by Mark Obonna Fleming
In a just world, receiving funding for a startup would be determined by three criteria: how innovative the idea is, how profitable it will be, and the ability of the entrepreneur to execute their vision.
The sad reality: whether your venture receives funding is largely determined by who you know.
When it comes to who receives VC-backed funding, the numbers speak for themselves. According to Harvard Business Review, Black Americans makeup 13% of the population but only 1% of VC-backed founders are Black, while Latino individuals make up 19% of the U.S but receive less than 2% of funding. Despite comprising 40% of entrepreneurs, only 2% percent of venture capital dollars went toward female-founded companies in 2019, according to a report from the Female Founders Fund.
Beyond the numbers, news stories abound these days in the entrepreneurial space with spectacular failures and fraud. Think Theranos, FTX, Frank, and so many others. In many of these cases, credulous ideas were granted billions of dollars of seed funding without batting an eye. For example WeWork founder, Adam Neumann, whose startup WeWork has lost a staggering $16.2 billion according to The Real Deal, had no issue securing $350 million for his new startup Flow.
Meanwhile, many female founders can tell you the absurdly high bar it takes to simply get a meeting and prove their value to a potential investor. Islindy Merius, a partner at Passbook Ventures who focuses on diverse and immigrant founders, shared: “I couldn’t begin to tell you the amount of times that I have met with diverse female founders who had phenomenal ideas, backed by incredible traction and revenue. Despite so, they’ve struggled to get in front of investors who are throwing money into less capable competitors.”
As if getting a meeting isn’t hard enough, those who do not have the connections find it even harder to get the committed funding their businesses need to flourish. Let’s be clear though: real due diligence is a virtue, but it should be applied equally. Studies have shown that venture firms with at least one female founder generate over 9% more profitable exits.
This lack of investment in women and minority-run startups–and the unequal playing field — demonstrates the desperate need to make access to capital a more democratic, equitable and merit-based process. That’s why our firm has made it our mission to create opportunities for new prosperity for diverse entrepreneurs. By using entrepreneurship as a tool for economic inclusion, we create opportunities for underserved and under-resourced communities, and also greater profits for our investors
What sets Passbook apart is we recognize that diversity drives innovation, growth and ultimately success. By actively seeking out diverse founders and connecting them with investors who believe in their potential, Passbook is helping to dismantle the barriers that have long obstructed equitable access to venture capital. Our belief is that, in the vast universe of funding that exists, there are countless overlooked black and brown-led startups ready to grow into the unicorns of the future — they just need a chance to be recognized and access to investment.
Disparities in venture capital funding are deeply ingrained in the system, but with firms like Passbook, we can start to chip away at this system and prove to Silicon Valley — and the world — just how successful startups run by women and people of color can be.
Mark Obonna Fleming is the co-founder of Passbook Capital Management, a global investment management platform which creates opportunities for diverse entrepreneurs.
