Black founders only receive 1.4% VC funds—here’s how to change that

09 Aug Black founders only receive 1.4% VC funds—here’s how to change that

Did you ever have to write a letter to your younger self at school? It’s a humbling feeling to look back and wonder what you wish you could have communicated to your past self.

As I develop my next venture, 2045 Studio, I realize how much more I know now than eight years ago, when I quit my job in finance and took a terrific gamble on my career.

When I started building my first business, Jopwell, I knew I was up against difficult odds. For one, I had never started a business before (I was only 24!). I was not (and still am not) an engineer.  And I was going to be a Black founder. 

That last point means that I belong to a group that, at the time, received less than 1% of venture capital funds. In 2021, 8 years later, that number had only increased to 1.4%.

Another obstacle at that time which still exists today was the lack of representation at the investor level. Black investors make up only 3% of the VC industry. In a survey conducted by BLCK VC, 90% of firms with more than seven investors didn’t have a single Black investor on their team. In an industry that is driven by personal connections and relationships – whether you’re an investor or a founder – the disparities in venture capital allocation are clearly tied to who is signing the checks for whom.

I knew a lot of this when I started. What I didn’t know was how utterly alone I would feel. From the lack of VC investors who looked like me to being typecast by the press as a “Black founder,” my experiences in the past decade have shown me how different the economic and psychological stakes are for entrepreneurs from underrepresented backgrounds.

Being the “only” in a room full of VCs gets easier as you progress in your career, but the feeling never leaves you. Especially since you know everyone sees it too. 

None of the above is unique to the Black founder community. In 2020, only 2.3% of VC funding went to startups led by women. In the same year, 28% of startups had at least one female member, even though we all know women make up roughly 50% of the population. Perhaps just as telling is the fact that women are more likely to get funding if they have a male founder on their team. On the other side of the industry, women make up only 5.7% of VC partners. Given that women make 70-80% of consumer purchases in American households, it seems ridiculous that they should be so absent from building the future of the economy.

The same argument could be made for people of color.  The year 2045 will be when people of color are expected to be the ‘majority’ in the US. The so-called “minorities” (see my perspective on the word “minority” here) will not be in the minority much longer. How can investors justify excluding the people who understand these economically influential communities from their investments? How can they claim to understand consumer trends when their senior teams don’t reflect the nation’s greatest demographic shift in a century? The stewards of capital are responsible for putting their money where their mouths are. Hiring more diverse investors leads directly to more equitable distributions of capital.

How the founder community can pay it forward

VC firms can help drive a lot of change, but the founder community also has to pay it forward. There is no way it’s going to get better for the next generation of diverse founders unless we acknowledge the uniqueness of our journeys and work to provide additional support.

I remember when we started Jopwell, it felt like there was zero connectivity to founders who looked like me or had similar backgrounds. I personally didn’t know any other Black founders who had successfully raised capital – not that there weren’t any – I just didn’t know them. I also didn’t know that there were different kinds of capital to raise, each with its own strategic purpose. My lack of education as a founder, combined with my identity as a Black man in a very white industry, made me much more conservative about my business and its potential.

In the beginning, that actually wasn’t a terrible strategy: thinking with a small business mindset and focusing on building something that made money and survived was good for Jopwell. But it also prevented me from thinking bigger; it made it harder to envision the impact I could have at scale. Those limitations came from what I thought I could expect to accomplish, and it’s something I wish I had more help overcoming.

Even once we hit a stride and started growing the team, I found myself falling prey to the other silent killer: Impostor Syndrome. No matter how confident you are as a person, building something that matters to you produces self-doubt. It’s natural and common, but for founders from marginalized backgrounds, it’s doubly felt because we see so few examples of ourselves in our line of work. When you assume that most of the people you talk to – investors, other founders, corporate partners – don’t understand the feeling of being an impostor, it only makes you more afraid to acknowledge and work through it.

As I became more accustomed to seeing people talk about me in the press as a “Black founder”, I realized it was important for other Black founders to see someone like me. Everything came full circle. It was clear that no matter how frustrated I was by the label of it, the reality was that I had a chance to have a positive impact on others because representation matters. 
I wish I could tell all of that and more to my 24-year-old self.

A cultural shift

Over the next few months, I’ll share what we’re building at 2045 Studio. Many of our projects will focus on increasing representation, deploying capital to underrepresented groups, and scaling products and services for the ‘new’ majority.

There’s so much we can do to try to improve representation in the VC industry, from dedicated accelerator programs to innovative hiring programs. Some firms have already been leading this charge successfully – Kapor Capital is one excellent example I’ve worked with in the past.

But it will also take a cultural shift. As the ethnic composition of our country evolves, so must the economy and business leadership. And not just because it’s the right, equitable thing to do – but because the economic vitality of our nation depends on increasing access to capital, resources and talent.

Change starts with empathy. That’s what always connects us. If you’re a founder, investor, or aspiring entrepreneur, trust me when I say: you will not succeed if you cannot connect with people. As we work to improve the visibility of founders from diverse backgrounds at 2045 Studio, I hope we can help connect more people at scale by sharing their incredible stories.

Source: Fast Company