This article was authored and contributed by Ms. Dominique Aubry, in collaboration with LeadersWord.
In tight-knit social media groups and private email chains, it is common for black entrepreneurs to share their stories of racism and exclusion. It can be an outright racist remark from a venture capitalist or a subtle jab or slight reflective of a deeply rooted bias.
These stories often have the same ending: a decision to pass on investing.
In the world of venture capitalists who spent $130 billion in 2019 in America alone and helped propel numerous successful startups, there is no legal backstop that makes sure that people of color have an equal opportunity to share in the opportunities and wealth creation.
Generally speaking, they don’t. This is not an assumption, multiple studies indicate that only 1% of VC money goes to companies founded by Black entrepreneurs.
Bringing a white employee to VC meets to improve odds of investments, yes, this is 2021.
Many Black entrepreneurs, most speaking out anonymously for fear of retribution, spoke in interviews that deeply implanted racism plays a role in the low levels of funding for the community as a whole.
Several entrepreneurs recall being mistaken for delivery workers after arriving for scheduled pitch meetings with venture capitalists. In one group of black tech employees who share their stories online, an entrepreneur recalls being asked by a VC to “tone down the black”.
The person spoke anonymously because the group is private.
A common tactic Black CEOs use to help them raise money is by bringing at least one white employee to pitch meetings. One black woman tells how she brought a white friend who wasn’t even associated with her company to a meeting.
It is a sad world where the color of a person’s skin decides the probability of them getting funded.
Social networks including direct personal relations and indirect relations through shared connections and experiences are directly tied to the ability of entrepreneurs to have VC funding.
Since social circles are still highly segregated by race and gender, women and entrepreneurs of color have low opportunities to connect with VC networks that are generally white and male.
Unconscious bias also affects investor judgments and decision-making, including a need for “similarity” between investors and founders, looking for “pattern-matching” and similar demographic or educational traits from previously successful founders.
Along with skin-color bias, this also leads to gendered assumptions about leadership ability, and correlating ability with degrees from top-tier universities.
For example, a survey revealed that even interview questions are posed differently to male versus female entrepreneurs: Male entrepreneurs are asked about their aspirations, while female entrepreneurs face questions assessing their level of responsibility and vigilance.
Nearly 30% of founders of color and investors of color report experiencing unconscious racism, and almost 20% of investors of color report experiences with overt racism.
Data over the years has shown that the venture capital ecosystem is scarily similar. In 2018, just 3% of VC partners in the US were black, while 80% were white, according to a joint study published by Deloitte and the National Venture Capital Association.
A study of US venture activity from 2013 through 2017 revealed that just 1% of VC-backed entrepreneurs were black.
The Myth Of The Pipeline Problem
The general defense that comes from the managing partners of mostly white venture fund portfolios is that their firm isn’t investing in diverse founders because they “haven’t found any”.
This belief is known as the “pipeline problem”. Even though the excuse is inherently not a great one, its validity has been removed completely in recent years. In actuality, there is no such thing as a “pipeline problem” when it comes to available talented black founders today.
The reality is, that despite being underfunded, underrepresented women-owned businesses are the fastest-growing demographic for new business creation in America today. And according to an American Express report, black women are the fastest-growing population of entrepreneurs in the nation.
Another report by Faces Of Founders confirms this revelation:
“Women of color are starting businesses at an outstanding rate. Between 2007 and 2018, the number of Latina-owned firms increased by 172 percent, a larger increase than any other minority group. The number of Black-women-owned firms rose almost as high, at 164 percent.”
However, this positive business trend goes further than minority women founders. Even in the earliest years of recovery post-economic crisis, black entrepreneurs exhibited stellar performance overall in face of great odds.
According to an article by the Inc:
“The number of African American-owned businesses in America has ballooned, increasing 37 percent between 2007 and 2012, when the U.S. Census Bureau last tallied the nation’s black-owned businesses at 2.6 million.”
Diversifying The VC Landscape
Venture firms and investors who still claim that they cannot find racial minority entrepreneurs to invest in today’s time are obviously not looking hard enough since talented black founders are only increasing in numbers.
Taking into account that by 2044, the overall US population would be majority-minority, according to Forbes, the lack of representation could become a major liability for VC firms.
So, if there is a pipeline issue at all, it is broken at recruitment, not at the level of incoming talent. The blockage in the pipeline is the expectations we place upon one another in the US. Founders not meeting the investor’s preconceived notions for what a stereotypical “successful entrepreneur” looks like, whether it is conscious or subconscious, only furthers the “othering” of minority founders.
The challenge that VC firms face is to start actually making the changes that they know can push the industry in the right direction: Bring black partners into the venture firms and increase investments in emerging black entrepreneurial talent.
Conclusion
By funding black entrepreneurs more fairly, American people overall will benefit dividends from high economic and social activities and growth, exchange, and richness. We know how to identify the barriers, even hard structural and subconscious barriers and biases and with a concerted effort, we can mold the system to counteract these effects and reduce them.
This article was authored and contributed by Ms. Dominique Aubry, in collaboration with LeadersWord.