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Why Do Black Founders Keep Falling Through the Venture Capital Gap?

Why Do Black Founders Keep Falling Through the Venture Capital Gap?

Dr Shante Williams

Written by Dr. Shanté Williams

If capital is the fuel that makes businesses grow, then venture capital is the rocket fuel that takes them to the moon. Entrepreneurs and casual spectators who have watched an episode of “Shark Tank” know that venture investors can be cutthroat, brutally honest and singularly focused on cashing in on great investments. However, if money is the key objective, then why are so many Black founders still finding the venture fundraising path futile? 

Venture funding has been overwhelmingly white and male since its inception. Black founders garner roughly 1-2% of all venture funding. Calls for racial equity reached the VC world in summer 2020, and for a brief moment, there was a “record” number of dollars invested into Black founders — I use the term loosely. 

Black founders garner roughly 1-2% of all venture funding.

A deeper dive into the data suggests the slight increase in the overall amount of funding invested could be explained by an overall increase in venture activity. That means there was no great awakening in venture capital. Big firms were not suddenly seeing opportunity or accessing risk differently, rather, they were investing more and “trying something new.” Recent data suggests that the newness has worn off. Now that the venture space — especially tech — is experiencing a pullback, Black founders are seeing the largest declines. 

Once again, unfortunately, the Black-founder community is experiencing emotional investments and short-term thinking that can have long-term implications on the future wealth of Black families and communities. Many venture funds saw the calls for racial equity as a chance to fundraise rather than opportunities to level the playing field. Black founders continue to fall into the venture-funding gap because there is a perception that investing in Black businesses or Black startups is philanthropy or “the right thing to do.” This type of thinking is steeped in emotion not diligence. Emotional giving works when times are good, but old beliefs and behaviors take over when times get tough. Nothing truly changes if investors are not investing in Black founders because they see value in Black businesses.

So how can Black founders avoid falling in the venture-capital gap?

Start with a business model that actually works. When building a company, founders must consider traction in terms of REAL revenue — meaning paying customers who generate revenue. Revenue changes how all funders, from venture capitalists to banks, see your business. In short, SELL SOMETHING!

Zero in on key performance indicators (KPIs) and drive growth. Get quantitative. Go beyond knowing your numbers and get keyed into the details. While “knowing your why” is important, refining your “how” raises dollars. How are you going to deliver on that mission? How do you know if you are on target? How are you measuring progress?

Toot your own horn. It is important to make sure that you have visibility. Seek partnerships that will help with traction and revenue. Don’t just wait for press; make sure that you are building your company in a way that progress is evident. Investors are watching and looking for indicators of progress that are not always obvious on a graph.

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Get on a plane. The investor ecosystem may be very young depending on where you live. While the investor scene is growing in the South — where many Black founders live — an uneducated investor base can delay your progress. Investor or industry conferences can help you discover firms in your space if you’re unsure where to start.

Recognize the limitations of venture capital. VC money is not the only source of funding. Other options may be better suited for your company, especially if you have begun generating revenue. For many companies, delaying their fundraise allowed them to hold on to more equity, retain more value and command a higher valuation when they did begin fundraising.

Finally, recognize that the investor-startup relationship should not be adversarial. You need to trust and value each other. There is a difference between being Black-led and Black-owned. Head for the door once you recognize that a firm is 

performing diversity, equity and inclusion theatre rather than intentionally investing in your company because they 

potentially see a unicorn in your future. I hope that we continue to build differently and those firms truly supporting founders begin leading Black startups around the VC gap to a more prosperous future.  

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