Venture Capitals Committed To Black
Eligibility Criteria For Venture Capital
Most venture capital investments start with the submission of some form of business plan or deck. This document outlines the opportunity and the market. It may contain a review of the existing and expected competition and provide detailed financial projections. You will certainly need to provide details on the management of the company.
To make the best use of this resource, we suggest you research specific venture capital firms to find out exactly what they look for when it comes to eligibility.
Solution : Cultivate An Ecosystem That Supports Minority Founders
There are plenty of angel investors, entrepreneurship groups and social networks dedicated to supporting founders. However, the homogeneity of existing funding systems means that minority founders often lack connections to resources and investors.
Thats why its important to cultivate a startup ecosystem that supports minority founders. This means:
- Elevating the voices and experiences of minority founders
- Curating resources designed for the unique challenges that minority founders face, like pattern-matching
- Establishing new funds led by and built for minority founders
- Developing social groups where minority founders can connect with supporters
- Normalizing that there is no normal founder journey and
- Continuing to challenge conscious and unconscious bias in the startup funding world.
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The Four Key Challenges You Need To Overcome
1) We Solve Different Problems and Have Different Solutions
Once I had a VC ask if I made up the word unbanked. After explaining it in detail, he couldnt understand how there are people in 2019 without a bank account. So, naturally my company was a big no for him. Sheena Allen, CEO/Founder at Capway
Not only do we exhibit some of the most critical attributes to bring an idea to market , but we also have a clear track record generating new social norms, adapting to changing landscapes, and instituting new cultural and institutional patterns. Joan Spearman, CEO / Founder at Localeur
We often come from different circumstances than the average founder and frequently have alternative world views because of this. So, its common that we see different large-scale problems and solve problems with different solutions.
When a founder is pitching a VC, the typical approach is to evaluate a company and gain a frame of reference through all the other deals theyve already seen. But remember you havent seen many Black founders, and this typical framework hasnt yielded diverse investments. This is known as pattern matching. When you dont meet many Black founders, youre likely not used to hearing about market opportunities you have no framework for. So, it becomes easy to say, I dont know if this is as big as you think it is, or I think its too early for us, keep me in the loop moving forward.
2) Different Surroundings, Different Resources
Nothing Is As Meaningful As Actually Putting Dollars Behind A Diverse Founder
In spite of the challenges outlined above, I am optimistic about the diversification of the VC ecosystem. The lack of diversity in venture is actually a once-in-a-lifetime opportunity for outsized returns. Talking diversity is good, but for those that follow up the talk with real economic support, the financial rewards will be significant. The shift will not be quick, but the hard work of lasting change will pay off in generous upside, economically and socially.
Rachel ten Brink
Rachel is the founder and General Partner of Red Bike Capital, a Latina- led seed-stage fund based in New York, investing in US-based Consumer Fintech, Ecommerce Infrastructure and Future of Consumer. She is co-founder of Scentbird, a Y Combinator-backed fragrance subscription that has raised over $28MM, and an active early investor and mentor at Y Combinator, 500 Startups and Techstars. Prior, she spent 15+ years building billion-dollar brands at Gillette, Estée Lauder, Bacardi, LOréal, Elizabeth Arden. She was named Entrepreneur Magazine’s 100 Powerful Women of 2020 and is one of only 58 Latinas to have raised over $1M in venture funding. She is a Founding Member of Top Latinx in Tech, Executive Member Latino Corporate Directors Association, and President Hispanic Alumni Club Columbia Business School.
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Is There A Vc Bias In Funding For Minority
With more than $58 billion invested in startups across the U.S., 2015 was the second highest year for venture capital funding in the last 20 years. But, based on a study conducted by CB Insights, it is likely only 1 percent found its way to minority business enterprises . That is the startling disparity that Maria Contreras-Sweet, head of the U.S. Small Business Administration , pointed out in her recent âSate of Entrepreneurshipâ address as reported in Fortune Magazine. Although the data is five years old, there is little to indicate that the venture funding gap between white-owned businesses and minority-owned businesses has narrowed much.
However, Fortune reports that under Contreras-Sweetâs leadership at the SBA, loans made to minority businesses have increased 36 percent. However, for aspiring minority entrepreneurs, access to the kind of capital needed to launch the next Google or Microsoft is still elusive. Since the study, efforts have been made by government agencies, corporations and the venture capital industry to rectify the disparity. Yet there are several inherent barriers that must be overcome by both the venture capital industry and MBEs.
Black Angel Tech Fund
Black Angel Tech Fund was started by a group of successful Black entrepreneurs and angel investors after a thought-provoking panel about the lack of Black startup founders during the 2015 Stanford Black Alumni Summit.
Since then, they have taken up the cause to use financial resources from successful African-Americans to support Black-owned startups. Among these include OmniSpeech, a startup that provides software programs that enhances the sound quality of different communication platforms, and KIT, a product recommendation platform founded by Camille Hearst.
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Is It Time For A Different Sort Of Investment
Not all companies want to relinquish significant stakes in their companies. BGF provides non-controlling minority capital without set timeframes. Our investments can help to accelerate growth, but our partnership and support can be long-term. We provide the tools you need to grow, from funding to expertise, while letting you set the course. We believe in the power of brilliant businesses to drive innovation, generate progress and deliver prosperity. And we thrive in our role to help make that happen. Learn more about what we do.
Why Investing In Minority
Medingenii CapitalMedingenii Capital
Despite being a critical force in the future of the U.S. economy, people of color are disproportionately hurt by lack of access to capital. While diversity and inclusion initiatives are en vogue in Silicon Valley, the reality is that access to funding remains a tightly-guarded gateway to success and venture capitalists today are missing the mark when it comes to putting their money where their messaging is. The American entrepreneur is changing, and the time has come for investors to keep up.
According to the U.S. Census Bureau, the non-white population in the U.S. is expected to rise to 56% of the total population by the year 2060, and the world of tech will surely follow suit the MBDA predicts that this demographic shift will position minority-owned businesses as a critical part of the national economy by 2044. Nonetheless, non-white CEOs still face immense barriers when entering the startup game. Some studies have indicated that 16% of non-white business owners overall report a negative impact on their profits, specifically due to a lack of access to capital.
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Hadiyah Mujhid X Hbcuvc
One of the key statements of this venture capital firm is that nothing is stronger than a community that invests in its people. HBCUvc is a nonprofit organization that trains students attending HBCUs and HISs in venture capital and technology entrepreneurship. Its co-founder, Hadiyah Mujhid, is someone who can catch the pitches you throw her way.
Lack Of Diversity In Vc Firms
Part of the problem lies as well in the current makeup of many of the venture capital firms in the country. While there are several venture capital firms with people belonging to minority groups in their team, only a small fraction of them are given the power to decide which startups they will invest in and support.
In an interview with Techcrunch, Chamath Palihapitiyaa venture capitalist and former VP for User Growth at Facebookpoints out that the way to deal with this is to invite people belonging to minority groups to take a more active part in the decision making process. We need a wake-up call recapture our potential and open the doors .
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Realize You Are Up Against An Outdated System
Getting your foot in the door with new venture capitalist partners is challenging, and it is often easy for minority founders to be naive at first. I thought that reading TechCrunch and analyzing other VC deals I saw in the news would help me land multiple responses and speak the language of those who managed to score million-dollar deals for their startups. However, I didnt receive a single response while other founders received VC investment for basic ideas.
This is something I had to learn the hard way: What you hear in the media or read on a company blog post often simplifies the process, and sometimes fails to cover the trajectory that minority founders, in particular, must follow to secure funding.
I experienced hundreds of rejections before raising $2 million to start a mobile payment platform, Bleu, using beacon technology to drive simple and secure payments. It is a huge mountain to climb and a full-time job to continuously pitch your vision and yourself to reach the first meeting with a VC fund and thats still miles away from a funding discussion.
Therefore, as a minority founder, you have to realize that it will be a long ride, and you will face rejections because you are at a disadvantage before even opening your mouth to pitch your idea. It is all possible, but patience is key.
The Need To Diversify The Vc Industry Internally
VC funding needs to become more inclusive for women and minority groups by tackling the pipeline problem and addressing the level of diversity within VC funds. All of the networks that VCs reach out to first tend to come from university programs at Stanford, MIT and Harvard. These more privileged and wealthy students are able to easily leverage the traditional and outdated networks built to benefit them.
The number of venture dollars flowing to Black and Latinx founders is dismally low partly due to this knowledge gap many female and minority founders dont even know that VC funding is an option for them. Therefore, if you do receive seed funding, spread the news about it within your networks to help others.
Inclusion starts at the educational level but, when the percentage of Black and minority students at these elite colleges are still low, you can see why minority representation is needed in the VC ranks. Even if representation rises by a percent, that would be a significant change.
There are increasing numbers of VC funds announcing initiatives and interest in investing in minority businesses, and I would recommend looking at these in-depth. But what about the demographics of the VC firms? How many ethnicities are present in the executive ranks?
Its up to the investor community at large to be intentional about building relationships with, and ultimately providing funding to, more women and minority-led startups.
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The First Step Toward Solving Venture Capitals Diversity Problem Is Investing In Minority Founders
In 2016, the Center for Global Policy Solutions reported that due to discriminatory financing practices and a bias towards companies primarily operated by white males, America is losing out on over 1.1 million minority-owned businesses. As a result, the economy is foregoing over nine million potential jobs and $300 billion in collective national income. Four years later, the problem still persistsand then some.
People of color have faced economic inequality for hundreds of years in this country, but the recent Black Lives Matter protests have made generation-spanning problems into a hot button issue of our present time. As hundreds of thousands of Americans across the country peacefully protest against systemic racism and police violenceall during the coronavirus pandemic that disproportionately kills Black peoplethey are turning a spotlight on institutional bias throughout all corners of our society. One area that requires systemic change? Entrepreneurship and the venture capital system that fuels it.
The United States remains inequitably behind when it comes to connecting and putting dollars into companies led by Black entrepreneurs. Major VCs are risk-averse and look for existing patterns of success prior to making an investment. But before they even reach the stage of pitching a firm, Black and minority would-be entrepreneurs have a lack of access to capital that would allow them to get their ventures off the ground in the first place.
Features Benefits And Risks Of Venture Capital
As one website noted, for startups and new businesses with a lot of growth potential, venture capital can provide the resources you need to grow quickly. If you have “a new business idea with a ready-made and eager market to buy it, but dont have is the money necessary to develop that idea into a product you can sell to that market, at least not before competitors can, venture capital might allow you to quickly create and expand the business, gaining market share and brand recognition before competitors can beat you to the sale.”
They key is understanding that venture capitalists are looking for high growth, high return prospects in well prepared markets. They are very very greedy.
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Minorities Investing In Minorities
Minority Venture Capital was started by a coalition of minority entrepreneurs, philanthropists, and community activists from all around the world looking to empower fellow minority communities through impactful solutions that utilize cutting edge technology.
Minority Venture Capital aims to bring access to knowledge and capital to all communities struggling in the world, while instilling the principles of giving back and social good instead of greed and profit.
We build generational wealth, by directly providing education, mentorship, and capital to minority run businesses globally emphasizing a social good model to success.
Cross Culture Venture Capital
Founded by successful entrepreneurs with reliable track records in investing in companies, Cross Culture Venture Capital aims to support early-stage startups focusing on tech and consumer products.
Through its partnership with the Atom Factory, Cross Culture Venture Capital strives to bridge the existing ethnic and gender gap by investing in minority-owned startups. Among those that they have supported are Blavity, Yumi, and Wonderschool.
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Impact Investing Needs A Boost
Impact investing also offers promise as a way to give a diverse set of entrepreneurs the funding and mentoring they need to thrive. But among entrepreneurs of color, it is highly underutilized.
How much is going to entrepreneurs of color from an impact-investing standpoint? Its relatively small, Towns says.
One reason for this is structural: impact investors are often board members and finance executives who have retired or left the same institutions whose policies created the structural inequities we see today. In their efforts to be more equitable in their encore endeavors, they apply the same investing principles that perpetuate the inequities they are trying to combat.
They see impact investing as an opportunity to give back, but they carry a lot of the same underlying training with them as they get into the social-impact space, Town says.
Another issue is that the rate of return for investors is relatively modest compared to other forms of investinginherently limiting how much capital can be raised.
The key, according to Towns, is to realize that a balanced investment portfolio should contain some mix of both types of investments.
We just dont see that kind of commitment and risk-taking to support a lot of our founders of color and women, Towns says. We need to recognize that this is the case.
Adjunct Lecturer of Social Impact