Black Women Still Receive Just A Tiny Fraction Of VC Funding Despite 5-Year High

Editor’s note: This article is part of Something Ventured, an ongoing series by Crunchbase News examining diversity and access to capital in the venture-backed startup ecosystem. As part of this series on venture funding to Black entrepreneurs, we also look at how venture funding to Black startup founders has grown over the past year and at Georgia, the state that invests the highest percentage of its VC funding into Black entrepreneurs. Access the full Something Ventured project here. 

Joanna Smith, the founder of edtech startup AllHere, recently raised an $8 million Series A after bootstrapping her company first. A former middle school math teacher, Smith opted to go through two accelerator programs to learn how to pitch investors and develop a repeatable sales and operational process.

“The hardest part is, honestly, access to the network,” Smith said of building her company. “Prior to when I started my company, my frame of reference was teaching 6th and 8th grade math. I had a strong network of customers, but not a strong network in Silicon Valley. And I didn’t have any personal experience as an investor. And I think sometimes access plays a role in a founders’ capability to raise.” 

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Smith is a Black woman and her company is one of a still tiny but growing number of startups led by Black women to raise venture funding.

While Black female startup founders have received just 0.34 percent of the total venture capital spent in the U.S. so far this year — a far cry from being representative — the dollars invested in their companies is on the rise, an analysis of Crunchbase data shows.

Venture funding to U.S. startups led by Black women is on track to outpace the past five years, according to Crunchbase data. Startups with at least one Black woman as a founder have raised around $494 million so far in 2021, already surpassing the $484 million raised in all of 2018, the previous five-year high, according to our data. 

Notably, Black women are better represented in the subset of funded Black founders than women in general are among all the funded startups in the U.S. About one-third of funding to Black startup founders every year goes to companies led by Black women, while funding to female founders overall is consistently in the single-digit percentages. 

The data also shows that by funding round count, 40.5 percent of funding to Black founders in 2020 went to Black women. On the flip side, that figure also suggests that the amounts raised by Black women in a funding round tend to be on the smaller side.

The ‘Valley of Death’

Many funding deals to Black women founders happen at the pre-seed or seed level, but there needs to be more investment in subsequent rounds, according to Samer Yousif, chief of staff at BLCK VC, an organization that aims to increase representation of Black investors in venture capital. 

“There’s this valley of death between the seed and Series A,” Yousif said. 

He added that the investor landscape needs to change before we’ll see significant improvement in the levels of funding to Black women founders. That doesn’t just mean more analysts or associates of color at venture firms, but also more general partners who are able to write larger checks.

Funding to U.S. companies led by Black founders reached $1.8 billion in the first half of 2021, per Crunchbase data. That half-year total already eclipses the total funding to Black founders for all of 2018, which was previously the highest year. 

But, it should be noted that the increase in funding to Black entrepreneurs coincides with an increase in venture funding in general. The dollar amount of funding to Black founders is up, but still represents just 1.2 percent of the record $147 billion in venture capital invested in U.S. startups through the first half of this year. 

“There’s a combination of efforts to increase access to capital and nonfinancial resources to get Black women and BIPOC founders ready for investment and ready to build and grow their businesses,” said Bahiyah Yasmeen Robinson, founder of VC Include, a community of diverse and woman-led fund managers and limited partners. “Some of the things I think that have supported that acceleration are Black and Brown specific accelerators and incubators like Camelback and Founder Gym and others. I deeply believe there needs to be more of those types of programs that are also supported by capital.” 

The number of incubators for minority founders is starting to increase, but it’s not increasing fast enough, Robinson said. 

“We don’t have enough best-in-class programs to attack the problem at scale, especially company investments as well as nondilutive capital,” she said, adding that the other component is making sure that fund managers of color are also capitalized to invest in market opportunities. 

If there are more well-capitalized fund managers of color, Robinson believes, access to capital for underrepresented founders will increase as well. VC Include’s mission is to increase investment in diverse emerging managers.

For the majority of fund managers of color who don’t have a diversity lens in their strategy, 30 percent to 50 percent include women and people of color in their portfolio — simply because they’re good companies to invest in, Robinson said of the funds VC Include has engaged with.

Relationships matter

At the end of the day, venture is still a relationship-driven industry, according to Fatima Dicko, CEO of proptech startup Sugar, which recently raised $2.5 million in funding. 

For more Black women to get funded, established investors need to be advocates for underrepresented founders, she said: “For some of these well-established firms, don’t just write the check, don’t just meet with the founder, be the voice that brings other checks into the round.”

Dicko pointed to an August 2020 DocSend data report that found potential investors spent 50 percent more time scrutinizing the “Traction” section — the slide that details milestones and growth metrics of the company — of all-female teams’ pitch decks than they did of all-male teams’ pitch decks. That could be interpreted to mean that women have to prove more to be given a chance.

Implicit bias is a tricky thing, Dicko noted. And it shows itself in different ways. 

“While it is important to have that momentum and come to the table with having done something even without the funding, I do think that the expectations can differ, for sure, of what’s considered early or not,” Dicko said. 

“I think it would be interesting to do some research into who gets funded at the idea stage,” she added.

In Smith’s case, accelerators — especially those that don’t take equity — were instrumental in her ability to raise money, she said.

“Definitely programs that focus on that training and that network, I think, are critical,” she said. “I’ve found those programs to be helpful when they’re equity-free for those founders and companies taking part in them. Whenever those programs are partners with commitments to fund companies once they go through those programs, it’s even better.”

Correction: A previous version of this article misstated the amounts of funding to Black female startup founders in previous years. The previous five-year high was $484 million in 2018; in 2020, U.S. startups led by Black women raised $287 million.

Illustration: Dom Guzman