VCs: This Is Why You’re Not Investing In Black Women, And Here’s How To Change That

Illustration of Black woman climbing graphic arrow steps

By Ty Heath

For those eager to see meaningful progress in funding for woman- and diverse-owned businesses, there is a disconnect to confront.

Woman-led startups, particularly those founded by women of color, continue to be underfunded. According to Crunchbase, global venture capital funding that went to female founders dropped from 2.9 percent to 2.3 percent in 2020. It’s even worse for Black women, who receive less than 0.35 percent of all VC funding.

In 2020, total VC funding was up 4 percent to $300 billion, but only 800 woman-founded startups received investments totaling $4.9 billion, a 27 percent year-over-year decrease.

Investing in women is a no-brainer. Boston Consulting Group found that if VCs invested in women at the same rate they invest in men, it could boost the global economy by 3 percent to 6 percent—up to $5 trillion dollars.

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Without a fundamental mind shift, however, efforts will continue to stall.

The business case hasn’t worked so it’s time to try a different approach. Funders must conduct an honest introspective of the reasons they haven’t invested in women. What are you willing to do to build a thriving, diverse and inclusive ecosystem? This is the compelling leadership opportunity at the heart of this work.

Given that Black women are the fastest-growing group of entrepreneurs, now is the time. LinkedIn survey data found that 74 percent of Black women say they have not had a funding conversation with an investor. As funders, you have a vested interest in investing equitably—an interest that is now a moral imperative.

Recognize that success that looks different is still success

Black woman-founded startups are no different from other startups concerning risk and opportunity and yet they receive a sliver of the funding and resources. Why? Affinity bias. People gravitate toward people who look like them and share their background. For investors, who are overwhelmingly white men, there is comfort with the familiar and perceived risk with the unknown.

Ty Heath is director of market engagement for the B2B Institute at LinkedIn

Success is success even if it looks different. However, as long as you—the 80 percent of men who make up the funding community—continue to primarily invest in entrepreneurs that look like you, you’ll leave money and profit on the table. On the plus side, the oversight of homogeneous investors opened the door to investors that see the opportunity to invest in Black founders, tapping into the $1.6 trillion Black consumer market.

Understand that capital is just a minimum

Money alone is not the problem. ProjectDiane, a biennial study on Black and Latinx woman founders conducted by digitalundivided found that only 93 Black women founders had ever raised over $1 million, and among the vast majority that haven’t, the media seed round raised is a paltry $125,000 compared to the national average of $2.5 million.

The funding community did not arrive at underfunding Black women overnight, and it won’t be transformed without significant effort and commitment. There must be an investment of focused time and energy to incorporate equity into the DNA of the funding community.

If the goal is equity, the three-year exit and 10x return model cannot be the only lens for evaluation of a viable and lucrative business opportunity. A different approach is warranted, one that is grounded on solid ideas and strong return, which often comes from founders from historically excluded communities.

Be willing to trust us with your network, and we’ll trust you with ours 

No one goes it alone. You need a network. That’s not unique to Black women founders.

Having strong connections and networks is essential, however, nearly 1 in 4 Black women entrepreneurs believe the top challenge they face as a business owner is lack of mentorship and limited networks. Sharing your knowledge, connections and experience is another way to invest in Black women. Fifty-eight percent of Black women founders believe they would be more successful if they had a stronger network, according to LinkedIn’s survey. Black women need visibility, access and opportunity, and investors must be all in. That means bringing the full force of your networks behind Black women founders.

The investment is a far richer experience when investors trust Black women with their networks and are open to taking meetings within their networks. As investors, this presents the opportunity to expand your network and cultivate a future investment pipeline. Diverse networks are how investors begin to see Black women leadership and the path to profit.

So where do we go from here?

Black women are the largest group of new entrepreneurs, but why are they so severely underfunded? Lasting transformation requires being intentional and acknowledging that what we’ve done has not worked. Overcoming long-standing systemic issues in venture funding requires vigilance and doing the hard work from the inside out, including a shift in mindset. If you change how you view Black woman-founded businesses, you’ll be investing in remarkable startups with amazing potential and scale.

Ty Heath is the director of market engagement for the B2B Institute at LinkedIn and the co-founder of TransformHer, the premier conference for professional women of color and allies in technology. Leading with research, she engages and educates business leaders on how to create more value with marketing effectiveness strategies. 

Illustration: Dom Guzman

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