Black women are the fastest-growing group of entrepreneurs in America, with the number of businesses owned by African-American women seeing growth at 322% since 1997, according to the 2015 State of Women-Owned Business Report. But Black women-led startups are undercapitalized compared to other startups. In fact, according to the #ProjectDiane report released today, Black women startup Founders raise $36,000 on average, while the average (mostly White, male-led) failed startup raises $1.3 million.
The release of the #ProjectDiane report comes after a year of surveying, examining and studying 88 Black women-led startups by digitalundivided, a social enterprise that helps diverse urban entrepreneurs build scalable, investable tech companies. At the heart of the report, digitalundivided found that only 11 Black women-led startups raised more than $1 million from outside investments.
“Of the 375 companies initially reviewed, only 88 of them fit the definition of a startup in terms of our definition, and at least had an MVP [Minimum Viable Product]. A majority of the 375 were consultants, and we saw that as a huge opportunity,” says Kathryn Finney, founder of digitalundivided, which produced the report. “How do we harness these people who are already entrepreneurs? How do we get them to translate their businesses into scalable businesses and products?”
Digitalundivided is calling on foundations with an economic empowerment focus, individuals with a deep connection to diverse communities, and government and civic organizations that serve diverse populations to join the social enterprise in finding solutions to this problem.
“One of the key things is, foundations and civic institutions are the real change agents in this,” says Finney. “VCs are not going to lead change. The people who can lead change are their limited partners. So the pension funds of New York and California and Ohio and the endowments of large foundations like the Ford Foundation and the Rockefeller Foundation, those are the people who can make some real structural changes. So we call on civic institutions to divest from funds that are not supporting diverse founders.
“We also say, ‘stop funding legacy organizations that don’t have the skill set to do this work,’ ” she continues. “We need organizations that know how to do STEM work and create pipelines with an actual structure. And for city governments, we say: create funds. The city of Portland created a $1.25 million fund with the state of Oregon to invest in diverse founders. These are relatively easy solutions.”
EBONY.com caught up with digitalundivided founder Kathryn Finney to discuss the report, its findings, and the outcomes in terms of solutions.
EBONY: Were there patterns or similarities amongst the 11 in the $1 Million Club?
Kathryn Finney: To be honest, the 11 were the ones we could independently verify that they actually raised what they raised but we actually think there were closer to 15. Some of the things we noticed was that most of them weren’t tech people, they weren’t STEM. Business was their background which means they knew how to sell. The biggest thing for a startup in terms of raising funds is that you have to sell and convince someone to give you substantial amounts of money. What we realized is that most of these founders raising over $1 Million were raising institutional rounds early, so they were raising their Series A round at $1 Million, which means there wasn’t enough Seed and early money to get them to $3 Million, as defined as a Series A by Female Founders Fund. So there’s a huge problem in raising Seed funding, we’re just not raising enough.
EBONY: Today it seems that investors are looking for growth and that a great idea is no longer enough. How does that play out with this realization?
KF: To get to the point of doing a real pitch deck, Black female founders aren’t even getting the funding to do that. For instance, we looked at accelerator programs particularly the top ones like Y Combinator, 500 Startups and TechStars and we could only identify 5 Black Women graduates and we took out anyone who was a nonprofit. So we’re not getting that network that the early pre-seed funding gets. When you go to these accelerators you’re coming out with $100,000 – $150,000 easily, which is significantly higher than most black women get period. So we’re not getting that risky money. We’re not getting that money to then build the data to then be able to get the large institutional rounds.
EBONY: What about Silicon Valley trying to diversify and become more inclusive?
KF: Tech is not looking for inclusion per se, but they’re looking for assimilation. They’re looking for Blacks and Latinos and women, but they are looking for these groups as versions of themselves. The problem with that is there are very few Latinos, Blacks and women who will have the same experiences as a white 25 year old male who went to Stanford. That’s one of the reasons they’re having a problem recruiting. There was a great piece in Bloomberg about Howard University doing all of these things to get students ready for Silicon Valley, but it isn’t happening. It’s because the kid who went to Howard has a very different life experience then these dudes at these companies. So it’s a problem for funding as well. Most of these entrepreneurs and executives in Silicon Valley go on to be investors.
EBONY: Is part of the problem with the Black female-led businesses not having a techie as a founder?
KF: No, not really. We would’ve seen more folks from Stanford then. There were other schools including UNC Greensboro. MIT was represented in the group and they did raise the most. I don’t think that’s the problem. There are a lot of white female-led startups that are raising money without a tech founder. At the core of it is value. If you have some sort of biases within you that a Black woman or Black person can be a leader, then you probably won’t invest. And that’s really the foundation of it.
EBONY: How do the solutions you propose tackle unconscious bias?
KF: That’s why we don’t focus on those who will have the most unconscious bias. All of those biases are so deeply rooted. We know that local governments do care. We know that foundations that have economic and social justice at their core care. What we’re doing is we’re empowering them and letting them know they can change this. It’s not hard for a city like New York to create a $1.25 million fund. It’s not hard for foundations to create funds that invest in diverse founders. People haven’t thought about it in that way. They have thought about doing STEM programming but here’s another way to do this.
EBONY: So the answer is not inclusion within the ranks of the existing Silicon Valley businesses?
KF: Our laser focus is on Black and Latina women and how we can help them create scalable businesses. How do we increase that 11 to 24 to 40 to 50 to 100? Because we know when those companies sell and they make their exits, they become the next investors. Our approach has always been to seed this pipeline and continue this pipeline on. We hope that more organizations like ours are funded and highlighted and that there are less events where people are just talking about this about but instead creating actual actions. We need projects that help create and build these companies.
EBONY: And we need money?
KF: We need to start having deeper conversations around equity and money in our community and not being afraid of money. That’s one of the reasons why we’re not in this game. In tech, there’s this belief that the reasons we’re not in tech is because we don’t have jobs in it and that we don’t understand entrepreneurship, and we need to have discussions about that.
Lynne d Johnson has been writing about music since the early 1990s, tech since the late ’90s, and the intersection of music and technology since the early 2000s. She currently writes, teaches and consults companies on how to better engage with their audiences. Follow her on Twitter @lynneluvah.