When George Flloyd was murdered at the end of May and protests for racial justice spread across the county, venture capitalists rushed to pledge their support, including commitments to start funds focused on diverse founders, pledges to donate to racial justice organizations, and offers of mentorship and support for Black founders.
Months have passed since then, have these initiatives made a dent in how the VC world does business? It’s obviously too early to see much movement in the data on deals done and people hired, but it’s not too soon to get a gut sense of the lived experience of Black founders currently raising money.
Now that the cameras are turned elsewhere, do VCs really have a new commitment to funding Black founders? Serial entrepreneur Don Charlton has a unique perspective from which to answer that question.
Different decade, same numbers
Charlton describes himself as “an OG in being an African-American in tech.” Back in 2009 he founded a small business recruiting software company that eventually came to be known as JazzHR, raising $24.5 million from VCs over six rounds to build the business.
Now, just over a decade later, he is once again building another startup, video messaging tool Kommute, from the ground up. It’s early days for this second business but Charlton has thus far raised a $400,000 pre-seed round. Has he noticed any significant changes pitching VCs as a Black founder this time around?.
“Silicon Valley and the tech community thrive on the idea that they make data-driven decisions. So to answer that question, the number one thing you can look at is the data. We’re still talking about that less than 1% number. I heard that number in 2009. I heard that number in 2019,” he says, referring to the much cited statistic that less than one percent of VC funded founders are Black.
Other statistics around diversity in venture capital remain equally dismal. Eighty percent of VC firms have no Black investors, according to BLCK VC. When a group of a group of Black founders and investors got together to crowdsource a complete list of venture-funded Black American founders they came up with just over 400 names. To put that in context, the industry did 10,777 deals in 2019, according to Pitchbook. As of 2018, just 34 Black women had raised over $1 million.
The running back metaphor
All of this shows that, despite whatever was said or tweeted this summer, there remains a long way to go, though one could argue there could perhaps be a lag between actions taken and reporting of their impact. Does Charlton sense any leading indicators on the ground that Black founder may now be getting a fairer reception from investors?
“There’s more awareness. There’s more conversations around it,” he acknowledges. “But there are organizations that were supporting Black founders that are more than five years old at this point. There’s still less than 1% having been raised.” That lack of momentum, he feels, traps diverse founders in a vicious cycle.
Charlton used a football metaphor to make his point: “There’s a stereotype that the best running backs are African-American and that permeates all the way down into Pee Wee football. What happens is, if you put a white kid and a Black kid on a team, you’re giving the Black running back 99 carries to prove they’re a good running back. The white running back, he only gets one carry to demonstrate that he can be successful.”
The same thing happens in reverse with Black founders and investors. Because there are fewer examples of Black founders with blockbuster successes, investors (perhaps unconsciously) are less likely to give Black founders a chance. Fewer tries leads to fewer visible results, and the cycle repeats.
To break out of this loop, Charlon urges investors to focus more on the ratio of opportunity to success of Black founders.
“The narrative gets created that we don’t see any African-Americans build really big tech companies. And I like to say, well, we don’t see many African-Americans who raised a million dollars. How was an entrepreneur ever going to build a multi-billion dollar business being African-American if we’re not even getting to take those big swings?” he asks.
“Tons and tons and tons of Asian and white males get to make tons of mistakes,” he adds. “I think African-American entrepreneurs don’t get as many zero revenue dollars. I was able to raise 400K on me. But that’s only because of my previous company.”
Other Black founders agree. “Ultimately, I ended up raising VC money because I had bootstrapped my company The/Studio to an 8-figure revenue by pouring years of my life, soul, and capital into the company. If I had tried to raise VC money at The/Studio’s outset or very early stages, I am certain there is no way I would have succeeded,” Joseph Heller, the Black founder of The/Studio has written.
“I’ve heard ‘we’re looking for proven founders,’ then a few months later that same fund would back a similar idea by a white founder,” Black founder Daniel Gordon told TechCrunch. Several other minority founders share similar stories in the article.
Tips for Black founders who are fundraising
Given the atmosphere for Black founders hasn’t yet shifted as much as one might have hoped following this summer’s investor publicity blitz, Charlton offered fellow Black founders a handful of tips for succeeding despite continuing bias in the industry:
- Focus on social capital: Relationships are gold and can make or break your chances. Charlton offers the story of meeting one of his investors, Paige Craig of Outlander Labs, as an example: “Paige made me feel like a white guy. He called me up, said that he was using my product. We had an hour-long conversation. Right after that he said, ‘I’m going to invest a hundred thousand dollars. I’m going to introduce you to my network.’ And I raised $700,000 in three days or so because of that.”
- Network relentlessly: If you want to find your own Paige Craig, you can’t be too proud or too busy to build relationships. “Try to dedicate some time on your calendar every week to having at least two to three 30-minute conversations because ultimately, the investment community puts a barrier up based on people they know. You just have to start where you are and keep asking for introductions,” Charlton says. He also recommends doing every pitch competition you can for the same reason.
- Learn the lingo. Do “anything you can do to show that you’re not just ahead of the average African-American entrepreneur, but you’re ahead of any white guy,” Charlton advises. Overprepare, familiarize yourself with what’s expected of founders, and learn the particular lexicon of investing. It will give you a necessary leg up.