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

Automatic Summary

The Conversation Around Minority-founded VC-backed Businesses: Understanding the barriers and potential solutions

With the world paying more attention to diversity & equity, a question that often arises is: why don't more minorities, particularly Latinos and African-Americans, launch more VC backed businesses? As a Latina founder turned investor, I want to dissect this question and delve into some potential remedies.

The Puzzle of Minority Entrepreneurs - Looking at the Numbers

Surprisingly, the statistics paint a different picture. In the US, 40% of new businesses launched last year were started by women, and 47% of those were initiated by minority women. Latinos are the fastest-growing group of entrepreneurs, and African-Americans launch businesses at a higher rate than the general population. Hence, the question seems erroneously framed since minorities are indeed launching businesses. The real issue surfaces when we consider VC-backed businesses. 

A quick quiz shows that despite the potent movements of Black Lives Matter and MeToo, the percentage of funding allocated to diverse founders has not risen significantly. According to Forbes Magazine, VCs are missing out on a $4 trillion opportunity by not investing in these diverse founders. So why does this scenario persist and what can be done to tackle it?

Breaking down the Barriers: Recalibrating the VC landscape

Diversity on Both Sides of the Cap Table

Diversity in the VC landscape is relatively limited. The decision-makers are overwhelmingly 90% male and 72% white. To improve representation, decision-making roles need to be diversified. Finding fair opportunities for minorities in who gets funded is a crucial step towards a more inclusive ecosystem.

Diverse ecosystems attract diverse founders, whether it's Black VC, Latinx VC, or VC Familia. Thus, diversification of the industry can also help increase the flow of diverse Black deals. 

Measuring and Accountability

"What doesn't get measured, doesn't get done."

Just as important as tracking the number of diverse founders engaged is the number of diverse founders funded and the size of the checks they're receiving. It’s also important to observe if these diverse founders are receiving support beyond their first round of funding.

Acknowledging and Countering Systemic Challenges

An authentic realization must be made about the systemic hurdles faced by diverse founders. Many come from families where they are the first to attend college, or they may need to financially support their families. They may face challenges quitting a day job to start a business. Supporting such entrepreneurs can reap profitable rewards, but this requires understanding and acting on these unique challenges. 

Red..By Capital: For a More Inclusive Future

At Red..By Capital, a seed-stage fund based in New York, we are committed to supporting founders who strive to improve lives and empower economies. Although we focus particularly on fintech, ecommerce enablement, Saas, marketplaces, and consumer tech, we remain available for guidance on where to invest, look at companies, and think about businesses. We envision that with the right dialogue and actions, we could witness an acceleration of great women and diverse founders in the near future.

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.