Mending the racial and gender gap in venture capital has to start with investors. The ROI on these potential investments can no longer be ignored.
Research shows that 77% of venture-backed founders are white and 90% of them are men. Of the 10% that were female founded, less than 1% were black.
Many investors are missing out on some of our society’s greatest entrepreneurial assets, and the reasoning just isn’t adding up. There is a clear racial and gender bias in venture capital inhibiting both investors and up-and-coming founders from revolutionizing success in business.
To truly identify our greatest possible ROI, we have to mend the racial and gender bias within our investments and look to the underrepresented.
What’s familiar isn’t working anymore
Funding a startup comes with high risk. In many cases, bias is born unintentionally with the desire to go with what is “safe” and familiar. Therefore, many investors stick with the demographic they have succeeded with prior.
“They all seem to be white male nerds who’ve dropped out of Harvard or Stanford, and they absolutely have no social life,” said acclaimed venture capitalist John Doerr on his investments in Google, Amazon, and Netscape. “When I see that pattern coming in — which was true of Google — it’s very easy to decide to invest.”
However, leaning into what is comfortable no longer guarantees a return on investment. According to one article, the average startup founded by white males with about $1.3 million in venture capital fails.
On the other hand, the average black female founder only raises $36,000 and still succeeds. With rates such as this, the underrepresented are no longer the only ones hurting from the lack of seized opportunities.
Black female founders are doing more with less
A report by American Express shares that black women are the fastest growing number of business owners in the United States. Their networth comprises 42% of new women-owned businesses, which is triple their share of the U.S. female population at 14%.
Take Gail Warrior as an example. This entrepreneur founded the Warrior Group in 1997, which would become one of the largest women and minority owned construction companies in the United States. It was when Warrior sought a business loan for a company project in 2000 that her trusted bank of two years told her she could not be considered unless she co-signed with her husband.
“I can’t tell you how many times I’ve heard, ‘Don’t take it personal,’” said Warrior. “How am I not supposed to take it personally if I know that if a guy goes in with the same deck, he will have a greater chance at securing the deal?”
Since then, Warrior’s company has come to produce more than $150 million in revenue every year.
According to the Boston Consulting Group, women ultimately deliver revenue more than twice as much per dollar invested than those delivered by men — even when underfunded. Despite receiving only .002% of all venture funding in the past five years, black female founders are changing the landscape of entrepreneurship and investors must take notice and action.
Empower your investments with diversity
Now more than ever is the time for investors to connect with bold new ideas and people. The business world will only become more equal and diverse if we experience the benefits of each other's insights together.
Make connections that open up new conversations, perspectives and even business ventures. It's only a starting point and there's far more progress needed within diverse workplaces, but this is where growth begins.