Diversity Startups Venture

From The Editor’s Desk: What We Learned From A Year Closely Covering Diversity In The Startup Ecosystem

From the Editor's Desk

A year ago, Crunchbase News set out to more closely cover diversity—or lack thereof—in the startup world. Though much has been reported on the dismal state of venture funding to underrepresented founders, we felt we had a unique vantage point on the issue, with our access to Crunchbase’s Diversity Spotlight data and our frequent coverage of the issues facing early-stage entrepreneurs.

We called this ongoing reporting project Something Ventured. For the past year, we’ve chronicled the challenges and triumphs of a very diverse group of early-stage startup entrepreneurs as they’ve grown their companies. At the same time, we probed the larger issues at play: Despite record-shattering venture investment in 2021, Black, Latino and female startup entrepreneurs continue to receive only single digit percentages of that capital. 

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I’ve learned a lot from this coverage, especially from the stories that founders and investors shared with us. With that in mind, here are some of the key points that stand out to me as we wrap up our year-long Something Ventured series.

Things are improving—but not fast enough

In the year following George Floyd’s death in the summer of 2020, venture funding to Black entrepreneurs more than doubled. In dollar terms, funding to Latino and to female startup founders also increased in 2021.

But those increases all came during a year of record startup investment—global VC funding nearly doubled year-over-year to more than $640 billion in 2021, Crunchbase data shows. Black founders received only around 1.3 percent of total venture funding last year—up from 2020, but still a tiny fraction. On a percentage basis, funding to Latino founders has largely stalled, and for sole female founders, it actually fell last year.

The proportion of new companies joining The Crunchbase Unicorn Board with at least one female founder in 2021 was the highest proportion since 2015, though still only 14 percent.

In other words, progress remains a mixed bag. A larger pie means there’s more funding to go around, but startup founders from nontraditional backgrounds are not yet receiving the same levels of investment as their peers.

“We want to make sure that the next leaders of the tech ecosystem of the U.S. reflect the diversity of our nation … Change is not yet meaningful enough. We believe that institutional changes result from the changes in our networks,” BLCK VC co-founder Sydney Sykes said last year. “Do the people we interact with today, the entrepreneurs we fund, the friends we interact with — are those different from a year ago? I don’t know if that’s true yet.”

Seed funding remains key

Every future unicorn or successful exit needs to start somewhere, with that first round of funding, and that begins with an investor who’s willing to place a bet on a risky idea.

Because seed-stage entrepreneurs typically have little more than a promising idea to go on, they’re more likely to be assessed by potential investors on squishy, subjective criteria rather than provable business metrics. That means underrepresented founders who don’t fit the typical mold of what a startup founder looks like— young, white, brash, male—often have the door shut in their faces before they’ve even had a chance to make a go of a viable idea.

But we’re starting to see that change. Some historically Black colleges and universities (HBCUs) have launched programs and are tapping their alumni networks to encourage entrepreneurship and get students and alumni involved in the startup ecosystem. And more venture funds are specifically looking for entrepreneurs who don’t fit the typical mold. 

As Marlon Nichols, a co-founder and managing partner at MaC Venture Capital, told me last year: “Usually, the best people to create solutions, or see challenges, or to go after opportunities, are the folks that have lived through or have significant experience with those challenges and the underlying opportunities. If we’re taking a look at Black culture or Latinx culture and trying to solve some of their biggest pain points, we’d be idiots to ignore entrepreneurs that are coming from those communities.”

As venture investors last year found themselves competing fiercely with each other for deals, they became more open to considering investments they might otherwise have overlooked, whether it be in founders who didn’t fit the usual stereotype, in areas outside of Silicon Valley, New York and Boston, or in the sorts of ideas they hadn’t previously considered.

We’ve seen that reflected in our Something Ventured coverage too. Three of the five seed-stage startups we followed for the series have successfully raised their Series A rounds in the past year: Metafy, a gaming coaching platform led by Josh Fabian, a Black first-time founder; e-commerce startup Repeat, led by LGBTQ female co-founders Kim Stiefel and Sarah Wissel; and Daybreak Health, a mental health startup led by Alex Alvarado, who is Latino and also a first-time founder. 

The other two startups we tracked—Sote, a logistics startup co-founded by Black entrepreneurs Felix Orwa and Meka Este-McDonald, and Joro, first-time female founder Sanchali Pal’s carbon-tracking app—have shown rapid growth that positions them well for their Series A raises.

We need more diverse check writers, too

Although venture investors too have raised unprecedented amounts of capital in recent years, only single-digit percentages of those check writers are Black, women or Latino. 

For example, female-founded venture firms in the U.S. raised more than $7 billion to invest last year–a new peak—but their percentage of the total dollars raised hasn’t increased meaningfully in years. Similarly, Black investors comprise only an estimated 4 percent of partner-level roles at VC firms, despite gains in recent years.

“We need to have women and other underestimated minorities be check writers,” entrepreneur Lolita Taub, who recently launched her own early-stage venture firm, told us last year. “It’s all about who’s writing checks and seeing these opportunities.”

Even amid uncertainty, our priorities should be clear

While we’re wrapping up Something Ventured, Crunchbase News will continue to report on diversity in the startup world and hold the industry to account. We hope that this year will see meaningful progress—not only in the dollars going to underrepresented founders, but also in the share of overall venture investment diverse entrepreneurs receive.

There’s a risk that amid a venture funding slowdown in 2022, the focus on improving diversity will be sidelined. We shouldn’t let that happen: in times of uncertainty, it’s especially important that we expand access to capital to more entrepreneurs.

Illustration: Dom Guzman

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