By Namon Freeman
- Black and Latinx founders have only received 2.4% ($15B) of VC funding since 2015
- 36% of Black and Latinx start-up companies have women founders
The start-up model seems to be the engine bringing the world’s economy into the new millennia, but this model has yet to shed the racism and sexism endemic to American business culture. A recent report from Cruchbase unveiled that less than 2.6% ($2.3B) of total Venture Capital (VC) funding went to Black and Latinx founders in 2020. Furthermore, less than 2% goes to teams composed solely of women. Only a fraction of that goes to women of color, although almost half of women owned businesses in the country have minority founders. More concerning, the disparities in funding for minority founders is most prominent in the early stages of raising capital.
Why This Matters: VC has fertilized start-ups for the past two decades, bringing us names such as AirBnB, DoorDash, Compass, and Acorns. Like most businesses, the VC ecosystem is all about relationships. More than 80% of VC firms have no non-white representation and 40% of those in their ranks are alumni of Harvard or Stanford. Although firms may not be overtly racists, their inherent biases cause them to disproportionately fund people that look like them and have similar backgrounds.
Several Black run VC firms such as Impact American Fund, Harlem Capital and Backstage Capital are attempting to circumvent the old boys club
This lack of VC support, forces Black founders to look elsewhere for capital. Many look to friends and family to support their endeavors before soliciting formal rounds of investment. However, it should be noted the vast disparities in income and wealth amongst Blacks and other people of color pose a significant barrier. Scholars such as, Raj Chetty and Andre Perry have recently highlighted, the lack of capital available within the networks of Black founders puts them at a disadvantage, and makes them more dependent on the benevolence of VC firms as an alternative to leveraging their savings or other precarious forms of debt.
What’s Next: VC is funding a new generation of the “one-percent” by propelling start-ups to scale. This seemingly meritocratic model has the potential to lessen historic wealth disparities if it can shed the underlying biases of those in control of the capital. Several Black run VC firms such as Impact American Fund, Harlem Capital and Backstage Capital are attempting to circumvent the old boys club as they firm up the balance sheets of Black founders, especially women. Perhaps the momentum of Black Lives Matter and other social movements will exert their will on this industry in the near future, closing gaps in representation and allocation.
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