to sustain diversity, investors must tune into their unconscious biases

The Impact of the Pandemic on Fundraising for Diverse Founders

The onset of the pandemic dramatically altered the landscape of fundraising. Investor focus shifted towards supporting existing portfolio companies, a majority of which were founded by white men.

Previously promising funding prospects were quickly withdrawn. This impact was particularly pronounced for investors who were exploring opportunities with new and underrepresented founders.

A Return to Funding, But Not for All

While the fundraising market rebounded relatively quickly in 2020, this recovery wasn't universal. Despite successfully securing a $1.5 million pre-seed round amidst the pandemic, the difficulties encountered persisted.

Attention towards minority founders only intensified following the surge of the Black Lives Matter movement in the summer, prompting a renewed fundraising effort in late 2020. Investor interactions revealed pre-existing biases regarding the founding team and the business itself.

Persistent Challenges and Double Standards

Having operated Handsome for two years, the team demonstrated traction comparable to, or exceeding, that of male-led startups receiving funding. However, obstacles during fundraising remained.

A significant hurdle was the lack of definitive data quantifying the increased difficulty faced by minority and female teams. Personal experiences highlighted a clear disparity: male founders are often granted leeway based on initial concepts, whereas female founders are expected to present established businesses with proven revenue.

This difference in expectation creates an uneven playing field for diverse entrepreneurs.

The Need for Evidence and Change

The team recognized the need to understand the scope and reasons behind these challenges. It became clear that systemic biases were impacting access to capital.

Further investigation is crucial to illuminate these disparities and advocate for a more equitable fundraising environment. Equal opportunity should be available to all founders, regardless of gender or ethnicity.

Data Reveals Disparities in Investor Deck Review

DocSend, a platform utilized by numerous startups – including our own – for distributing pitch decks to potential investors, conducted an analysis of investor engagement patterns. A recent DocSend investigation substantiated a long-held belief: investors demonstrably evaluate pitch decks from companies led by women and minority founders with a different lens.

Specifically, the data indicated that investors devoted 20% more time to the business model section of pitch decks presented by all-female founding teams during the pre-seed funding stage, compared to those from all-male teams. While increased attention might initially suggest heightened interest, it can, in fact, signify increased examination and doubt.

The Challenge of Pitching to a Homogenous Group

Considering the typical demographic of a venture capitalist – often a middle-aged white male – the potential for misunderstanding arises when pitching a concept like Handsome. Handsome is focused on redefining education and community within the beauty sector. It’s reasonable to assume that many VCs may lack a comprehensive understanding of the inherent value and market potential.

Despite beauty representing a substantial $190 billion global industry, with a $60 billion market within the U.S. alone, investors unfamiliar with this landscape may struggle to grasp its scale, dynamics, and how a business like ours integrates into it. Furthermore, the very association with the “beauty” industry could lead to dismissal.

Increased Scrutiny and Perceived Risk

These circumstances can contribute to extended analysis of the business model – and its feasibility – as presented in our pitch deck. In practice, venture capitalists operate with limited time. If they are dedicating more effort to the core fundamentals of a business, it often indicates a lack of immediate comprehension.

It’s probable they are actively seeking potential flaws or reasons why the business might fail. Moreover, as we do not possess backgrounds as graduates of top business schools or alumni of institutions like Stanford, investors prioritizing portfolio de-risking may allocate additional time to scrutinizing our deck, assessing our business-building capabilities.

Achieving Sustainable Transformation Requires More Than Intent

Despite these challenges, a significant portion of investors are often unaware of the biases influencing their decisions. They may be operating under the assumption that they are being open-minded, while simultaneously having already formed a negative assessment. Recognizing these unconscious biases represents the initial phase in fostering constructive evolution.

Investors might perceive their actions – such as scheduling meetings or offering mentorship – as broadening their scope of consideration. However, a subconscious pre-judgment may have already occurred, effectively disqualifying certain founders.

While obstacles are diminishing, founders from underrepresented groups continue to encounter difficulties in gaining initial access. A lack of pre-existing professional connections often prevents these founders from securing introductory meetings. Consequently, access to vital funding for business expansion remains limited, even with increased investor willingness.

Substantial and enduring change necessitates dedicated time and sustained effort. Individuals genuinely committed to addressing these issues will continue their work over extended periods. Assessing the true impact of investors’ pledges for change will require observation over years and even decades.

Consistent, long-term commitment is crucial for altering the demographic makeup of funded founders. Only through repeated, unwavering dedication can we hope to reach a point where the potential of innovative concepts is not constrained by the backgrounds of their creators.

Ultimately, the goal is to ensure that demographic factors no longer impede the realization of groundbreaking business ideas.