The Funding Gap

Under-representation on Both Sides of the Table

I know from firsthand experience, how hard it is for underrepresented founders to break into the innovation ecosystem. The entire founding team at my startup was a minority of some kind: first-generation Iranian-American, Latino, and immigrant woman of color. It took us a few years to make the right connections and raise our first round of private capital. Now, as I try to break into venture capital, I’m experiencing a little bit of déjà vu. This is what diversity and inclusion looks like in the innovation ecosystem:

• 1% of venture-backed startups have Black or Latinx founders
• 2.7% of venture-backed startups have a woman CEO
• 3% of venture capitalists are Black or Latinx
• 11% of the venture capitalists are women (6% are partners)

Sources: TechCrunch, NVCA, CB Insights

Diversity and inclusion isn’t about warm, fuzzy feelings. I don’t think venture funds should consider underrepresented founders or new hires out of the kindness of their hearts. It’s just good business sense: diverse teams are more productive, have better team dynamics, and stronger financial performance.

In this video, The Startup Grind Team talks to Earnest Sweat about his path to venture capital and why we see underrepresentation on both sides of the table. These are some tidbits I pulled away:

• Pattern recognition: VCs see thousands and thousands of deals a year, but can only invest in a handful. As they go through these deals, they begin to develop pattern recognition for what a successful deal looks like. Unfortunately, because underrepresented founders historically haven’t had access to venture funding, that pattern trends towards young, white, male founders.
• Unconscious bias: VC funds aren’t necessarily being intentionally discriminatory in how they select founders or new hires. Unconscious bias at any company leads to fewer women and minorities being hired, but this is especially true in the innovation ecosystem. The industry doesn’t have a traditional path, so breaking in often requires knowing the right people. Women and minorities have less access to the informal networks that are key to the making it in the startup or venture world, and that puts them at an immediate disadvantage.
• Cycle of exclusion: The way the industry is set up tends to put white men in partner positions, because most VCs had to have a huge exit themselves. Combine this with the pattern recognition issue above, and you’re left with a vicious cycle of exclusion.

So what do you do if you’re an underrepresented founder or aspiring VC?

• Seek out others like you that are a few steps ahead of you in their careers. They can give you advice and connect you to the right resources.
• Join an accelerator. Most accelerators have an advisor and investor network that you can plug into.
• Apply for grants. A number of ecosystems around the country are looking to build up entrepreneurs by giving out grants to companies located in a specific geography.

Venture capital is a very small percentage of capital assets, but it’s created a tremendous amount of economic growth in the last several years. If entire segments of the population don’t have access to that kind of funding, I can only imagine the opportunities those investors are missing out on.

Additional resources:
Project Include, Backstage Capital, National Center for Women & IT