The venture capital funding gap facing Black founders
While businesses often speak of change and boldly discuss diversity, corporate boards still remain mostly status quo.
Facts are stubborn and regardless of what today’s progressive narrative may communicate there exists a very high glass ceiling for aspiring black entrepreneurs to break through in their efforts to access and secure venture funding.
The Fortune 500 lists a record number of Black CEOs, there remains only six. In 2021 More than $4.3 billion was invested in Black-founded companies in the U.S. While that represented a highwater mark in terms of overall dollars invested, Black-founded start-ups still received just 1.3% of all venture and growth equity financing to U.S. start-ups in 2021, according to Crunchbase.
What is happening?
Why is there such disparity between talk and action? Between perceived progress and reality? As Black entrepreneur Craig Lewis notes, Black founders, particularly Black founders in technology, are facing nearly insurmountable odds in getting their businesses off the ground. He theorizes that “as the recipients of less than 1% of venture capital raise, institutionalized systems are visibly at play. Within almost 10 years of my entrepreneurial journey, I have encountered just as many setbacks and failures as I have successes.”
He has pressed forward, showing resilience in the face of adversity and commitment to his passion despite challenges that often far exceed his white counterparts. He argues that the tide of Black brilliance in entrepreneurship continues to rise despite the powers that be and the greater cost of ignoring Black business ventures is the loss of opportunity to investors.
“When you think about the intersection of venture capital and technology, and specifically how it works — it is being led from an engineering perspective. Developers and coders historically go to specific schools and colleges, entering a funnel that guides them to success,” he wrote. “Historically, many Black students (more so Black male students), are influenced by sports as a vehicle to higher education and not necessarily the institutions recognized for technological prowess.”
When automatically funneled into athletics they are often funneled out of the inner circle of technology-centered coursework at Ivy League universities and away from those early foundational personal, educational and professional relationships that help establish funding mechanisms.
A lack of knowledge about true potential and the ability to earn an education at Ivy League schools from athletic prowess has left many Black students’ victim of “this institutional blocking of information from myself and many other Black students that molded our overall perspective and created our glass ceilings”.
What is occurring in the U.S. is also taking place in Canada
Canadian venture capitalists prefer to invest in companies run by people in their existing network, which just happen to be white men.
Data shows that black entrepreneurs in Canada continually find themselves under supported and underfunded by venture capitalists, who have no qualms pouring money into companies affiliated with their current contacts.
The numbers are rarely tracked in Canada, but according to the Financial Post article, investors and entrepreneurs theorize that the funding of Black businesses owners is at par, or even worse, than the numbers in the United States.
“Less than one percent of the US$543 billion in venture capital offered in the U.S. between 2015 and 2019 was given to Black and African American founders, according to business information platform Crunchbase. That’s just US$4.9 billion,” according to the article.
Further, a mere two out of 300 grants offered by the Canadian government for women-owned businesses went to Black-run companies in 2018, according to Amoye Henry, the co-founder of Pitch Better Canada, which helps under-represented communities access capital.
Despite best efforts and good intentions of many in our society the lack of venture funding for Black founders remains stubbornly pervasive. While progressive corporate and public policies are very important, real change happens when leaders in traditional power circles of influence and money purposely seek out and deliberately allocate their capital for investment in Black founder led ventures.
The corporate world has been historically sluggish in cultivating an environment of inclusiveness. While businesses so often speak of change and boldly discuss diversity, corporate boards still remain mostly status quo.
While the Fortune 500 list now has a record number of Black CEOs, there remains only six. Where black entrepreneurs raised $4.2 billion in venture funding last year alone, a remarkable 281% increase from the prior year, they are still only getting a fraction of the funding made available to their white counterparts, approximately 1.3% of venture capital money in 2021, according to Crunchbase data.
What is happening?
Why is there such disparity between talk and action; between perceived progress and reality? As Black entrepreneur Craig Lewis notes, Black founders, particularly Black founders in technology, are facing nearly insurmountable odds in getting their businesses off the ground. He theorizes that “as the recipients of less than 1% of venture capital raise, institutionalized systems are visibly at play. Within almost 10 years of my entrepreneurial journey, I have encountered just as many setbacks and failures as I have successes.”
He has pressed forward, showing resilience in the face of adversity and commitment to his passion despite challenges that often far exceed his white counterparts. He argues that the tide of Black brilliance in entrepreneurship continues to rise despite the powers that be and the greater cost of ignoring Black business ventures is the loss of opportunity to investors.
“When you think about the intersection of venture capital and technology, and specifically how it works — it is being led from an engineering perspective. Developers and coders historically go to specific schools and colleges, entering a funnel that guides them to success,” he wrote. “Historically, many Black students (more so Black male students), are influenced by sports as a vehicle to higher education and not necessarily the institutions recognized for technological prowess.”
When automatically funneled into athletics they are often funneled out of the inner circle of technology-centered coursework at Ivy League universities and away from those early foundational/educational relationships that help establish funding mechanisms.
A lack of knowledge about true potential and the ability to earn an education at Ivy League schools from athletic prowess has left many Black students victim of “this institutional blocking of information from myself and many other Black students that molded our overall perspective and created our glass ceilings.”
What is occurring in the U.S. is also taking place in Canada
Canadian venture capitalists prefer to invest in companies run by people in their existing network, which just happen to be white men.
Data shows that black entrepreneurs in Canada continually find themselves under supported and underfunded by venture capitalists, who have no qualms pouring money into companies affiliated with their current contacts.
The numbers are rarely tracked in Canada, but according to the Financial Post article, investors and entrepreneurs theorize that the funding of Black businesses owners is at par, or even worse, than the numbers in the United States.
“Less than one percent of the US$543 billion in venture capital offered in the U.S. between 2015 and 2019 was given to Black and African American founders, according to business information platform Crunchbase. That’s just US$4.9 billion,”according to the article.
Further, a mere two out of 300 grants offered by the Canadian government for women-owned businesses went to Black-run companies in 2018, according to Amoye Henry, the co-founder of Pitch Better Canada, which helps under-represented communities access capital.
The lack of opportunities and funding for Black entrepreneurs is pervasive across allegedly “progressive” societies. There is no doubt that the problem must be institutional in nature and must be solved via a multidisciplinary approach—one of collaboration across academia and Fortune 500 corporations. It is too easy to talk the talk and never walk the walk, and, as is often the case, peoples’ livelihoods are at stake. Opportunities and funding must be fairly and easily accessible to all to create the kind of inclusive future we can be proud of; one that we can be proud to pass to our children.