Last week, TechCrunch reported that Black founders in the United States raised 1% of the $215.9 billion in venture capital allocated last year. That is not to be confused with the 1.3% raised in 2021, the 0.8% they pulled in 2020, the 1% they got in 2019 or the 1.1% raised in both 2018 and 2017, according to Crunchbase data.
In case it’s not obvious why these figures are so dreadful, it’s worth noting that Black Americans make up more than 13% of the population.
Data visualization by Miranda Halpern, created with Flourish
Each time these numbers are published, there are always a few people posing the same question: Where do we go from here? Is the next step looking at alternative funding, or is it staying on the battleground, always ready to fight?
Brandon Brooks, a founding partner at Overlooked Ventures, said this is the time to get creative with funding and pointed toward Small Business Development Centers and grant programs as a way to get by.
James Oliver, the co-founder of the app Kabila, cosigned that, saying it’s time for Black founders to be scrappier than ever to get funding. “Period,” he told TechCrunch.
Oliver, who is based in Atlanta, is leveraging relationships to raise a pre-seed and angel round by tapping into local resources, such as the Atlanta Tech Village, and is also raising “founder rounds,” in which other founders invest in his company.
“It generally sucks being a Black founder fundraising right now,” he continued, adding that he once had an investor who funded early-stage companies pass on his idea because he didn’t have a built product. (Typically, these investors back ideas, not products.) “When your back is against the wall, that is when you find out what you’re made of. Leverage your relationships, give first to others, which unlocks giving to you, and let’s get scrappy, y’all.”
It goes without saying that Black founders shouldn’t have to do this. Each year these dismal stats are published, and there is a mixture of shock and resignation. Each year, there is no change, of course. It seems as if nothing is working. There has been increased awareness, but at the end of the day, people do what they want with their money. There appears to have been an increase in Black-owned firms, but, in part due to the same discrimination that affects Black founders, they raise less money from LPs, meaning less capital to deploy, and are often the first, like their entrepreneurial counterparts, to be cut down during an economic downturn.
Let’s be honest: The problem was never that the money wasn’t there. It’s true that there was less money raised overall last year, but VCs are sitting on money they have to deploy at some point, and the people on whom investors wanted to splash millions of dollars still received said money.
Adam Neumann raised more than $300 million at a billion-dollar valuation on a concept allegedly stolen by a woman before it even officially launched. That raise was more than everything Black founders received in Q3 — $187 million. That raise is more than what they raised in Q4 — $264 million.
Meanwhile, the stories of Black founders trying to raise aren’t any less harrowing. One Black founder said an investor two months ago told him that he was perfect on paper. “Let me know if you want feedback for your crowdfunding campaign,” the investor said next. “I was pissed for two days,” the founder, who was granted anonymity so he could speak candidly, told TechCrunch.
The common response to the inequities in the venture landscape has been to stick together, in some ways, as a community. To give back to each other, as Oliver pointed out. It’s interesting because the Black American community is a group that has always been entrepreneurial, in part because of necessity.
That legacy means nothing when, on paper, the often-coded, classist markers of success are what determine who gets into what rooms and who benefits from the mirrortocracy. It’s vibe capitalism. Stanford investors like Stanford founders. Let’s golf at this country club, one which probably didn’t let Black people in until some random year in the ’90s.
Classism and racism are overwhelmingly intertwined in the U.S. and adding gender into the conversation is another layer of concrete in this impenetrable ceiling (despite the fact that Black women are the fastest-growing group of entrepreneurs in the nation.)
Perhaps the best bet right now is creating more Black LPs with a mission of funding Black founders. That would be, for example, someone like Serena Williams or Kevin Hart (who started Serena Ventures and Heartbeat Ventures, respectively), someone of great wealth and fortune who could jump into the game with the same dedication to funding the community as their rich, white, boys-club counterparts have done all these decades.
De’Havia Stewart, an investor at Black VC, said the racial wealth gap for Black Americans is only widening and that technology being the fourth Industrial Revolution is the key to fixing this. “It is imperative that we not only participate but lift as we climb,” she told TechCrunch.
“The Black Americans that are a part of the 1% have the ability to have a multiplier effect on their communities by employing each other and helping position those people to not only build wealth, in which a position can be invested into Black-founded companies, but also build an experience that can be leveraged to start their own companies,” Stewart told TechCrunch.
However, the increase in Black funds doesn’t always equate to an increase in Black fund managers, which is another problem. It is typical for Black firms and even Black companies to hire non-Black teams or have a non-Black co-founder. This is because they have been told or realize that having a white person next to them will automatically increase their chances and, thus, their value in the eyes of the gatekeepers.
One Black founder even told TechCrunch that an investor said they felt uncomfortable investing in her company because her team was all Black. With the creation of more Black firms, founders and investors must waltz the fine line using racial allyship to get ahead until equity can be achieved on its own.
Still, it’s stunning that, in the quest for equality, separation is always the safe place in America. Separate schools, separate neighborhoods, separate hair care aisles, separate funding tracks. Whose fault is this — the gatekeepers who refuse to tear down the fence or the gatekept who got tried and tried to build their own?
When talking about how LPs specifically are always so vague in terms of where and to whom their money goes, U.S. Representative Emanuel Cleaver, a Democrat from Missouri, said that though it was noble to desegregate a student body, it is nobler to desegregate economics because “they are the reason things are as they are.”
He called institutions who refuse to back diverse fund managers and companies “segregationist” and proposed a bill, set to be introduced into Congress this month, to force higher education institutions to reveal to whom and where their endowment money is going. Whether this will trickle down to the rest of the private sector is yet to be seen.
“Separatism certainly isn’t what Black founders want in terms of having to find our own pathways to funding,” Vanessa Misoon, the director of communications at the Lightship Foundation, told TechCrunch. “However, there is a pervasive and tragic ‘get it how you live’ attitude toward Black entrepreneurs, which forces them to fight against a hopeless position.”
Even considering self-financing or bootstrapping requires capital that many founders of color simply don’t have access to, she said. The same is true regarding family and friend rounds; even the Black community’s relationship with banks is historically distrusting and fraught.
Right now, Misoon said it’s important for startups and funds led by people of color to remain hyperaware of the venture funding trends, especially around government-allocated capital that is meant to benefit minorities. Last year, Lightship made recommendations to the U.S. Treasury for oversight around applicant qualifications for the State Small Business Credit Initiative funds because it felt the program failed in its mission to allocate adequate funding to actual minority businesses.
In the financial year 2018, “the SSBIC program made just 52 financings — 1.9% of all financings — amounting to just $34 million — 0.6% of the total amount of financings — to Black-owned and -controlled small businesses,” according to the Center for American Progress.
If those financings were “appropriately allocated via equitable distribution by race,” Misoon continued, Black firms would have received an additional $681 million. “While this is certainly a failure on the part of the program, it is also our responsibility to be informed enough to say, ‘Hey, that’s not working, and here is what can be done to make it work.’”
The idea that VCs invest straight off numbers is farcical. Once again, the Black venture community finds itself between a rock and a hard place. Chauntelle Lewis, the inclusive communities manager at Overlooked Ventures, said what could help this issue is if decision-makers adopted an adaptive leadership style and integrated polarity thinking into their investing strategies.
“A polarity pair example of dismantling systemic barriers would be awareness, highlighting the issues Black founders face, and change, VCs broadening their networks and diversifying their sources of deal flow to support Black founders, at the same time,” she told TechCrunch.
Though, there’s no telling if investors are willing to take the time to do that. At one point, just two years ago, things moved so fast that they weren’t even doing proper due diligence on white founders (if they ever really were). The focus on diverse founders is often pushed to the side as being impact investing or something of that nature, but there is always room for more. More Black talent, more Black LPs, more capital allocated to Black founders. More empathy. More chances. Black founders, like any other founder, deserve VC money because they, like all people, have the equal right to life, liberty and the pursuit of happiness.
The good is that more public and private conversations can bring awareness and pressure, which then leads to change. The progress called for yesterday is likely not to be felt for years to come; the generation of tomorrow will hopefully grow up and enter the industry expecting diversity as the norm. As the old gatekeepers slip away, the new ones come and pry open the door.
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— TechCrunch (@TechCrunch) January 19, 2023
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