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Building Generational Wealth & Venture Capital
- 1. Building Generational WEalth&Venture Capital Closing America’s Racial Wealth Gap Through Homeownership
- 2. TABLEOFCONTENTS The Problem Case StudiesThe Market 01 02 Venture Capital Opportunity 03 04
- 3. $17,000Networth of a Typical Black Family $171,000Networth of a Typical White Family 10x
- 5. WhyisWealthsoImportant? ● Wealth is a safety net that keeps a life from being derailed by setbacks and the loss of income ● This safety net lets people to take career risks ● Familial wealth lets people access housing in safe neighbourhoods with good schools, which enhances the prospects of their own children
- 6. $1,500,000,000,000 The Cost of The Racial Wealth Gap on US GDP
- 7. RacialWealthGapIssues Income Black median household income $38,183. White median household income $61,363. SavingsEducation Black families where the head of household graduated from college have less wealth than White families where the head of household dropped out of high school. 60% of White people have retirement accounts compared to 34% of Black and 30% of Latinos.
- 8. Housing:TheBiggestObstacletoClosingtheWealthGap Redlining Defined Black communities as hazardous areas Reversing Black Wealth Accumulation Race Riots in Tulsa, Rosewood, Atlanta, Wilmington, and more Lending Discrimination 53% of Black people received subprime mortgages compared to 26% of White people Restrictive Covenants Forbade home sales to Black people Underbanked The percentage of underbanked Black and Latino households (30%, 29%) is twice that of White homes (14%) Housing Discrimination The FHA refused to guarantee mortgages near Black neighborhoods.
- 10. Increasing Home Ownership Shrinks the Black and White wealth gap by 31% $32,113 Reduces the Latino and White wealth gap by 29% $29,213Familial Home Ownership Rates by Race The Effect Equalizing Home Ownership Rates has on the Wealth Gap Source: Institute for Assets & Social Policy, Brandeis University
- 11. TheMarket
- 12. Diverse Young Population In 2019, for the first time, more than half of the nation’s population under age 16 identified as a racial or ethnic minority. 50% of the Black population and 58% of the Latino population is a millennial or younger. White Population Is Not Growing The 2010 to 2020 decade could be the first decade since the first census was taken in 1790 when the White population did not grow. Substantial Population Age Differences In 2019, White Americans had had the highest median age: White (43.7 ), Latinos (29.8), Black (34.6) , Asian (37.5), and two or more races (20.9). DemographicChangeCreates Marketopportunity Shifting Urban Landscape 27 of the 100 largest metropolitan areas have minority-white populations. White people represent the minority in major metropolitan areas like New York, Los Angeles, Washington, D.C., Miami, Dallas, Atlanta, and Orlando.
- 13. Who aretheseConsumers? Market Description ●Tech Savvy African Americans use digital platforms and apps to increase the national consciousness on issues affecting the Black community ●Willing to Experiment African American millennials are 25% more likely than all millennials to say they are among the first of their friends/colleagues to try new technology products ●Mortgage Ready There are 6.3 million mortgage ready Black and Latino millennials in the 31 largest metropolitan areas Customer Experience ●Cumbersome Processes The current mortgage application process is extremely cumbersome, and lenders lack flexibility in working with borrowers ● High Interest Rates Black millennials attempting to buy a home without a co-applicant are more likely to be denied for financial assistance or receive significantly higher interest rates than their White counterparts ● Credit Struggles Lenders underestimate creditworthiness in communities of color
- 14. CanyoungerGenerations AffordtheHomestheyWant? When asked how often they think about owning their own home, Generation Z and millennials are the most likely to think about it often (80 percent and 82 percent, respectively). The projected median housing price in 2031. That means today's 18-year-olds will have to begin saving $304 per month to afford a typical 10% down payment plus closing costs by the time they turn 30. Generation Z can expect to spend $226,000 on inflation-adjusted rent in their lifetime -- about $24,000 more than millennials and $77,000 more than baby boomers. 80%,82% $386,310 $226,000
- 15. WhatDoConsumersDoInstead? Startups Addressing HomeownershipIncumbent Options ●Rent Only 37% of young adults own homes ●Live with Parents 29% of Black young adults ages 25–34 were living with their parents in 2017, 10 percentage points higher than the share of White young adults ●USDA loans Target rural housing, but millennials largely prefer urban areas ●Unison The Unison Homebuyer plan is a co-investment which helps customers put 20% down on a home without burdening users with extra debt, interest, or monthly payments ●Divvy Divvy empowers renters to become owners. By fractionalizing ownership in homes, its customers begin to earn equity before they outright own ●Hurry Home Hurry Home uses capital from investors to offer a financial product that enables buyers to earn equity in their home while paying close to or less than what rent would be for the same property
- 18. Finance&Lendingecosystem Source: Press, FT Partners, Morgan Stanley Bank of America Merrill Lynch Finance&LendingFintechEcosystem
- 19. Fintech funding has grown 45% yoy since 2011 as businesses and financial institutions innovate to serve growing financial expectations 45% FundingLandscape Finance & Lending Fintech Deal Value & Volume
- 20. share price performance of the top 50 public fintech companies since 2016 64% The median revenue multiple for public Real Estate & Mortgage fintech companies 3X Exits&CoMps Largest Fintech Equity Rounds
- 21. TheBestSolutionswill Vertically focus on serving people of color Develop alternative financial profiling for communities of color Utilize ethical AI to overcome systemic bias in the mortgage process Medium: Venture Capital and Building Generational Wealth Through Homeownership (Part 1: The Down Payment) Medium: Venture Capital and Building Generational Wealth Through Homeownership (Part 2: Credit) Medium: Venture Capital and Building Generational Wealth Through Homeownership (Part 3: The Mortgage Process)
- 22. “Becoming a one-stop-shop for specific users – offering financing, debt collection, admin support and cash management in one place for example, has the potential to lead to highly virtuous circle: increased stickiness leading to improved data collection, allowing for enhanced tailored recommendations on new financial products leading to further increased engagement.” Whitestarcapital Benefitsof VerticalFocus
- 23. FinancialProfilingEvolution Present Past Future Traditional Credit Scores Alternative Financial Profiling Based on User-Permissioned Data Reporting Alternative Data to Credit Bureaus MoCaFi Mobility Score
- 24. 4StagesofEthicalai Real World Bias Data Bias Algorithmic Bias Business Bias Is Reflected In Is Exposed ByIs Acted Upon By Which Impacts UsingBusinessBiastoImpactRealWorldBias
- 25. Case Studies
- 26. Value Prop Landed helps essential professionals, build financial security near the communities they serve. Landed allows school employees to buy homes in expensive metro areas like San Francisco, Seattle, Portland OR, Denver, Los Angeles, San Diego, and Boston. Company Landed’s down payment program invests alongside employees in education to help them reach a 20% down payment. Landed’s equity investment structure allows homebuyers to share a portion of the gain – or loss, if any – of the home’s value once sold or refinanced. Traction Landed's nearly 500 educators who used their Down Payment Program have bought over $300M worth of homes across the country. Landed is a Series A company with $22m in total funding. Landed Scale The average Landed educator has only owned their home for one year; however, limited results are promising. So far, Landed’s Down Payment Program leads to $30,000 of wealth gained per year per participant.
- 27. Value Prop Listo collects data to predict risk and to remove discrimination in investment, and insurance products designed for the unbanked and underbanked. Company Founded to help the Latino community achieve a better future by offering transparent and smart financial solutions. Listo focuses on : (1) building and improving credit (2) protecting assets with transparent insurance (3) wealth building through investment products, like Roth IRA and 529 plans. Traction 60% of Listo’s growth is organic. The company they has a 90% customer retention rate. 45% of Listo customers are millennials or younger. Listo is a Series A company with $22m in total funding. Listo! Scale Listo has a mobile app and stores. Listo leveraged brick and mortar locations to build credibility in communities that distrust financial institutions. Their mobile app helps Listo deliver tailored recommendations to users. Listo aims to be Plaid for underbanked and unbanked communities.
- 28. Value Prop Lenders who build models using Zest.ai software have seen, on average, a 20% increase in approval rates with no added risk, and up to 50% reductions in charge-offs by using more of their data and the advanced math of machine learning. Company Zest.ai helps banks and credit unions go beyond the statistical and data limitations of traditional credit scores to identify good borrowers who are often overlooked by legacy techniques. Complementary tools help teams evaluate and validate the models for safety, stability, business impact, and compliance. Traction Zest provides over 30 customers with resources to prep, build, iterate, and document machine-learning decisioning models for cards, auto loans, personal loans, mortgages, and student loans. Zest.ai is a Series C company with $254m in total funding. Zest.ai Scale Based on the mortgage lenders who tested ZAML Fair, Zest says the tool would eliminate 70% of the nation’s gap in approval rates between Hispanic and white mortgage applicants and cut the even larger gap between Black and white borrowers by more than 40%, putting 172,000 families into new homes.
- 29. MajorTakeaways ● Increasing home ownership rates in communities of color will reduce the racial wealth gap. ● Systemic factors that create barriers to Black and Latino homeownership are ripe for disruption from financial solutions that vertically focus the needs of diverse users. ● Traditional methods do not accurately assess the creditworthiness of people of color. ● By practicing ethical AI businesses can prevent algorithmic bias from perpetuating real world bias in mortgage lending.
- 30. CREDITS: This presentation template was created by Slidesgo, including icons by Flaticon, and infographics & images by Freepik and illustrations by Stories THANKYou Comments & questions? https://www.linkedin.com/in/james-pippim/ Author:JamesPippim
- 31. REferences ● ”The Racial Wealth Gap, Why Policy Matters,” Laura Sullivan, Tatjana Meschede, Lars Dietrich, & Thomas Shapiro, 2015. ● "Examining the Black-White Wealth Gap," Kriston McIntosh, Emily Moss, Ryan Nunn, & Jay Shambaugh, February 27, 2020. ● “The Economic Impact of Closing the Racial Wealth Gap,” Nick Noel, Duwain Pinder, Shelley Stewart, & Jason Wright, August 13, 2019. ● “The Nation’s Latino Population Is Defined by It’s Youth,” Eileen Patten, April 20, 2016. ● “Homeownership and Living Arrangements among Millennials: New Sources of Wealth Inequality and What to Do about It,” Jung Choi. ● “Recent Trends in Wealth-Holding by Race and Ethnicity: Evidence from the Survey of Consumer Finances,” Lisa J. Dettling, Joanne W. Hsu, Lindsay Jacobs, Kevin B. Moore, and Jeffrey P. Thompson with assistance from Elizabeth Llanes, September 27, 2017. ● “The Road to Zero Wealth: How the Racial Wealth Divide is Hollowing Out America’s Middle Class,” Institute for Policy Studies and Prosperity Now, September 11, 2017. ● “America’s Persistent Racial Homeownership Gaps,” Alanna McCargo. ● “Nielsen 2016 Report: Black Millennials Close the Digital Divide,” Nielsen, October 17, 2016. ● “Housing Americas Older Adults 2018,” Joint Center for Housing Studies of Harvard University, 2018. ● “Millennials Feel the Squeeze as Black Homeownership Rates Decline, Dante Miller,” October 27, 2019. ● “This Critical Link Could Help Bridge America’s Racial Wealth Gap,” Sharon Epperson, Michelle Fox, June 26, 2020. ● "Home Equity and the Racial Wealth Gap How Government Housing Policy Deepened the Racial Wealth Gap," Kimberly Amadeo, June 25, 2019. ● "Segregation Has Gotten Worse, Not Better, and It's Fueling the Wealth Gap Between Black and White Americans," Alana Semuels, June 19, 2020. ● "This is Why the Wealth Gap Between Black and White Americans Persists," Darrick Hamilton & Trevon Logan, February 8, 2020. ● "Generation Z Will Pay $226,000 in Rent in their Lifetime," HotPads. ● "Hey, Gen Z, Better Start Saving for a Home Now!," National Association of Realtors, February 1, 2019. ● “Black Owned Financial Technology Company Committed to Addressing the Racial Wealth Gap in Black & Hispanic Communities Raises $3.5 Million in Series Seed Funding from Investors,” Brittni Abiolu, February 6, 2020. ● “ Better.com Consumer Trend Report 2019: How FinTech Has Innovated the Traditionally Archaic and Antiquated $15 Trillion Mortgage Industry, Ushering in a New Digitally-Native and Traditionally Underserved Customer Base,” Business Wire, December 16, 2019. ● "2020 Landed Impact Report," Alex Lofton, July 21, 2020. ● “Fintech Sector Report January 2019,” GCA Altium, January 2019. ● “4 Stages of Ethical AI: Algorithmic Bias is Not the Problem but Part of the Solution,” Anthony J. Bradley, January 15, 2020. ● "Infographic: The Racial Wealth Gap," Prosperity Now, June 27, 2019. ● "What's in my FICO® Scores?" myFICO. ● "Millennials Are the Most Diverse Generation in U.S. History, Now 44 Percent Minority, Says New Brookings Report," Brookings, January 24, 2018. ● "The Nation is Diversifying Even Faster than Predicted, According to New Census Data," William H. Frey, July 1, 2020. ● "2017 FDIC National Survey of Unbanked and Underbanked Households," Federal Deposit Insurance Corporation, October 2018. ● “ZAML Fair - Our New AI To Reduce Bias In Lending,” Bruce Upbin,” October 2019.