Tuesday, January 12, 2021
Given anti-democratic events at the nation’s Capitol which were made possible by continued structural injustice in the U.S. – I feel obligated as a lawyer and professor to emphasize our responsibilities to address the interlocking systems of subordination that impact every area of the law – with entrepreneurship being no exception. These systems divide us into “haves” and “have nots” based on race, gender, class, and even geography.
We have a moral obligation as lawyers and professors to address these structural barriers in the classroom. Entrepreneurship is often touted as a means for greater economic participation and a vehicle for innovation. Yet many entrepreneurs and small businesses are hobbled by barriers rooted in structural injustice. These obstacles prevent them from raising necessary capital, accessing legal resources, obtaining other technical assistance, and numerous impediments related to operations such as insurance and talent retention. A full accounting of existing barriers, though important, is insufficient. We must examine the legal roots of modern structural barriers to entrepreneurship - interlocking systems of subordination based on race, class, and gender. Sadly, U.S. laws and policies have actively devalued certain populations and entire communities, elevating certain communities while relegating others to the economic margins. For example, redlining influenced decades of public and private investment, decimating both the inner-city as well as rural areas.
Law professors must equip our students to be thoughtful, diligent, competent, compassionate, and ethical lawyers. As part of this education, students must confront, and unpack legal regimes and reckon with their practical impacts. At a minimum, our students will engage with state and local policy as private attorneys, regulators, and even elected officials. Grounding them in a thorough understanding of the impacts of structural barriers and empowering them to create change by demanding legal reforms is a task we must embrace.
This blog post expands on my presentation at the AALS 2021 Annual Meeting, where I outlined methods for introducing this vital and complex topic into the business law classroom. Below, I detail my learning goals, lesson plans, and provide some additional materials that may prove helpful for other business law professors. This class was first designed and implemented during my time as an Associate Professor at West Virginia University’s College of Law. I mention this to emphasize that the demographics of a law school student body or fellow faculty should not deter academics from engaging in these topics. I have also modified this class successfully for my current students at American University’s Washington College of Law. I can attest that the class has resulted in important and rich dialogue in both law school classrooms. (Please click below for more.)
The Class - Using Access to Capital to illustrate structural barriers
Access to Capital is an excellent entry point for discussions on structural barriers and interlocking systems of subordination. Students are familiar with the standard legal tools raised to use funds - e.g. loans, investment contracts, bootstrapping, etc. This class introduces them to structural injustice that impairs access capital based on race, gender, class, and even geography. In addition to background readings and discussion questions to introduce the concepts, they then engage in an activity that has them confront structural barriers if they were in the role of entrepreneur. This creates a strong foundation to delve into legal systems that have entrenched or created systems of subordination, followed by an exploration of potential remedies and solutions.
Step One: Set Clear Learning Goals & Expectations
I use the language below in my syllabus to reiterate to students the importance of critical thinking skills and engaging in justice in the entrepreneurship space. This makes it easier to engage in conversation and provides an important anchoring point to counteract student unwillingness to engage in potentially contentious topics. You can include this language in your syllabus or as part of discussion questions.
“This is an entrepreneurial course, meaning it works to question and challenge the status quo in business law and economic development. This is not a course for those looking to passively engage in the field. It is a course for those who hope to shape how transactional law is used as a tool for promoting justice and combatting poverty.
- We will cover topics that focus on structures within the entrepreneurial ecosystems that routinely promote a limited subset of founders and businesses.
- We will explore the creation and impact of the racial wealth gap in entrepreneurship
- We will discuss issues of class, pedigree, and elitism
- We will explore government efforts to provide small business relief and major gaps in existing programming”
Step Two: Readings and Discussion Questions
I start by assigning “Access to Capital for Entrepreneurs: Removing Barriers” – a report from the Kauffman Foundation. I generally assign pages 1-19, which introduce the interplay of structural barriers across a variety of factors: Race, Gender, Class, and Geography. For example, the report includes the story of a rural entrepreneur forced to move his enterprise to continue courting funding for his successful venture. It also touches on the racial wealth gap impacting an individual’s ability to “bootstrap” funds when their assets are worth less than white counterparts.
I assign the discussion questions (here) to help students think through these issues prior to class and reinforce the expectation of thoughtful, robust discussion from every student.
Step Three: Class Outline & In Class Activity
I begin class by quickly reviewing the various means of raising capital (commercial lending, bootstrapping, securities - investment contracts, SAFEs, Convertible Debt, etc.) Typically, we cover this in a previous class dedicated to securities and small business financing. I then divide students into pairs for an in-class activity.
I explain that students are now entrepreneurs. They need to raise funds for their nascent enterprise, which they believe will be self-sustaining within 18-24 months. They are divided into teams of two co-founders and given fundraising goals from the “Funding Goals” handout (here). This handout explains how much money each of them is expected to raise through bootstrapping, family & friends loans, and a seed round using convertible debt. The handout is pulled from a popular press publication targeting entrepreneurs, “The Founder’s Pocket Guide to Convertible Debt.” Popular press guides are useful training resource in the business law classroom as they replicate what entrepreneurs without legal or business counsel often rely on - books, blogs, and youtube channels.
I ask my students to address the questions below as they attempt to raise the necessary funds. I emphasize they should not disclose personal information like their actual credit score or amount of personal debt. Instead they should speak in generalities that prevent the successful capital raises.
- Can they successfully bootstrap the $50,000 based on their assets and credit score? Are their obstacles like student loans, limited credit, limited assets that impact their ability to bootstrap?
- Can they rely on friends and family to contribute?
- Are there structural barriers that mirror the readings that we should include in our analysis?
- For example, my West Virginia students often noted that they lacked sufficient credit to bootstrap $50,000 or that their family homes were not worth enough to raise funds even if a home equity loan was possible;
- Similarly, many of my female students and students of color noted challenges and concerns in the report on accessing commercial loans or lower home-values making it impossible for parents to also contribute;
- Immigration was also raised when discussing relying on “friends and family” contributions;
Systems of Subordination and Legal Solutions
The remainder of class is spent grappling with the following questions:
- What laws and policies contributed to us getting here?
- What are reforms we should consider to mitigate these harms?
The activity helps us truly understand the practical problem of access to capital. Now we move into mapping the laws and policies that led us to this structural injustice. Generally, students have already identified the disparities in housing values and other economic challenges that impact access to capital. We use this moment to layer some - though certainly not all - of the historical policies. The Kauffman report introduces some of these concepts, but I find this to be an important moment to draw from the wealth of legal and other scholarship in this field, including the concept of racial capitalism.
The move to the second question - reforms - is far more challenging. The Kauffman Report provides some alternatives I like to discuss in class. But I like to leave the question open in order to force students to think about their own ideas and instincts. I emphasize that we are not supposed to craft a solution in class, but we are supposed to start thinking about what will actually work.
In a virtual world, I find dividing students into small groups to discuss these questions is more effective. We often return to reforms throughout the semester, exploring whether something we have read or a problem a client is experiencing could be mitigated by legal reforms we have discussed in class.
Despite the challenges of teaching the pandemic and difficulty of adding new content, I hope this post will encourage you to explore these topics in your own classrooms.
This post comes to us from Professor Priya Baskaran Director of the Entrepreneurship Law Clinic, at American University Washington College of Law.