Just 0.2pc of venture capital in US went to black women founders

11 Feb 201657 Shares

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On average black women start-up founders raised just $36,000

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Out of some 10,238 venture deals signed between 2012 and 2014 in the US, only 24 deals went to companies with black women founders – a stark figure of just 0.2pc at a time when Silicon Valley is dealing with a crisis of conscience over the treatment of minorities in its ranks.

The #ProjectDiane study by DigitalUndivided entitled The Real Unicorns of Tech – Black Women Founders paints an uneasy picture of tech entrepreneurship in the US at a time when black women represent the fastest-growing group of entrepreneurs in the US, with more than 1.5m businesses. This is a 322pc increase since 1997.

The study found that, on average, black women start-up founders raised $36,000, while the average, mostly white-male-led, failed start-up raises $1.3m.

Black women founders are highly educated, the study found, with 92pc of founders holding an undergrad degree and more than 60pc of them are alumni of the top 20 ranked schools in the US.

67pc of the black women founders who raised more than $1m in funding graduated from prestigious Ivy League colleges.

Nine of the 12 female founders who were found to have raised more than $1m in outside funding worked in a tech company at some point in their career.

black-women-in-tech

‘The tech industry is quite myopic when it comes to inclusion. The industry sees diversity and inclusion primarily as a human resource issue, but not a market opportunity’
– #PROJECTDIANE

US accelerators need to work harder on diversity too. 34pc of black women founders in #ProjectDiane were a part of an accelerator programme at some point in the development of their companies. The report found that those who were in these programmes were almost 40pc more likely to receive funding (83pc) than founders who had not been involved in an accelerator program (45pc).

Black women founders are severely under-capitalised in the US

The report indicated that black women represent 4pc of the total number of women-led tech startups (2,200) in the US.

The $36,000 average amount raised by black women founders is less than a third of the lowest average raised for pre-seed funding ($100,000-$500,000 at idea stage) and .01pc of the $41m average raised by companies that exit.

More than 50pc of the founders in #ProjectDiane reported receiving less than $100,000 in funding or investment, suggesting that they are tapping into resources outside of the traditional venture capital or angel networks, such as retirement accounts and personal savings, to fund their companies.

As mentioned previously, only 12 black women founders raised more than $1m in outside investment. The sustainable chemical company, Kiverdi, has raised the most outside funding at a reported, but unverified, $40m-plus.

Only four black women-led companies have raised more than $5m in outside venture capital.

A small pool of angel and venture investors fund a majority of black women founders. For those in the $100,000-$1m funding range, a majority of their funders were local accelerator programmes and small venture firms (managing less than $10m).

One angel investor, Joanne Wilson and Gotham Gal Ventures, has invested in three of the 12 companies that raised $1m.

“Black women founders have the drive and skill to lead successful start-ups that can have a profound impact on their communities,” the #ProjectDiane report said. “However, they continue to be severely undercapitalised with little to no structures to acquire the funding and social capital necessary to scale a successful start-up.

“The tech industry is quite myopic when it comes to inclusion. The industry sees diversity and inclusion primarily as a human resource issue, but not a market opportunity.

“As a result, the industry tends to fund inclusion initiatives, and leaders, that focus more on assimilation into current systems rather than those with bold ideas for diverse market penetration and adoption. This limited view of the impact inclusion can have on the tech industry is a major reason for its dismal diversity employment and funding numbers,” the report said.

Start-up founder image via Shutterstock

Updated 23 February 2016: This article was updated to reflect that black-women-led start-ups account for 4pc of women-led start-ups in the US.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com