Smith stiffened. Even though the crisis, at that point, appeared to be contained to China, he sensed that it would eventually move to the United States. He had made billions of dollars as a software pioneer in part by reading transaction data and then anticipating what would come next. And this was what he thought would come next: an economic crisis that would disproportionately decimate black-owned businesses, like the two-year recession Smith, 57, witnessed in the 1970s while growing up in Denver. It was going to happen again, he thought. He was right.
“I got a bunch of canaries in a bunch of coal mines,” he said in a recent interview. “I knew that this was going to hit small and medium businesses first and the hardest and they would be the last to recover.”
The investor and philanthropist would soon set in motion a tremendous political and marketing effort to try to rescue as many of these companies as he could. He would involve Ivanka Trump, Sen. Charles E. Schumer (D-N.Y.), Treasury Secretary Steven Mnuchin, the Rev. Al Sharpton, Magic Johnson and Jamie Foxx in a desperate attempt to protect thousands of small companies that were initially cast aside during Washington’s bailout frenzy. There are signs that it worked, but time is running out as Smith makes his final push before a June 30 deadline.
Memories of childhood
In mid-January, when Smith first saw the fresh commerce data, much of the international attention on the crisis was focused on China. But by mid-March, the coronavirus had penetrated deep into the United States, leading millions of businesses to shut down and lay off workers.
In response, Congress and the White House approved a $2 trillion emergency rescue measure called the Cares Act. That package included $349 billion in loans for small businesses that could be converted to grants through a new initiative called the Paycheck Protection Program. The program began in early April, but all the money was gone in 13 days because of the demand. A number of companies that had well-established ties to big financial companies were able to easily navigate the process, while millions of other businesses, including those owned by African Americans, were locked out.
The crisis was severe.
According to a report published this month by the National Bureau of Economic Research, 3.3 million businesses were forced to shut down in April, when the U.S. economy shed 20.5 million jobs. The number of African American-owned businesses shrank 41 percent, from 1.1 million to 640,000.
This reminded Smith of what he witnessed in his Denver neighborhood as a child, but on a much broader scale.
“All the black-owned businesses, Ms. Russ’s cafeteria, Mr. Magee’s diner, the fried chicken place, the dry cleaners, all those little stores [made up] our neighborhood,” he recalled. “That was our community. They were decimated. Those business owners never came back.
“If these black businesses fail, these are the largest employers in our community. If they fail during covid-19, it may be decades before they come back again. I saw it in my own neighborhood as a child,” he said.
Calling on connections
There was no modern precedent for what the U.S. economy confronted in March and April. During a normal recession, companies usually face a drop-off in business. But in March and April, millions experienced a complete collapse. That means they had no revenue. No income. No money.
“The average business has about two months of sustaining capital to live off,” Smith said. “But small and minority-owned businesses only have about two weeks.”
So thousands of black-owned businesses faced the risk of insolvency. This included the Hair Spa Salon, a boutique in Lanham, Md., owned by Mona McRae. McRae had heard about the PPP loan but did not apply because she though she would not qualify.
Smith knew that additional legislation would be needed to provide more money, but he also knew that the PPP put African American-owned businesses at a huge disadvantage. Many of them were small, with fewer than five employees. They didn’t have access to the banking system, or the political system, that bigger companies did. And the White House and congressional Democrats were increasingly at odds over how to proceed. Smith threw himself into the process, calling on relationships he had built over decades to try to fix it.
“I’ve gotten to know quite a few people in my lifetime and have been able to build some long-lasting relationships,” he said. “I believed now was the time to utilize those relationships if I could.”
After Smith completed his MBA at Columbia University in 1994, he went into investment banking at Goldman Sachs, advising on billion-dollar mergers and acquisitions for technology companies such as Microsoft, Apple and Texas Instruments.
He left Goldman in 2000 to start Vista Equity Partners, where he is chairman and chief executive. At Vista, Smith has focused on buying and selling little-known software companies and has become one of the leading buyout fund managers in the world. Vista handles more than $57 billion in assets, the company says, investing in various sectors of the economy, including financial business-to-business software, technology and private equity.
In 2016, Smith caught Washington’s attention after he donated $20 million to help build the Smithsonian’s National Museum of African American History and Culture.
Through his investments and philanthropic work, Smith gained connections worldwide, many of which he called on during the past several months.
Winning White House support
Smith caught Ivanka Trump’s attention when he gave the 2019 commencement address at Morehouse College, a historically black college in Atlanta. During the speech, he made a surprise announcement that he would pay off the student loans of that class’s 800 graduates. He would later announce he’d pay off their parents’ student loans, too, for a total cost of about $35 million.
“I was blown away,” Trump, a daughter of President Trump, said in an interview.
The two connected and began frequent discussions about other historically black colleges. The schools, Smith would share with Trump, graduate as much as a third of the nation’s technology workforce and have shifted parts of their curriculums to science, technology, engineering and math, which Trump called a “passion” of hers.
So when the coronavirus pandemic hit, Smith said Trump was one of the first people he contacted to help create a plan to sustain minority businesses. The two began weekly phone conversations, sometimes talking multiple times a week.
“He argued for the importance of a ‘set aside’ and we agreed. It was a series of very substantive discussions that resulted in really beneficial policies to support minority and underserved communities,” she said.
A “set aside” means a pot of congressionally approved money that could be devoted to minority-owned businesses. The first tranche of money was a free-for-all. Smith wanted there to be more structure in the next pool of money, and Trump helped him win the White House’s support.
Smith also called Mnuchin, whom he had met years earlier because of their shared backgrounds in finance. The Treasury secretary’s support of the changes was key, as he was a top negotiator with Congress, and Treasury played a central role in designing how the money would be distributed. “At one point, we were having daily conference calls with him and his team. They gave us feedback and we made changes,” Mnuchin said in an interview.
“He made a real effort and didn’t have a particular agenda,” Mnuchin said of Smith. “He was legitimately interested in helping the program.”
Allies in Congress
Smith had allies in Congress as well. Democrats had heard complaints that many minority-owned businesses couldn’t access the PPP funding because they lacked connections to the banks that knew how to navigate the loan program. Senate Minority Leader Charles E. Schumer (D-N.Y.) asked leaders in the African American community, including the Rev. Al Sharpton and NAACP President Derrick Johnson, what to do. Both men told Schumer to call Smith. Smith and Schumer began speaking several times a week.
Some politicians, Schumer said, just wanted to make more money available for loans. But Smith, he said, stressed the need to ensure that minority-owned businesses implement new technology and establish relationships with large banks that, in addition to the loans, would help sustain them over the long term.
As part of these talks, Congress and the White House agreed to create a $10 billion pool of money for Community Development Financial Institutions, also known as CDFIs. These entities aren’t traditional banks but make loans and tend to have long-standing ties in low-income communities, both in cities and rural areas. In the first round of PPP, just $3.8 billion of the $349 billion program went to CDFIs. Congress wanted to wall off more than double that for the second effort.
Schumer said Smith “helped turn this program around.”
“He has a passion for these small little business people — barbershops, little restaurants — and making sure that the minority community gets served,” Schumer said in an interview. “He could talk to Mnuchin and then talk to the guy at the corner barber shop.”
Getting the money from Congress would prove to be the easy part. Now Smith would need to persuade business owners, many of whom felt burned by the program, to reapply.
Breaking down barriers
He had to find a way to get the word out to black business owners. He connected with African American celebrities such as actor Jamie Foxx, basketball legend Magic Johnson, and actresses Meagan Good and La La Anthony to film public service announcements from their homes during the shutdown, encouraging minority business owners to apply.
The ads ran on social media such as Instagram and Facebook. To engage black churches and religious institutions, Smith teamed with the 30,000-member Conference of National Black Churches. The velocity of his outreach was tremendous, and it caught the attention of McRae, the Maryland boutique owner.
“You couldn’t go on social media without seeing them,” she said.
Her accountant walked her through the application. Soon, she received a loan for $5,600 for her shop of nine workers, most of whom are contractors who pay her rent to style hair out of her shop.
“It allowed income to come in because without [it], we couldn’t do anything,” she said.
Of the $10 billion Congress set aside, $7.2 billion was quickly drawn down by 96,000 companies, many of which were notified about the program by Smith’s push.
Smith says ensuring the survival of black businesses is one way to break down at least one of the systemic barriers that he thinks exist in the United States, and other experts have joined his call recently. They have warned that the economic trauma to African American families and businesses could be long-lasting, based on history, if policymakers don’t continue to devote attention to the matter.
“Over the past 30 years, Black Americans have consistently faced unemployment rates twice as high as those for White Americans, and are particularly hard hit during economic downturns,” more than 100 economists wrote to Congress in a recent letter that was spearheaded by former Federal Reserve chairman Ben S. Bernanke, Washington Center for Equitable Growth chief executive Heather Boushey and Princeton University Dean Cecilia Rouse. “Evidence from the Great Recession indicates that a prolonged economic downturn will seriously damage the economic opportunities and wealth accumulation of all Americans, but especially of families of color.”
This is what Smith is worried about.
“I have seen a systemic underdevelopment of the African American community in a few areas, such as economic justice [including] access to capital, debt and equity, education, health care, covid-19 and now equitable justice,” he said. “I think I can help with each of these. We all can. And I will do that as part of my life’s mission.”