New report shows black founders receive less than 3% of venture capital funding
Capital risk funding has long had a problem of diversity. With many companies at the forefront of new diversity and inclusion initiatives, many have pleaded for more resources to help black entrepreneurs and businesses secure capital funding to start and grow their brands.
Now a newly published report of Crunchbase shows that as of August 31, 2020, the founders of Black and Latinx have raised $ 2.3 billion in funding, which is only 2.6% of the total of the $ 87.3 billion in funding that has been allocated to all founders so far in 2020. Experts say the gap stems from the racial wealth gap, which makes many black people entrepreneurs to be excluded from opportunities to receive venture capital funding.
“The lack of funding from black and Latin founders is the result of historic gaps in the wealth of the community, followed by limited exposure and opportunities to secure capital,” said Marlene Orozco, senior research analyst at Stanford Latino Entrepreneurship Initiative in the report. His advice on the investment side is that “we need more capital providers and investment professionals to engage with the founders of Black and Latinx as a prudent investment strategy that should be integrated. to their core portfolio, rather than being set up as a separate, niche or impact program. . “
Unlike their white counterparts, black and Latin founders face unique challenges as underrepresented voices within the community to secure the funding needed to support the development of their businesses throughout their culture.
“Receiving $ 50,000, $ 100,000 – and sometimes more – from family and peers is not part of the journey of the average black founder,” serial entrepreneur James Norman said in the report. “Personal loans, credit and daily wages often serve as a substitute for easily accessible capital from their social network. “
Harlem Capital Partners co-founder Henri Pierre-Jacques said in the report that it is necessary to support these marginalized companies from the start so that they have the chance to succeed. He says that to solve their diversity problem there needs to be access to “diversity-focused seed funds – because the problem starts with pre-seed and seed – to give the diverse founders a chance to earn money.” ground. Large funds will not solve this problem in the short term, partner rotation takes too long, and the number of new team members added is too small.