After an entire year of protests against the racial gap and industry pledges to make a difference, Black founders are still being exiled from Silicon Valley’s financial engines.
Last year, VERN Howard met with several venture capitalists to present his startup for digital events, Hallo. The meetings didn’t always go according to plan. The office of a famous VC, Howard, who is Black, was mistaken for the delivery man. A subsequent meeting ended with the investor laughing about Howard leaving for Mexico with the cash. But, at the beginning of January, Hallo had closed a $2 million seed round. However, when Howard was looking at similar companies, a few had raised 10 times the amount.
A New Year Of Venture Capital is really white
This hasn’t been a surprise to Howard in the least. Venture capital, the financial machine that powers Silicon Valley, has always been the same color as a new set of AirPods. According to some estimates, less than 1 percent of venture capitalist entrepreneurs are Black. The numbers are worse when it comes to Black females. However, in 2020, it appeared that the business would finally begin to take note of this. The summer of protests against racism and police violence in the US caused heated discussions about the larger systemic injustices, and then, finally, the realization arrived at Sand Hill Road. Venture capitalists promised to invest more funds in minority groups and pledged to consider Black founders more seriously.
The debate was old-fashioned, and certain Black founding members are discovering it is easier to meet with VCs. However, other founders, like Howard, who is a founder, are waiting for real action, such as investments, and not just talks. “There’s plenty of noise,” says Howard, who has recently re-started fundraising, “but I can’t say I’m seeing a lot of shifts.”
In the fall, when Howard was informed of Black founders who were trying to raise funds, he accessed the data of Crunchbase to determine what was happening across the board. In analyzing startups with funds ranging from $500,000 to $20 million, he discovered that 1383 companies had raised money during the 3rd quarter of 2020 with a total of $5.9 billion. Just 31 of those companies collectively brought in $114.8 million and had Black founders, which is about 2 percent. (Another six companies with Black founders have raised just $500,000.) Howard published these findings in a blog post posted on Medium and urged the VCs and startups to do more.
The problems concerning the issue of diversity of the founders in the venture capital industry are nothing new. However, the issue has not received the constant public focus that it received this year. In the summer, Crunchbase launched an initiative to include information about founders’ ethnicity and race in its databases for the first time. Crunchbase found that since 2015, venture capital investments made to Black founders comprised less than 1% of venture capital investment, and it hasn’t changed much in the year 2020. “People have been reporting these figures within the industry for many years, but after going through the task of gathering and verifying the data, I was surprised to find it was such a low number,” says Gene Teare, the Crunchbase data advocate. (And even though VC’s gender balance was improving in recent years, Teare has found that female founders experienced a dramatic drop in their funding in the year 2020. In her research, she also reveals that the Crunchbase database “has an established pattern of delays in reporting” and that figures could fluctuate over time as new information becomes available.)
A number of prominent ventures firms have set up special funds this year to help get more funds into the entrepreneurs from underrepresented groups. The month of June was when Andreessen Horowitz announced its Talent x Opportunity fund that made investments in the amount of $200,000 to 7 new startups ranging between streaming platforms and a nail press-on brand–with Black founders in its initial group. SoftBank also launched the hundred million Opportunity Growth Fund, which will “invest in markets that are not yet explored.” The fund has a current list of 18 startups on its site, and all are run by Black, Latinx, or Native American founders and CEOs.
The funds could aid in providing startups with the capital they require. However, special “diversity funds” are also being accused of ignoring the core issue: that VCs’ perception of what a “promising” founder should look like, as well as where they went to school and what the startups do, is restricted. “I do not want to become the beneficiary of a diversity fund.’ I would like to be the most effective,” says Howard. “We must look at the moment when a fund states, “This is just a good business since that’s the moment we begin winning.”