How Black founders can access VC funding

A Venture Capital or VC is a firm that focuses on funding startups, enterprises, or businesses at different phases of their progression.

Over the last two decades, the number of Black-owned businesses with paid employees increased to 124,000 in 2017, from 94,518 in 2002, according to a U.S. Census Bureau report. While Black businesses were steadily on the increase, they are reportedly the most hit of the Covid-19, forcing many Black small businesses to shut down.

Despite the growing number of Black-owned businesses, one challenge Black founders are faced with is securing venture capital. Black business owners remain significantly behind their white counterparts. A recent study by Crunchbase showed that Black and Latinx founders received less than 3 percent of venture capital funding in 2020, and have represented only 2.4 percent of the total VC raised since 2015.

According to the National Venture Capital Association (NVCA), Black investors at VC firms account for a very low percentage. White investment partners account for 80% of VC investors, 15% are Asian/Pacific Islander investors, 14% female and, 3% are African American, Hispanic, or Latinx partners. This underrepresentation of investors of color at venture capital firms has led to the poor access of people of color to VC funds.

VC challenges for Black founders

As earlier stated, the major challenge for Black founders securing VC funding is the underrepresentation of Black investments at VCs. There could be several other reasons such as negative investor bias towards Black people’s races, and the fear of higher risk of failure with these businesses. Black owners may also lack access to VC funding due to lower net worth to use as collateral. For Black women founders, the major challenge they face is gender discrimination, alongside other kinds of discrimination and bias that affect Black founders, generally.

In the wake of the Black Lives Matter protest that was reignited by the killings of George Floyd, Breanna Taylor and other Black people by officers of the law, many organizations, and firms, including venture capitals have expressed their commitment to uphold diversity and inclusion, as well as join in the fight to end systemic racism in the country. For the VC industry, funding more Black-owned businesses require that Black business owners re-strategize on meeting up to general VC requirements to access funds.

As a Black business owner seeking VC funds, it is important to do your homework – research, get people’s opinions, prepare your presentation based on your discovery. This would allow you to get your presentation right – pitch to the right firm at the right time with the right information.  

How can Black founders access venture capital funding?

It is important to know that venture capital firms will hardly ever throw away funds at just any business founder or business that applies. Some steps must be taken to qualify. Most importantly, the VCs must see commitment and strong growth potentials in your business. There are two important steps that you must first take if you are a Black founder seeking venture capital funding

First, educate yourself on the industry. This would provide you with the adequate information you need to get on the VC funding train. One key thing with VC firms is that they look out for good investments that have a profitable return rate within a specified timeframe. Other things to look out for are the industries these VC firms are interested in. Are the firms you are pitching or applying to focus on your industry? You are most likely not going to secure funding if you apply in the wrong industry. Another question to ask is, what types of funding do these firms provide? Funding varies from seed capital to startup capital and bridge financing. The VC may also expect a minority stake in the business or other business partnerships.

The monetary goal ahead may seem ‘juicy’ enough, but, it is important to properly weigh the matter to determine if your business is ready to adapt to changes that may accompany the funding. On the bright side, the terms are negotiable and both parties can come to an agreement that works for everyone.

The second step is to create the perfect pitch. This goes beyond a standard elevator pitch. If you want to have a better shot with your pitch, go deeper in research – get to know you will be presenting to and customize your presentation to fit their concerns. This is preferable compared to using a presenting a general pitch of every firm. Also, share your vision and your pitch should be backed by provable facts and figures. Prepare yourself for any possible questions that may arise. VC firms lookout for strong indicators and stability that point towards potential market success. Therefore, you must be ready to show that your business or company has strong leadership/management, a market-worthy product or service, and a growing customer base (known as traction).

More tips for Black founders

• Keep your pitch as real as possible; there is no need to go overboard about the potentials of your company to secure funding. You must understand that most times, your product may not necessarily be the new break in the industry but it could simply improve what already exists. A proper study of the market will show you this.

• Remain Determined: Thousands of businesses get to apply for the same VC funding that you applied for, as a result, there could be moments of ‘no’, “maybe”, or “yes”. Whatever the case may be, keep at it until you achieve your goal.

• Raise capital: While you await major funding to operate or expand your business, you can raise some capital from friends, family, and personal savings to invest in your company.

• Study the market: The markets are ever-changing as new trends and demands arise. Constant study of the market will help you determine what areas you need to focus more on and understand the competition.

Black focused VC firms

Although the number of Black investors is significantly low, some venture capital firms are committed to funding strictly Black businesses and founders. Here’s a list of some Black venture capital firms that provide funding for black businesses.