Untapped Opportunity: Minority Founders Still Being Overlooked

Maybe the VC community is tired of hearing about it; certainly, there are plenty of people who are tired of dealing with it. And yet, the funding landscape for minority and women-owned startups continues to underwhelm.

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In fact, most venture-backed startups are “still overwhelmingly white, male, Ivy League-educated and based in Silicon Valley,” according to a recent study conducted jointly by RateMyInvestor and DiversityVC.

Other key findings of the report which examined publicly available VC-backed deals over the last five years and polled over 10,000 founders:

• 77.1 percent of founders were white—regardless of gender and education.
• Just one percent of venture-backed founders were black.
• Women-funded startups received only 9 percent of investments.
• Latino founders made up 1.8 percent of those receiving funding, while Middle Easterners totaled 2.8 percent.
• Asians were the second most-backed group, making up 17.7 percent of venture-backed founders.

While many VCs have publicly declared they are working on diversity initiatives, that dialog is “just lip service,” said Anthony Zhang, RateMyInvestor’s chief growth officer.

Those in the VC-seeking trenches echo the report’s findings, with some industry advocates saying the responsibility lands particularly hard on women to address the issue.

“A lot of the pressure is on women to fix this very deep-rooted problem, and that’s not going to work. We alone as women cannot fix this industry’s problem, where frankly the gatekeepers are dominated by men,” said Allyson Kapin, founder of Washington, D.C.-based Women Who Tech, a nonprofit focused on advancing women in technology. Kapin is also founder of Rad Campaign, a web design firm that works with nonprofits and “socially responsible” businesses.

“It’s up to the investor community at large to be intentional about building relationships, and ultimately funding, more women-led startups…,” she told Crunchbase News. “We’ve had diversity pledges and a ton of media coverage, but what we’re seeing is there’s a lot of talk but very little action.”

In an effort to give women in tech a boost, Kapin—alongside Craig Newmark (founder of Craigslist and Craig Newmark Philanthropies)—kickstarted the annual “Women Startup Challenge” to address the disparity in VC funding for women-led innovation.

There, But Overlooked

The lack of diverse founders is not a pipeline problem. In fact, there are plenty of women and people of color starting viable high-potential companies, said Brittany Davis, director of deal flow at Backstage Capital, a VC firm with a mission of investing in women, people of color and LGBT founders.

“On the investment team here, we see thousands of promising underrepresented startup founders seeking capital every year, and the opportunity to tap into a more diverse pool of founders is real,” she told Crunchbase News.

For its part, Backstage Capital has so far invested in 100 companies, launched an accelerator, and established the “It’s About Damn Time” fund, a $36 million seed investment vehicle that supports underrepresented founders that it said were initially overlooked by many VCs.

“So, the founders are out there, but most VCs just are not looking,” Davis said. “And even when funds do encounter more diverse founders, they often don’t see the opportunity because either the founder or their business doesn’t fit into their box of what they predict will be successful.”

The Human Cost

The report reflects more than just a lack of cash flow to this segment of founders, but it also points to what some founders experience on a personal level as well.

“I have been conditioned to know my gender will be an issue,” said former VC Farah Papaioannou. “I expect it with customers in male-dominated industries like oil and gas, but where I have seen the most challenges is with VCs.”

Papaioannou is also co-founder of Edgeworx, a Silicon Valley-based edge computing startup, where she recalls VCs talking “past” her in meetings or only addressing her male co-founder, Kilton Hopkins.

“At one point, one directly asked me why I was even at the meeting,” she told Crunchbase News. “Fortunately, I have the best co-founder when it comes to these issues. Where I am used to it, he would get outraged and refuse to take money from VCs like that.”

Although most startups are eager to score cash whenever they can, Papaioannou said principles played a higher role for her team than dollar signs. Case in point: During her pregnancy she felt it necessary to hide the fact that she was expecting until she and her co-founder decided they didn’t want investors who would have an issue with it.

“I delivered my son and closed our first customer on the same day, so my pregnancy wasn’t an issue at all,” she said. “In fact, my son is added motivation.”

Reality Check, Diversity Fatigue

Some VCs may be weary of reading stories about the lack of diversity and inclusion in tech, according to Joah Spearman, co-founder and CEO  of Austin-based online travel guide Localeur.

“No VC will publicly say they are tired of this story, but their actions validate that this is not something they are treating with the kind of urgency they would demand their portfolio companies apply to monetization, hiring, or growth strategies,” Spearman told Crunchbase News.

This story will only go away, he said, when the people in position to change the story take action and when venture capital as an institution makes it a priority to add general and venture partners of color in their new funds along with attacking – not just addressing – the subconscious bias that continues the negative cycle.

Until then, reports like this one will continue to highlight the ongoing discrepancies.

Note: This story was updated to more accurately reflect the figures cited in the report.