Venture capital funding has long had a diversity problem. With numerous corporations spearheading new initiatives on diversity and inclusion, many have been advocating for more resources to help Black entrepreneurs and businesses secure capital funding to start and expand their brands.
Now, a newly published report from Crunchbase shows that as of Aug. 31, 2020, Black and Latinx founders raised $2.3 billion in funding, which represents just 2.6% of the total $87.3 billion in funding that has gone to all founders so far in 2020. Experts say that the gap stems from the racial wealth gap, which causes many Black entrepreneurs to be left out of opportunities to receive venture capital funding.
“The lack of funding to Black and Latinx founders is a result of historical gaps in community wealth followed by limited exposure and opportunities to secure capital,” said Marlene Orozco, the lead research analyst at Stanford Latino Entrepreneurship Initiative in the report. Her guidance from the investment side is that “we need more capital providers and investment professionals to engage with Black and Latinx founders as a prudent investment strategy that should be folded into their primary portfolio, rather than constituted as a separate, niche, or impact program.”
Unlike their white counterparts, Black and Latinx founders face unique challenges as underrepresented voices within the community to secure the necessary funding needed to support the developments of their businesses through their cultivation.
“Receiving $50K, $100K—and sometimes more—from family and peers is not part of the average Black founder’s journey,” said serial entrepreneur James Norman in the report. “Personal loans, credit, and day job salaries often serve as a substitute for readily accessible capital from their social network.”
Harlem Capital Partners co-founder Henri Pierre-Jacques says in the report that it is necessary to provide support to these marginalized businesses early on so they have the chance to succeed. He says that in order to address their diversity problem, there needs to be access to “funding early-stage, diversity-focused funds—as the problem starts with pre-seed and seed—to give diverse founders a chance to gain traction. Large funds will not solve this issue in the near term, rotation of partners takes too long, and the number of new team members added is too small.”