Over recent years, we have been seeing the rise of Black- and minority-owned startups in the US. In a report published in Fortune, the number of African-American-owned businesses in the US grew at a rate of 60%. Another report published by the US Chamber of Commerce Foundation, close to 30% of all businesses in the US are owned by women.
While these percentages may appear impressive, the actual figures reveal otherwise. According to the US Census Bureau, only 949,318 of the 5.4 million businesses in the US are Black- and minority-owned businesses. This is just 17.5% of the number of companies operating in the country. Of these, over half of these are owned by Asians. Hispanics come in second with over 30%. African-Americans are third, holding just 11.4% of these businesses.
Looking at these figures, you can’t discount the fact that the gender and ethnic gap in the world of startups are very real. One reason for this is that Black-, women-, and minority-owned startups struggle to get sufficient funds to grow, scale, and thrive.
The struggle of getting sufficient funding
Studies show that only 23% of business loan applications get approved by banks.
That’s why startup founders turn to alternative small business funding options to raise the capital they need to launch.
One example is by raising the capital they need through an Early-Stage Startup Investing platform like Republic.co.
Another common option startups use to get funding is by encouraging venture capital firms to invest in them. That’s why they participate in shows like “Shark Tank” as well as various startup pitching competitions held across the country.
Unlike taking out a loan, venture capital firms provide more than financial support. Some have their own Early-Stage Startup Investing platform where the founders get mentorship and support to scale and grow.
Sadly, studies have shown that minority-owned startups share an incredibly small fraction of this.
A report published by Pitchbook revealed that of the over $40 billion of funds raised by venture capital firms, less than 3% of this is allocated to Black- and minority-owned startups. Even more alarming is that this percentage decreases if you fall into more than one minority group.
For example, a startup founded by an African-American male may have less than a 1% chance to receive financing from a venture capital firm. However, if the startup is established by an African-American woman, that figure drastically drops to just 0.2%!
Unable to see the bigger picture
Minority-owned businesses are the fastest of the growing segment today. In fact, it’s anticipated that by 2044, minority-owned companies will play a significant part in the nation’s economy.
Yet, despite all the data published, many venture capital firms struggle to convince investors to capitalize on these startups. According to Monique Woodward, a venture partner at 500 Startups, many investors view these as more of a means of diversifying startups rather than an opportunity for returns. And because many venture capital firms’ revenue model is based on investors to provide funding for the startups they select to back, many find themselves with their hands tied.
Lack of diversity in VC firms
Part of the problem lies as well in the current makeup of many of the venture capital firms in the country. While there are several venture capital firms with people belonging to minority groups in their team, only a small fraction of them are given the power to decide which startups they will invest in and support.
In an interview with Techcrunch, Chamath Palihapitiya—a venture capitalist and former VP for User Growth at Facebook—points out that the way to deal with this is to invite people belonging to minority groups to take a more active part in the decision making process. “We need a wake-up call [to] recapture our potential and open the doors [of opportunity].”
Top VC firms making a differenceFortunately, there are a few venture capital firms that are bridging the gap by prioritizing startups owned by people belonging to minority groups.Click To Tweet
Here are some of them!
1. Black Angel Tech Fund
Black Angel Tech Fund was started by a group of successful Black entrepreneurs and angel investors after a thought-provoking panel about the lack of Black startup founders during the 2015 Stanford Black Alumni Summit.
Since then, they have taken up the cause to use financial resources from successful African-Americans to support Black-owned startups. Among these include OmniSpeech, a startup that provides software programs that enhances the sound quality of different communication platforms, and KIT, a product recommendation platform founded by Camille Hearst.
2. Backstage Capital
Backstage Capital invests in women-, people of color, and LGBT-owned startups. According to its founder, Arlan Hamilton, they chose to focus on these groups because these are the ones that are overlooked and underestimated. Hamilton believes that by supporting these startups, they’ll e able to level the field and bridge the ethnic and gender gap.
Currently, Backstage Capital has invested over $2 million to more than 50 women-, people of color, and LGBT-owned startups. These include Tinsel, which aims to change the consumer electronics landscape by designing wearable tech jewelry for women, and Kairos, a startup that focuses on facial recognition.
Digitalundivided was founded by Kathryn Finney in 2012. Its mission is to champion Black- and Latinx-owned startups, by providing financial support and sound advice that will not only help launch these startups but also scale.
4. Diversecity Ventures
Mariah Lichtenstern’s background of building bridges between the privilege with those that are not prompted her to found Diversecity Ventures. Its focus is to invest in startups that not only aims to make a socio-economic and environmental impact but, more importantly, those that strive to promote cultural, geographic and cultural diversity.
5. EchoVC Partners
EchoVC Partners is a venture capital firm that focuses on investing seed and early-stage startups based in North America and Sub-Saharan Africa. It was founded by Eghosa Omoigui, who was personally responsible for supporting and sourcing investment opportunities in various successful startups such as Facebook, LinkedIn, and Pandora to name a few.
While EchoVC Partners considers itself as a stage-agnostic, it focuses on providing support to startups focusing on consumer, media, data, and devices.
6. Cross Culture Venture Capital
Founded by successful entrepreneurs with reliable track records in investing in companies, Cross Culture Venture Capital aims to support early-stage startups focusing on tech and consumer products.
Through its partnership with the Atom Factory, Cross Culture Venture Capital strives to bridge the existing ethnic and gender gap by investing in minority-owned startups. Among those that they have supported are Blavity, Yumi, and Wonderschool.
7. Harlem Capital Partners
Based in New York, Harlem Capital Partners (HCP) is a venture capital firm that focuses on early-stage, minority-owned startups. Its mission is to invest in 1,000 of these types of startups within the next 20 years, with half of these being women- and minority-owned startups.
HCP focuses its investments towards startups that aim to enhance financial, marketing, and operational experiences.
8. Dreamit Ventures
Dreamit Ventures prides itself not only one of America’s top startup accelerators but also a catalyst of diversifying startup ownership in the country, particularly those that focus on developing Health and Urban Tech solutions.
Its partnership with Comcast Ventures aims to provide financial support and mentorship to minority-owned startups with ready-made products to help them scale through their Dreamit Access program.
9. Gen Y Capital Partners
Gen Y Capital Partners was founded to answer the call of former President Barack Obama to encourage more entrepreneurs to launch innovative companies in the country. This venture capital firm was founded by Lauren Maillian Bias, a serial entrepreneur, and CEO of Luxury Market Branding.
When asked what propelled her to take on the challenge, she answered that it was brought about by her newfound passion for technology. As a result, she was driven to begin investing in tech startups founded by promising entrepreneurs like her.
10. Humble Ventures
Since it was founded, Humble Ventures has invested in 47 different startups, 70% of which are those established by women and entrepreneurs belonging to minority groups. These theCut, The Mentor Method, and KweliTV.
Humble Ventures’ goal is to bring to innovative startups collective human, financial, and technical resources for them to launch and scale.
11. Founders First Capital Partners
Founders First Capital Partners is a venture capital firm founded by Kim Folsom with the goal of providing capital and support to startups owned by women, entrepreneurs from minority groups, and military veterans.
Its goal is to help startup founders not just launch a successful business, but also one that can be carried from one generation to another.
12. Pipeline Angels
Since it was launched in April 2011, Pipeline Angels have invested over $4 million towards more than 40 women-owned startups through various pitch competitions.
At the same time, it’s an organization that empowers women to take up the cause of bridging the gender gap seen among startups by hosting angel investing boot camps for women. One of its notable members is Lillian Lakes, a Research Economist at the US Census Bureau’s Center for Economic Studies. After going through the boot camp, she now serves as an advisor and investor for Blendoor, a merit-based job-matching app.
Another notable graduate of Pipeline Angel’s angel investing boot camp is Kathlene Coleman. Coleman currently serves as Group Manager for Google’s Marketing Solutions where she helps both startups and Fortune 500 companies scale, grow, and thrive.
13. Presidential Innovation Fellows
Founded in 2012, the Presidential Innovation Fellows is a highly-competitive program that aims to partner innovative startup founders with change-makers within the government to help them grow and scale for the better good of the country.
One of the notable fellows in this program is Amy J. Wilson. Wilson is the founder of the Digital Acquisition Accelerator, which is the first government-wide accelerator program designed to inspire a culture shift. She is also the founder of the Better Government Movement—an open-source and crowd-sourced movement that creates toolkits for startups that define government innovation.
14. Valmo Ventures
Valmo Ventures is a venture capital firm founded by Valerie Mosley, a successful entrepreneur who’s made it her mission to help under-represented startup founders growth both their self-worth and net worth.
In line with this, Valmo Ventures’ mission is to create, advise, and partner with startups to transform them into valuable and profitable assets to society as a whole.
15. Base Ventures
While Base Ventures is still a relatively young venture capital firm, it’s already making a mark as far as bridging the gender, and ethnic gap observed among startups in the country. Already, it has raised multi-million dollar funding for startups like StyleSeat and Balanced Payments.
Much of the success of Base Ventures is owed to its founder and Managing Director, Erik Moore. A seed investor of Zappos.com, Moore is recognized as one of the top 25 Most Influential Black in Tech and is driven by his design to change the world by investing in young entrepreneurs.
16. Precursor Ventures
Precursor Ventures is a venture capital firm that provides funding to pre-seed startups developing B2B and B2C software applications and services, and connected hardware.
Although it’s one of the lesser-known firms, Precursor Ventures has willingly taken on the mission to ensure startup founder from diverse backgrounds are given equal opportunity to receive funding to grow and scale their businesses.
At the helm of this is Managing Director Charles Hudson. Hudson has raised over $15 million that was invested in over 50 different startups. Of these, 16% are owned by African-Americans while 31% are startups that have at least one female founder.
Formerly known as Google Ventures, GV was launched in 2009 to serve as the venture capital arm of Alphabet, Inc.
Since then, it’s invested in over 300 startups within the life science, healthcare, artificial intelligence, robotics, transportation, cybersecurity, and agriculture industries. Some of these startups include Walker and Company, Tala, and Vida.
18. Connectivity Capital Partners
Connectivity Capital Partners is a venture capital firm that funds early-stage startups. Through the efforts of its Chief Investment Officer, Denmark West, the firm advocates for diversity in technology by supporting extraordinary startup founders regardless of their background.
Among the minority-owned startups Connectivity Capital Partners has invested in include Kenzen and Kinvolved.
19. Kapor Capital
Located in Oakland, Kapor Capital is a venture capital firm that supports startups not just in a broad range of industries, but more significant, founded by entrepreneurs from different ethnic and gender groups. It’s rooted in the belief that under-represented startup founders possess the competitive edge that makes them fully capable of delivering profitable, tech-driven solutions.
Currently, this venture capital firm has invested in 79 startups, 56% of these are startups owned by a woman or people of color.
20. 500 Startups
500 Startups is one of the top venture capital firms not just in the US, but in different parts of the world. Since it was launched in 2010, 500 Startups has focused its efforts in advancing the cause of diversity within the global tech community, starting with its leadership where several venture partners come from these minority groups.
Among them is Monique Woodward who currently oversees the firm’s $25-million micro fund to support early-stage Black- and Latinx-owned startups in the US, which includes the likes of AllDay Media and Mayvenn.
21. Jalia Ventures
The term “Jalia” means “empowerment” in Swahili, and that’s what this venture capital firm is doing for minority-led startups.
Founded by Kesha Cash, Jalia Ventures aims to deliver a unique blend of financial support and mentorship to startups owned by people of color. At the same time, it provides expansion capital to help over 50 startups owned by people of color to scale. Among these include Red Rabbit, Attentive.ly, and Peartree Preschool.
22. Southbox Venture Capital
Southbox Venture Capital is a firm that focuses on supporting startups developing solutions to enhance the media industry through the use of Big Data and Artificial Intelligence. It also helps startups that focus on mobile and emerging technologies like Blockchain and Cryptocurrency.
23. KEC Ventures
Based in New York City, KEC Ventures was founded by entrepreneurs from different ethnic backgrounds and industries. This unique blend of leadership gives KEC Ventures the ability to discover and support early-stage startups founded by entrepreneurs belonging to minority groups.
Some of these minority-owned startups that significantly benefitted from this venture capital firm are Arsenic TV and Luminate Health.
24. The Harriet Fund
With over 20 years of involvement in entrepreneurship, investment, and due diligence, the Harriet Fund is a venture capital firm that backs tech startups owned by Black and Latinx women.
Through its partnership with Digitalundivided, The Harriet Fund has now become one of the fastest venture capital firms in the country. Its hope is that through their success, others will see the potential in investing in startups owned by Black and Latinx women, and join in the cause to bridge the gender gap among startup founders.
25. Reach Capital
Co-founded by Shauntel Poulson, Reach Capital is a venture capital firm that aims to support minority-led startups striving to help underserved communities in the country, particularly in the field of education.
To date, Reach Capital has supported over 50 early-stage startups developing inspirational, engaging, and educational tools.
The gender and ethnic gap among startup founders are very real. And while the efforts of these top venture capital firms are slowly making a mark, it’s still going to take some time before we see genuine equality in the startup world.
Minority-led startups are no different from white-owned startups concerning potential and risk. The differentiating factors are gender and ethnic background of the founders. Hopefully, the efforts made by these top venture capital firms to shift their focus towards minority-owned startups will open the eyes of others so that they’ll follow suit.
Are there any venture capital firms focusing on helping minority-owned startups that were not included in this list? If so, please tell me more about them in the comments below, so that they can be added here.