The Real Reason Latina and Black Women Founders Don’t Get VC Funding
Brittany S. by Hale 5 min read
As the world prepares for continued change in the finance sector, Latina and Black women founders continue to push for funding in the venture capital space. Despite compelling narratives, Ivy-league educations, and dynamic MVPs, these women receive very little money. Although the industry claims to seek disruption and change, these founder experiences show how much prejudice perpetuates the status quo.
“Only 2% of women receive VC funding. We went to investor meetings to learn the bleak statistics but didn’t talk about it. Investors know about the data as well, acting as if it doesn’t exist . Let’s say I accept that reality through the world when the bar is astronomically high. I was meeting people who were working on my vision and asking myself, ‘Is that Is it in the top 1% of women?’ “Whether they are doing it consciously or not, there is a level of pattern-matching in humans,” says Tanya Menendez, founder of Snowball Wealth. “I decided to envision a world where I was an ecosystem. I was operating in the US where 98% of venture capital goes to women. Data already influences the questions people ask. You have to ask yourself, ‘Are they looking for reasons to say yes or reasons to say no?’ I’ve given this a lot of thought, imagining the opposite. So I go to each meeting and study the pitch and the conversation in the mantra of ‘98% of venture capital goes to women’.
Tanya is no anomaly. In fact, she’s like most female founders — more specifically, women of color founders — who often push against the odds for their success. While they have experienced some significant growth over the past few years, women of color founders still grapple with unique funding challenges that directly impact their ability to scale their businesses and, more broadly, make a difference. broadens what has been present in the VC world for a very long time. ,
I currently serve as Interim CEO and Chief Operating Officer at Digital Undivided. I am a founder with a background in litigation, DEIB strategy and leadership development, and led the Digital Undivided team to produce the 2022 publication of our “Project Diane: Latina and Black Women Entrepreneurs in the Tech and Innovation Ecosystem.” This report quantifies the entrepreneurial experience of Black and Latina-founded startups in the United States. Named after respected organizer and anti-segregation strategist Diane Nash, Project Diane examines the current state of venture funding and the opportunities for founders to navigate a landscape that is, at best, challenging and, at worst, hostile.
Companies founded solely by women receive only about 2% of VC capital. So let’s take a look at what this means for Black and Latina female founders. The number of Latina and Black women startup founders who have raised $1 million or more now exceeds 350. Over 100 of these founders have raised over $10 million. If you think that sounds like “enough” and that these founders are in a great position, let’s look at the broader venture capital landscape for perspective. We estimate that the digital undivided founders will reach record levels of wealth in 2021, while the combined share of Latina and Black women founders in venture capital is just a little over 1%. If we evaluate by demographic data, it is .64% for Latina and .41% for black female founders respectively. This is still double the level of funding these founders received in 2020.
Is it that Latina and Black women aren’t founding companies? No. Black women are the fastest growing demographic of entrepreneurs with nearly three million businesses across the United States.
Is it that women are inherently less successful as business leaders? no way. In fact, many of the skills traditionally encouraged in women (relationship building, empathy, emotional intelligence) are fast becoming the most sought-after skills in executive leadership. Research from Business Insider shows that women are more effective leaders than men when assessed by competencies including taking initiative and driving results for change.
Are they setting up businesses in stalled industries? not again. We see Latina and Black women founders in a variety of industries. More than half of the startups covered in the ProjectDiane report are in the health and wellness, business products and services, education, personal care and beauty, and financial services sectors.
So if we know that these women are starting businesses, succeeding as leaders, and projected success across industries, what’s stopping progress? Partiality.
At any given time, our brains are presented with about 11 million pieces of data, but we can process only about 40 to 50 consciously. It’s safe to say, we miss a lot. This is where bias comes in. Prejudice is defined as “prejudice in favor of or against a thing, person or group”. In an effort to be more “energy efficient,” we unconsciously compile narratives, beliefs, and present-sense impressions in order to come to quick conclusions about information and/or people we are presented with.
The bias is why when you read the word “founder,” you think of a young white man in a Brooks Brothers button-up and Patagonia vest, or a young white woman in a black turtleneck. As considerate and compassionate as we believe we are, we are not fully in control of what our mind would have us believe is capable of leadership and innovation. It’s these outdated biases that negatively affect Black and Latina female founders when it comes to valuation.
The Black and Latina founder is under no illusions about his problems. When they’re pacing investor meetings, different data often run through their minds. ,[S]Study pitching, negotiation and frame control, and check your industry inside and out because you have to be very prepared for these conversations,” says Tanya. That over-preparation is a byproduct of succeeding as the exception rather than the rule.
As the threat of a contraction in financial markets looms large, many VCs may seek to deflect from the conversation about the undervaluation of Black and Latina-founded startups. For those who dare to be curious about ways to examine and intercept their biases, the first question to ask is, “What do I believe to be true about these founders?” Ask yourself the following: Do I believe that they are less likely to be successful because of how they present and their life experience? Do I see the problems they are solving? Is it possible that there are problems in the markets that I am not aware of that could be profitable if addressed?
Last, but certainly not least, know that you don’t have to do it alone. Use the data you presented to take action. Engage the people who work tirelessly to develop a more equitable approach to your investment strategies. Don’t let comfort hinder your ability to succeed.
Brittany S. Hale is an attorney and a leadership and organizational design expert. She currently serves as Interim CEO and Chief Operating Officer digital universityLeading nonprofit data, programs and advocacy to catalyze economic growth for Latina and Black women entrepreneurs and innovators.