Supporting Black Women Founders: A Call for Better VC Investment

The Persistent Funding Gap for Black Women Founders

A significant and growing number of reports highlight the insufficient investment capital reaching Black women founders. While data indicates a tripling of funding since 2018, Black women still secure only 0.27% of all U.S. venture dollars, with a similar figure of 0.24% reported in the U.K.

However, statistics alone often fail to instigate change, as evidenced by ongoing challenges in areas like vaccination rates and climate policy. Furthermore, data doesn’t fully capture the intricate web of obstacles contributing to these disparities, potentially leading even well-meaning investors to inadvertently perpetuate the problem.

Addressing Systemic Hurdles

Improvements in investment statistics regarding racial inclusion at Astia have revealed the complexities underlying these numbers. It’s crucial to acknowledge the inherent privilege in observing this landscape from an outside perspective.

Sharing these observations is vital, as these are systemic issues demanding attention and action from all investors, not merely discussion, if a genuine shift in the investment landscape is to occur.

The repercussions of historical underfunding significantly impact Black women founders. Due to generations of systemic racism hindering wealth creation, many lack access to the initial “friends and family” funding typically available to others.

Even highly educated founders may find themselves excluded from networks that commonly provide early-stage capital, as these networks often remain segregated along racial and gender lines.

The Cycle of Disadvantage

This lack of initial funding often results in CEOs raising capital incrementally over extended periods, with smaller investment amounts. This can impede their ability to make crucial hires, invest in marketing, or secure adequate legal counsel.

This creates a detrimental cycle: key performance indicators are deemed insufficient for investment, yet investment is precisely what’s needed to improve those metrics.

Furthermore, prolonged, small-check fundraising can lead to a bloated cap table with numerous investors. Many venture capitalists avoid companies with large cap tables, potentially overlooking promising ventures led by CEOs lacking access to affluent initial investor networks.

In such cases, it’s essential to proactively address the situation and prepare the company for investment, recognizing that a complex cap table stems from systemic issues, not inherent flaws in the company or its leadership.

Bias in Evaluation

A concerning pattern observed is that investors often apply stricter standards to Black women founders compared to their counterparts, including white women and especially white men.

Instead of recognizing accomplishments achieved with limited resources, they focus on current achievements, neglecting future potential. Conversely, men are frequently evaluated based on their vision and the promise of future success.

During conversations with potential investors, the reasons for declining investment often appeared rational, yet would likely not have been applied to a white male founder.

These seemingly logical justifications can mask underlying biases, as investors rarely acknowledge the positive impact of limited funding on a founder’s achievements to date.

A shift in perspective is needed, moving from assessing insufficiency – what hasn’t the founder accomplished? – to recognizing opportunity – what has she accomplished despite the obstacles, and what could be achieved with adequate resources?

The Role of Trust and Lead Investors

The Question of "Trust"

The first instance of hearing an investor use the term “trust” when discussing a Black woman founder was particularly striking. This concept rarely surfaced in conversations about non-Black CEOs.

“I don’t trust her numbers” carries a different weight than “That’s an aggressive financial projection,” a phrasing more common when evaluating male founders.

Early-stage investing heavily relies on assessing the CEO and their team. However, societal conditioning often leads to an easier acceptance of a white male persona, making the concept of “trust” subtly insidious in investment decisions.

It’s crucial to scrutinize the language used and challenge the application of concepts like trust, prompting investors to examine potential biases influencing their assessments.

The Lead Investor Challenge

Venture capital’s emphasis on a lead investor can pose challenges for Black women CEOs, given that less than 0.3% of venture capital is allocated to them. Furthermore, many funds focused on underrepresented founders are relatively small, due to insufficient capital commitment from allocators.

Consequently, securing a lead investor capable of supporting a majority of the funding round can be exceptionally difficult, if not impossible, for Black women CEOs.

We have chosen to disregard the conventional requirement for a lead investor to hold a majority position, leading deals with only a fraction of the total raise.

Despite initial skepticism, including raised eyebrows regarding board seat claims, we challenged others to step forward and lead the investment. When no one did, our commitment signaled confidence and attracted additional investment.

Driving Change Through Action

Real change may not occur until the limited number of VCs investing in Black women CEOs demonstrate the success of those investments. Several new firms are proactively investing, but often with limited capital.

Experience has shown the necessity of leveraging social capital to advocate for investment within investor committees. Extra effort is required to address the historical investment deficit and prepare companies for funding.

We often had to structure deals to minimize investor hesitation and overcome biases, even initiating first closes at only 15% of the round to secure initial capital. These abnormal steps ultimately facilitated progress and attracted further investment, with one round ultimately being oversubscribed.

This success stemmed from intentionality, confronting biases – including our own – and engaging in uncomfortable conversations. Without this deliberate approach, these investments might not have materialized, and exceptional founders could have been forced out of business due to systemic barriers often overlooked by even well-intentioned investors.