All Inclusive: Getting black tech founders and other founders on a level playing field

What’s the solution then? We can think of more than a few but at the same time, it pays to understand the underlying issues as well.

For starters, black tech founders and black tech startups require a lot more venture capital than what’s currently being allocated to them. However, the focus should not only be on VC funding but also more entrepreneurial resources and support.

In order for black entrepreneurs and other tech founders to be on a level playing field, tech communities need to sit up and take notice. They need to start acknowledging the inequalities and biases black founders are currently braving.

Investors also need a change in mindset – i.e. one where they actually have the farsightedness to learn that just because a certain founder doesn’t “look like them”, their idea should not be discarded. On the contrary, their idea could be nothing short of gold, which could potentially not only be good for that specific investment firm or sector, but also the economy on a whole.

Even though current data indicates that black entrepreneurship is increasing, it’s not increasing anywhere near the rate it potentially can. The tech ecosystem to support them simply doesn’t exist, be it the UK, US or anywhere else in the world, really.

Black entrepreneurs and professionals in general lack the resources and pathways that lead to successfully technology careers. Even when they manage to penetrate the sector, they simply do not have the same level of access to capital as their white counterparts.

There’s another ongoing issue that’s preventing black founders from getting as much VC finding: they do not have the ‘social capital’. So, in essence, they lack the relationships with other players in the market who can cosign deals, for example, and since there’s only a small handful of black fund managers, the expectations can be quite unreasonable or even outright unrealistic.

Many a times, you may have seen how black founders with a lot more traction in their business somehow get access to less capital, while their white counterparts get access to money in the millions even though their businesses have gained significantly less traction.

Bridging the black tech founders gap

We feel that the term “all inclusive” gets thrown around a lot without fully understanding what’s actually going on beneath the surface.

Let’s go back to 2020 when VC investors funneled a cool $150b to tech startups. However, just 1% of the funding reached black founders. Even though we have seen rapid growth in black entrepreneurship, the funding gap continues to grow as well.

As the average deal size continues to expand, black startup founders’ CAGR (compound annual growth rate) is still at 7% compared to 18% for non-black founders. Let’s put that into perspective: where major banks approve around 60% of loans to white business owners and 50% to Latino/Hispanic business owners, they approve just 29% to Black business owners.

That’s a gaping disparity and the cost of not acting now is going to be far too high down the line. Accenture, a business analysis firm, which is also responsible for the above numbers, believes that this lack of capital prevents black-owned businesses from reaching their full potential and that this could prove to be ‘catastrophic’ for not just the business owners themselves but also the economy on a whole.

They reported that between 2016 and 2020, $67b in business opportunities was lost. The lack of parity, naturally, hits communities at some point – the median wealth in white households in 2019 was 7.8 times that of black households, and this is just in the US. In addition, diverse-led and “all inclusive” firms almost always outperform their ‘white only’ counterparts by a notable financial margin.

Time to act: Creating a level playing field

For now, three targeted actions can be undertaken to bridge the gap:

Support black tech founders in the pre-series stages

Increase diversity amongst VC decision makers, while also increasing the general awareness, visibility, and equality around black founders. When targeted investments are created, companies will willingly direct more investments toward black startup founders, and in sectors they truly care about.

Support black tech startups through the A-to-D+ funding stages

Research results released by Accenture also indicate that only five black founders progressed to the Series D+ stage between 2016 and 2020. What’s direly needed is a targeted strategy which can equalize funding at every stage, provide education, enhance the total business capacity of black tech startups, expand the capital source, and create more networking as well as mentoring opportunities.

Engage directly with VC decision makers

The VC ecosystem needs to be truly diverse and, again, “all inclusive” – this will not only lead to tremendous financial gain and other business benefits for black tech founders but also have a spillover effect where the benefits can be enjoyed by entire communities and economies. Engaging black tech startups is critical for boosting innovation – VC decision makers can play their part by committing to diversifying the tech startup sector, as this will drive better value for both end users and clients.

Conclusion

Equality in funding is merely the start. Equitable racial representation must exist throughout the VC ecosystem. When we create parity, we will undeniably see highly diverse tech companies and workplaces that outperform non-diverse companies by a mile. And, in turn, we will empower black entrepreneurs to come up with the best solutions to systematic problems, paving the way for black tech founders of today and tomorrow.