The nationwide racial reckoning triggered by protests over the murder of George Floyd in 2020, saw a number of venture capital firms pledge to make racial and gender equity part of their business strategy.
But two years later, have they followed through?
There are some indicators that start-ups owned by Black women were able to reap some of the benefits of these pledges. An analysis by Crunchbase found that “startups with at least one Black woman as a founder … raised around $494 million” in the first half of 2021, more than the previous five-year high. But venture capital funding to companies founded by Black women remained a tiny sliver of what had been spent as of July 2021 — just 0.34 percent of the total.
Start-up accelerators and incubators and venture capital funds aimed at Black women — many of them created by Black women themselves — are trying to make sure Black female founders get their share of the VC pie. They provide a place where these entrepreneurs can access training, get help with their pitch decks and network with other founders and funders.
Socioeconomic obstacles and institutional racism can stack the deck against Black women’s businesses, regardless of where they’re getting their funding.
Most Black women — 61 percent of them, according to the Global Entrepreneurship Monitor — self-fund their businesses. This is despite the fact that as a group, they are more likely to have lower household incomes and higher amounts of educational debt. When an entrepreneur has to scrape together money in this way, they risk being undercapitalized and running out of money before the business can grow.
Lower income and higher debt can also make them less attractive to lenders. A Goldman Sachs study found that Black business owners were rejected for bank loans at a rate three times that of white applicants.
Access to capital — like that provided by venture capital firms — can make a huge difference in whether the business is likely to survive. And though venture capital comes with risks, it offers start-ups a way to access the money and expertise they need to grow quickly.
Melissa Bradley is a rarity — a venture capitalist who is also a Black woman. She is also founder of 1863 Ventures, an accelerator that mentors Black and brown entrepreneurs and helps them access capital. Just as structural racism can make it harder to get bank loans or amass the money to self-fund a business, Bradley said it also plays a role in whether a Black-owned company is seen as “ready” for investment in the predominantly white male world of venture capital.
“Most Black founders have to bootstrap their companies and so have slower growth rates than their white peers, who have more ready access to subsidized funding,” Bradley said. “It costs at least $250,000 more for a Black entrepreneur to start the same exact business as their white peer. So when compared by VCs and controlled for the same time frame in business, white companies will usually appear more ready for venture than a Black firm.”
Bradley said venture capital investors need to eliminate metrics that unfairly hold Black women to a higher standard, and to make sure the metrics they’re using to evaluate a company’s prospects “are relevant, compared appropriately and adjusted for cultural bias. They need to spend more time understanding the impetus and challenges of Black female founders,” Bradley said.
“This means they need to talk to them, meet with them and listen without bias.”