Why don't more minorities launch VC backed companies? by Rachel ten Brink

Automatic Summary

Why Aren't More Minorities Launching VC Backed Businesses? Understanding the Realities and Setting the Path Forward

A question often raised is why aren't more minorities, such as Latinos and African-Americans, launching venture capitalist (VC) backed businesses? As a Latina, founder, and investor, I've come to realize this might not be the right question to ask. It's important to highlight that women and minorities actually launch numerous businesses in the United States. The real issue arises when we start looking specifically at VC-backed businesses.

Understanding the Facts

Recent reports reveal that 40% of new businesses last year were established by women, and 47% of these were initiated by minority women. Latinos and African Americans launch businesses at a considerably higher rate than the general population. However, when it comes to VC backed businesses, these numbers dwindle.

Despite a strong focus on diversity and equity in the wake of movements like Black Lives Matter and Me too, the number of VC-backed companies owned by diverse founders remains stagnantly low. In fact, Forbes even calculated that VC's miss out on $4 trillion by failing to invest in diverse founders.

How Can We Help Diverse Founders Get More Funding?

The question then arises, how can we encourage VC's and the ecosystem to get more diverse founders funded? Here are a few suggestions:

  1. Diversify both sides of the cap table: By diversifying who gets to allocate funding, we can ensure a fair shake for minority founders.
  2. Encourage diverse ecosystems: Having diverse founders seek out diverse VC's can help bring a variety of perspectives to the business which can increase its potential for success.
  3. Measure success: If we don’t keep track of the numbers, nothing substantial will be achieved. It’s important to hold funds accountable, not just for the number of diverse founders they are talking to, but also for the amount of funding these founders are receiving.
  4. Understand systemic hurdles: Realizing that diverse founders face unique systemic challenges is paramount. From limited personal resources to cultural pressures – getting ahead isn’t always straightforward for diverse entrepreneurs.
  5. Provide transparent value and support: Funding is key, but so is quality mentoring and financial support.

Fostering the New Generation of Founders

Making these changes can help us support diverse founders in creating profitable and exciting companies. In the end, nothing speaks louder than investing, not just anecdotes or advice, but substantial financial support.

About the Author

As the founder of Red Byte Capital, a New York-based seed-stage fund, I am dedicated to supporting founders that improve people's lives and empower the economy. We specifically focus on fintech, ecommerce enablement, SaaS, marketplaces, and consumer tech, and I'm always happy to connect via LinkedIn or Twitter to support women and diverse founders.

At the end of the day, it's not about 'checking-off boxes', but about truly nurturing the entrepreneurial spirit in everyone, from all walks of life. We hope to see a new and diverse generation of founders emerge, and are committed to help make it happen.

Video Transcription

I wanted to talk today a little bit about uh why don't Latinos and African Americans and minorities not launch more VC backed businesses.And you know, as a Latina and as a founder turned investor, I often get asked this question and I think that what's interesting about the question of, you know, why don't more minorities HVC back questions is that it's almost the wrong question because women and minorities actually launch a lot of business in the United States.

In fact, 40% of new businesses last year were started by women and 47% of those were started by minority women. Latinos are the fastest group of entrepreneurs. Um And if you look at African Americans, they also launch businesses at a much higher rate than the general population.

However, when you start to look at what happens specifically with VC backed businesses, the numbers start to fall apart. And specifically, when you start to think about Black Lives Matter, you start to think about all the focus on diversity and equity. Um I wanna create a quick pull of how many of you think, what percent of diverse founders of money went to diverse founder last year. Was it higher or lower? I'm gonna do a quick quiz. So bear with me. So I just put that to share and I think what you're gonna be, I, I don't wanna, you know, answer too quickly, but I think what you will be surprised by is that the numbers are actually not rising very much even last year with Black Lives Matter with George Floyd with the Me too movement.

the numbers are still stuck pretty flat. Um But I think what's really important is to understand that the economic opportunity is there for the taking underestimated and diverse founders are undervalued assets. And Forbes magazine actually calculated that V CS miss out on $4 trillion by not investing in diverse founders. So what can uh V CS and the ecosystem due to help more get more diverse founders funded? The first thing I would talk about is just diversity on both sides of the cap table. Um You know, one of the things that always blows my mind when I talk to founders is how often, you know, black Latino women founders will get so excited the moment the video comes up and I can see their faces sort of light up. And the reason is it is so rare to see a female VC who's a decision maker to see a Latina VC, an African American VC. Um The numbers are still overwhelmingly 90% male and 72% white. So the opportunity to diversify, who actually allocates the funding is extremely important. Who's making the decisions about the funding? Are they giving a fair shake to minorities? And VC SI think that's a really, really important way to figure out how to better diversify the ecosystem. I think that, you know, diverse founders naturally find uh diverse ecosystems.

So whether it's Black VC, Latinx, VC, uh VC familia, we're part of networks and we even if our focus is not solely on diverse founders, we're going to see more of that diverse Black Deal flow. And that really helps diversify the uh opportunity. I think it also, there's an interesting shift going on in that really smart founders are now looking for diverse funders. And the reason is they realize that this diversity of perspective is actually gonna help their business. If you think about the fact that one in 25 Americans that's born in the US today is Latino. You want somebody in your ecosystem who understands this consumer base if you're marketing to Gen Z. So I think that's really an interesting shift of getting more and more diverse perspectives on that side. I think the next thing is, you know, there's a very important axiom that says, what doesn't get measured, doesn't get done. And, you know, I was recently at a presentation where uh the CEO of Goldman Sachs basically said the same thing, you set up a plan, you got to start, you set up a strategy, but if you don't start measuring the numbers, nothing is gonna happen. And so I think right now one of the things to keep an eye out and to hold funds accountable for is not just, well, how many women are they talking to or how many diverse founders are they talking to, but how many funds, how many diverse founders are they funding?

What per, what type of check sizes are they getting? Are they just sort of the little, you know, $50,000 checks here and there? And we're going to scatter a whole lot or are they actually committing to these founders? Are they actually following on how many of the founders, there was a very um frankly distressing article today that was talking about female founders and the fact that while there is more female founders um today that are getting funded, they're struggling to get their second round of funding.

And a lot of it is based on the fact that there's an assumption that they're not as qualified, that they're not as capable, which is obviously completely wrong. But I think we need to continue to track and hold ourselves accountable to those. Numbers. Number three, on what we can do is just I think there needs to be a level of um emotional authenticity in the fact that the entrepreneurial journey has systemic hurdles for diverse founders. Um you know, often I will talk to diverse founders who tell me, you know, I'm trying to raise that first round that precede round. And the answer I get is, you know, can't you talk to friends and family? Can't you get your family? And frankly, a lot of us diverse, you know, people who come from diverse fam, fam. Uh, families were the first ones to go to college. We have parents who've struggled and really don't have, you know, $50,000 of cash hanging around to help us start businesses. And so I think there needs to be an authentic realization that there are hurdles that there are um also cultural issues. So for example, with Latinos, a lot of Latinos over index in their commitment to financially support their families. And so if you have student debt, if you're financially supporting your family, you might have a really hard time quitting your day job in order to start a business.

So these are the types of challenges that we need to support diverse founders because they can, they can create really profitable, really exciting companies, but they need to be supported. Um Finally, I think that we need to be very transparent about what value we're giving and how we're supporting diverse founders, meaning women founders, meaning minority founders. And what I mean by that is what quality of mentoring programs are we are we providing to them? What quality of financial support are we supporting to them? You know, one of the things that, you know, I participate in a lot of uh mentoring programs for diverse founders. And oftentimes when I talk to the founders, they're saying, you know, mentoring is great and the calls are very, very valuable and frankly, a lot of them don't have the network. So I'm not minimizing the value of the network, but I also feel like they need money, they need financial support. So that brings me back, you know, to the point that I was saying in the previous point, which is, you know, good wishes and small check sizes to just say you've checked off the Mac is great, but we need to actually fully support these founders in order to help them get to that next level.

Um You know, in the end, nothing is as meaningful as actually putting dollars behind the founder. Uh Advice is great. Help is great, but there's nothing like um actually helping founders with dollars. So uh I apologize that we had some technical difficulties and started a little late.

Um I think we have like three more minutes left. Uh If you have any questions you'd like to add um on the chat, I will be happy to answer them. Apologies. Uh Great. Well, thank you very much. Um I always love to, you know, my fund is called red by capital. We're a seed stage fund based in New York. Uh Just to tell you a little bit about myself. Uh So by capital is a seed stage fund based in New York. We support founders that are, you know, improving people's lives, empowering the economy. We focus particularly on fintech ecommerce enablement, sass and marketplaces and consumer tech. And if any of you ever wanna get uh reach out and get in touch with me, um probably the easiest is I'm very active on linkedin and I'm very active on Twitter. So look me up Rachel Tenbrink on linkedin and our can bring one on Twitter. Um I'd be happy to connect with you and I hope to see a whole new generation of fantastic women and diverse founders come out of this conversation. Thank you very much. And, and as I said, you know, I, I really do mean it. Um unfortunately, I don't have a clone, so I might not always respond in the most timely manner, but I do love to help women and diverse founders.

And um even if it's not a right fit for our fund to invest in, I'm always happy to brainstorm and give you guidance on where to invest, where to look at companies, how to think about businesses. That's really what makes me tick. So, thank you very much guys. Take care.