There is an elephant in the room of start-up funding. The elephant is large, looming and has been lurking around for decades. In fact, this elephant is apparently getting larger but yet this beast is ignored and languishes unnoticed tramping through the fabric of the start-up community causing unseen damage.
This elephant is called ‘funding for black founders’ and in this article, we take a look at this issue head-on and look the elephant squarely in the eye.
The facts
OK, so funding is notoriously hard for all founders. It’s well documented that less than 1% of start-ups of any persuasion (Only 0.05%) ever receive external funding but for black founders, the situation is much worse with less than 1% of that small percentage ever reaching their dream.
When we are talking about ethnic minority and black founders we must differentiate because different ethnicities have varying outcomes. For example, in the UK where black and multi-ethnics make up 14% of the population only 0.24% of venture funds went to black founders.
“While all ethnic entrepreneurs are underfunded, those who are Black experience the poorest outcomes of all.”, said a recent report by Extend Ventures.
In the US, funding for black founders, decreased by 45%! According to 2022 data (CNBC). The impact of post-pandemic funding hitting the already tiny distribution disproportionately.
It’s important to note that Asian ethnicities do much better with 20% of venture capital going to Asian men in the US and 6% going to Asian females. (Forbes).
Why does it matter?
Of course, some will argue that the cream always rises to the top and the money will simply flow to the best ideas but the facts simply do not bear that out.
When we look at ownership of venture capital firms in the US, we can see a staggering 93% of all venture funds are run by white males, while 6% are run by white females. We cannot say that the results are down to merit when 99% of venture funds are run by one section of society.
So, why does this matter? Well, of course morally this is purely not acceptable. The unfair distribution of capital has corrosive effects on communities that are already downtrodden. The lack of successful black businesses has far-reaching social consequences with regard to employment, housing, education and negative outcomes for all communities not just blacks.
Looking at the issue through a capitalist lens it simply does not make good business sense. In the US non-Hispanic whites make up around 59% of the population and the figure is declining. White demographic decline is a phenomenon that is real and the world as we know it is changing rapidly. The world needs businesses that meet the requirements of all sectors of the population, it does not make sense to simply ignore over 40% (US) of the populace.
Worldwide the issue is compounded as it has been estimated that by 2050 a quarter of the world’s population will be of African descent. It’s simply a fact that the diversity of future world businesses will have to be different to survive in the changing marketplace.
What can be done?
Firstly, venture capital funds need to take a cold hard look at themselves. Are they really serving to maximise profits for their investors or are they just “playing it safe’ and betting on the elite? In any case, figures show it’s not working with over 75% of venture-capitalised businesses failing in any case.
Secondly, black owned businesses and entrepreneurs need to look at themselves. With 99% of venture funds run by those outside of the black community, black businesses and entrepreneurs need to look seriously at investing in themselves and each other. It really is the only way to get things moving in the right direction.
Final Thoughts
No more excuses, if as a black business or entrepreneur, you yourself have not invested in another black business apart from your own how can you expect anyone else to invest?
Yes, finances for the black community are tight but there are ways such as crowdfunding or crypto to invest in start-ups with relatively small amounts of capital.
There, we said it. We’ve looked the elephant in the eye and told it what we think. Can you?
The problem is, out of all start-ups launched, less than 1% ever receive external funding to realise their dreams. For ethnic minority founders, the figures are even lower, with less than 1%, of those 1% of founders finding success.
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