Why Blacks Receive approximately 1% of Venture Capital Money

Why Blacks Receive approximately 1% of Venture Capital Money

There are many ways to become rich, and investing in a startup is one of them. However, one group seems to be left behind when investors are looking at potential investments.  This group is African Americans. It includes both African Americans who have been in the country for hundreds of years and Black immigrants.  Immigrants flock to countries like America for the promise of a better life and the possibility of a financial breakthrough. Unfortunately, when the path to wealth runs through a startup, the road is littered with hurdles.  Let’s dig deep.

Barriers to getting Venture Capital Money

Before even getting to race, getting venture capital money comes with its fair share of hardships. On average, only 10% of startups successfully get this kind of funding. In riskier markets, the ratio can drop to as low as 4%. That means only two startups can bid successfully out of a possible five hundred applicants. It’s even harder when race is considered. The ratio drops down further. It can go to as low as less than 1%.

What does this mean? In essence, 500 applicants may all be denied venture capital money if they’re all Black. Technically, their chances will go down lower with the addition of more whites. For non-Blacks, their chances of receiving funding increase with the number of blacks on the list of applicants.

Other Obstacles for Black Founders

According to blackenterprise.com, 40% of venture capitalists went to either Harvard or Stanford. Less than 1% of Venture Capitalists are Black.  This means that you are already at a disadvantage when you apply for funding as a black startup CEO.

Venture capitalists already have a perception of what a successful Chief Executive Officer looks like. The CEOs at most tech startups in Silicon Valley are white Males.  So they appear to be the ideal candidates when Venture Capital money is being handed out.

Unfortunately, if you do not look the part, chances are you will be left off the eligibility list regardless of
how good your idea is.

Denial about Systemic Racism

Racism has no place in today’s world. The saddest part is that many of the leaders touting support for Blacks in the name of fighting for equality are the same individuals responsible for carrying it out in their business dealings. Many Venture Capitalists will deny this reality, but it does not make it any less true. The system is set up in such a way that Blacks will continue to be at a disadvantage for a while.

For this bleak outlook to change, there has to be an overhaul of the Venture Capital structure. Priority #1 should be bringing more Black Venture Capitalists on board.  This would make it easier for Black Founders to receive Venture Capital funding.

 

Conclusion

Have you ever had a conversation with someone where you knew they didn’t hear a word you said and were completely preoccupied with your skin color? This is what it is like being a Black Founder today.  This unfair system has led to a paltry less than one percent of Black applicants receiving the money to change their lives and live their dream. The current trend indicates that it will take ages for things to change.

By all appearances, an internal solution is required. This means that the solution has to come from inside the Black community, not elsewhere.

We can no longer sit around, waiting for this number to move from 1%. The best solution may be to look within and consider what needs to be done to increase the number of Black Venture Capitalists. This is the fastest route to significantly increasing the amount of Black-led startups receiving venture capital funds.

By Maloba Barasa
July 13th, 2020

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