Investing to Support Racial Equality
StartingUpGood’s founding premise is that all startups should embed social impact in their operations both because it is good for the world — and because there are many proven business benefits for organizations that create positive social and environmental impacts.
We believe that for social impacts to be fully realized, resources must be available to the best ideas and the best Founders — not doled out on the basis of who you know, where you went to school, your gender, your ethnicity, or your race.
The current social protests draw attention to how systemic racism contributes to the reality of economic disparity for Black and Brown Americans. This disparity exists across all facets of the economy, including funding opportunities available to startups.
Though there are some promising signs, it’s clearly not enough. There needs to be a clear, measurable plan for advancing funding for Founders of Color.
The Disparity
As of 2019, just 1% of venture-backed Founders were Black.
And the numbers aren’t any better for the funders themselves; in a 2018 survey of over 200 VC firms, only 4% of employees were Black, and more than 80% of venture firms don’t have a single Black investor.
While this is certainly shocking, it shouldn’t be surprising; Silicon Valley has had diversity issues for years, with most venture-backed startups overwhelmingly white, male, and Ivy League educated.
In an interview with Crunchbase news last year, Joah Spearman, co-founder and CEO of Austin-based online travel guide Localeur, addressed this deep-rooted inequality and the failure to address it.
“[VC] actions validate that this is not something they are treating with the kind of urgency they would demand their portfolio companies apply to monetization, hiring, or growth strategies. This story will only go away when the people in position to change the story take action and when venture capital as an institution makes it a priority to add general and venture partners of color in their new funds along with attacking — not just addressing — the subconscious bias that continues the negative cycle.”
A Few Recent Actions
A few companies have made recent investment commitments to organizations founded, led, and owned by People of Color.
SoftBank, a multinational conglomerate mostly known for its $100 billion Vision Fund, has pledged about 0.1%, or $100 million, to its new Opportunity Fund, dedicated to backing businesses owned and operated by people of color. They’ve also committed to donating a percentage of unspecified gains from the fund’s investments to organizations focused on creating opportunities for Black, Indigenous, and People of Color.
Andreessen Horowitz, a leading venture capital firm in Silicon Valley, launched the TalentxOpportunity (TxO) fund, designed to invest in underrepresented and under-served founders. Starting with $2.2 million in donations from the firm’s partners, TxO will invest in a small group of seed-stage startups the first year and will expand going forward. The initial $2.2 million will be augmented by donations, and all returns by investments to the fund will remain in the fund to finance future entrepreneurs.
A number of other companies, including Goldman Sachs, Bank of America, and Riot Games have pledged multi-million dollar commitments towards funding the fight for racial and economic justice and creating pathways for underrepresented founders, but it will take more than funding alone to ensure those goals are met.
Going Beyond Funding
While these new, dedicated funds are a good first step, there is still a long way to go.
“Black entrepreneurs don’t need a separate water fountain,” said Monique Woodard, founder of Black Founders, at a virtual event last week organized by the investor network BLCK VC, which was live streamed to nearly 4,000 viewers. “You have to fix the systemic issues in your fund that keep black founders out and keep you from delivering better returns.”
One glaring issue: access to capital. Wealth inequality among different racial groups, stemming from discriminatory banking practices and structural racism as a whole, makes it less likely that Black investors have family members who can put tens of thousands of dollars into a startup idea, or are able to themselves.
And firms will need to prioritize proactively expanding their networks.
“The way to find, hire and fund black people in the tech world is the same as finding, hiring and funding any other group. You build relationships with people in that group, you seek out thought leaders from the community and learn from them, you tell your hiring and investing teams that there’s a hole in the fund’s expertise stack and you fill it. It’s not about tokenizing one person or donating to a one time effort or writing it off as a pipeline problem. It’s using the embarrassment of skills and resources these funds have to learn, build relationships and deploy capital.”
Sarah Kunst, the founding managing partner of Cleo Capital, in a text to TechCrunch.
Learning from the Leaders
Investing in Black-owned businesses isn’t new, and shouldn’t be treated as such. Those who are new to it have impressive leaders in the space to look to.
Black VC: Black VC was formed to connect, engage, empower, and advance Black venture investors by providing a focused community built for and by Black venture investors.
Harlem Capital Partners: HCP is a New York-based VC firm that focuses on diverse Founders and their budding ideas. Their goal is to fund 1,000 diverse Founders over the next 20 years, focusing on ideas that solve real needs in the market and can be turned into sustainable business ventures.
Fearless Fund: Built by Women of Color for Women of Color, Fearless Fund invests in Women of Color led businesses seeking pre-seed, seed level or series A financing. Its mission is to bridge the gap in venture capital funding for Women of Color founders building scalable, growth-aggressive companies.
Olamina Fund: The Olamina fund was launched by the Candide Group to address the historic lack of access to capital in American communities — namely Black and Native communities, who have faced decades of disinvestment and intentional extraction. This new portfolio includes innovative, impact-oriented loans to a variety of Women and People of Color led private debt providers, such as CDFIs, nonprofit loan funds, and other institutions, which invest in critical community staples including small business development, worker cooperatives, and low-income housing.
Lightship Capital: Lightship Capital drives innovation and investment in the Midwest by building sustainable local ecosystems full of high growth companies led by Women, People of Color, and other underestimated Founders.
Moving Forward
Prioritizing inclusive funding and diversifying funders won’t be a quick fix, and it will certainly take some serious introspection, but the path is clear.
