to compound their own wealth, while entrepreneurs and the communities impacted love them because capital is unlocked and used to solve real-problems. This makes what might otherwise be seen as purely philanthropic activity completely sustainable and lucrative. It transforms that is thought of as wealth reducing (philanthropy), into something that is potentially wealth generating for all involved.
  • 10.     10   About the Author Jon Gosier is a globally recognized serial tech entrepreneur, investor, and philanthropist. He is the Founder and General Partner at Cross Valley, an innovative venture capital firm with offices in Philadelphia and San Francisco. He has been listed among the ‘Most Influential Blacks in Technology’ by Business Insider 2013 and once again in 2014. He’s also been listed among the ‘20 Angel Investors Worth Knowing’ and among the ‘Innovators of the Year 2013’ by Black Enterprise Magazine. He is a TED Senior Fellow and graduate of the THNK School School for Creative Leadership. Throughout his career, Jon has lead investment into over 30 technology companies across three continents. Jon is also the Founder and manager of The Appfrica Fund, which makes investments into early-stage technology companies in Africa, and Third Cohort Capital, which makes investments in companies in North America. Third Cohort is made up of partners who graduated from the Goldman Sachs 10,000 Small Businesses program.
  • 11.     11   In addition to his work in venture capital, Jon is passionate about philanthropy and social entrepreneurship. He actively supports numerous non-profit initiatives in Africa, North America and Europe. Previously he’s held Executive leadership roles at Ushahidi (a technology company that makes data tools for disaster response) QuestionBox (an non-profit focused on last mile internet accessibility in Asia and Africa) and Market Atlas (which makes private equity transactions more transparent and reliable in emerging markets). He went on to found or co-found various companies including civic data firm D8A Group, and the non-profit organizations AfriLabs, HiveColab and Abayima.