Lack of diversity at VC firms holds back Black-owned businesses

The world of venture capital is known for being overwhelmingly white. In fact, Deloitte’s 2021 VC Human Capital Survey found that just 4% of investment professionals at VC firms are Black. When you consider that Black and Latinx founders received just 2.6% of all VC funding raised in 2020, it’s not hard to join the dots between a lack of diversity and the lack of funding for Black-owned business.

A knock-on effect

Sadly, the world of investment is often about who you know. Monique Woodard of Black Founders sees this as a big barrier to Black entrepreneurs accessing investment. They’re much less likely to have wealthy family members or personal connections who can back them financially: in 2016, the average wealth of a white family was more than 10 times that of a Black family. “Warm introductions” are a common way to access venture funding, but this means that funding often stays in the – predominantly white – social circles of Silicon Valley.

Slow progress

As in many other industries, the Black Lives Matter protests in 2020 saw renewed scrutiny of racial disparities in VC, with many firms pledging to implement positive change. However, these promises don’t yet seem to have materialised into concrete action. Elliott Robinson, who’s on the board of BLCK VC, says that any efforts to address diversity in VC so far have been largely symbolic.

It’s all about firms putting their money where their mouth is. Speaking to Wired, Woodard points out that there’s too much mentoring and not enough actual investment for Black entrepreneurs. Mentoring initiatives are all well and good, but they don’t seem to translate into more Black people receiving jobs and investment. They’re still not accessing work and investment on the same level that white people are.

Brian Dixon, an investment partner at Kapor Capital, outlines three important actions VCs can take to address the industry’s race issue: hire more Black people, invest in Black-owned companies and hold their firms accountable. Or as Tiffani Ashley Bell of Human Utility said on Twitter: “make the hire, send the wire”.

Hope for change moving forward

Progress may be slow, but opportunities for Black investors and entrepreneurs are increasing. While VC firms themselves need to start making more hires and wires, organisations like BLCK VC are doing amazing work to increase diversity in VC. One way they’re doing this is by getting more Black people hired as scouts, to find new – and diverse – investment opportunities.

In the UK, Extend Ventures is an organisation seeking to increase diversity in VC using data and machine learning. CEO Erika Brodnock is also co-authoring a book with Cambridge University researcher Johannes Lenhard called Better Venture,  which will look at “diversity and inclusion in venture capital—who funds, who gets funded, what needs to change, and how to make it happen.”  

Funding initiatives specifically for Black entrepreneurs are also springing up more and more. For example, Google now has a Black Founders Fund and there are some leading VCs who are Black-owned and seek to invest solely in Black business, like MaC VC. For purpose-led businesses, there are firms like GOODsoil, which invests in pre-seed and seed-stage businesses with diverse leadership that are striving to make a positive impact. And of course, there are also other ways to find funding, for example through equity crowdfunding schemes likeRepublic. This is a great way to democratise funding and leverage your own communities and connections to raise money.

Climate change is an intersectional issue and we can’t fight it without ideas and solutions from Black communities. Likewise, many social issues are inextricably linked with race. It’s vital that Black people have a voice and influence in the world of VC and that Black purpose-led businesses are able to secure the funding they need to make a difference.