Black women are the fastest-growing group of entrepreneurs in the U.S. They own 1.5 million businesses between them, up 322% since 1997. Their companies generate $44 billion a year.
So why is no one investing in their startups? Why have black women received only .2% of all venture funding in the past five years?
That was what Kathryn Finney set out to uncover when she launched Project Diane, a definitive study of the state of black women in tech entrepreneurship that took the better part of a year to complete.
“We knew it was bad, but no one was quantifying it,” said Finney, founder of Digital Undivided, a social enterprise that runs an accelerator program for startups led by black and Latina women. “It was just, ‘there are no black people, there are no black women.’ Anecdotally, we knew it to be true.”
What she and her team found, after examining more than 60,000 startups: 88, total, led by black women. That’s 4% of the 2,200 women-led tech startups in the U.S.
Of these, only 11 have raised over $1 million in outside investment.
Finney discovered that the average tech startup founded by a black woman raised $36,000 in venture funding, versus the $41 million average amount raised by companies that exit. Even the average failed startup led by a white man raises $1.3 million before going kaput.
She and the Project Diane team also found that black women were raising institutional investment far earlier than anyone else. “They were calling $1 million a Series A,” Finney said. (By way of comparison, the Female Founders Fund pegs a Series A round at between $3 million and $15 million.)
“They weren’t getting the seed funding they needed,” Finney said. “We don’t have lead investors. We don’t have people willing to write that first big check.”
The one notable exception has been angel investor Joanne Wilson of Gotham Gal Ventures. She’s invested in three of the 11 black women-led startups to have raised over $1 million. “She’s very deliberate about that,” said Finney. “She knows there are opportunities that are missed.”
These black women founders have enviable educational backgrounds and career trajectories, earning postgraduate degrees or certifications at a rate of more than six times that of the U.S. population at large. Their two most common alma maters: Harvard and Columbia.”You don’t get better pedigrees or networks,” she said. “They still weren’t raising.”
For Finney, there are a handful of reasons why Silicon Valley isn’t investing in black women, but they all boil down to a lack of diversity across both tech and venture capital.
About 1% of senior investment team members in VC are black, according to a recent study across 71 firms with a combined $160 billion in assets under management. There are prominent firms without a single woman or non-white person in an investment leadership position.
While black men and women, collectively, are 13% of the total U.S. workforce, they comprise less than 2% of the tech workforce. Facebook FB -0.19% currently has 81 black employees of its 4,263 U.S. workers. Less than 2% of Google GOOGL -0.36%’s total employees are black.
“People don’t see black women as innovators,” Finney said. “It’s mind-boggling to me. We have to change the dynamic of being cultural creators but being left out of economic gains.”
She doesn’t expect Silicon Valley to become inclusive overnight, or at all. Rather, she’s looking to city and state governments, foundations and grant-making organizations, and individuals with a vested interested in the economic success of minority entrepreneurs to step up.
Project Diane is advising foundations with economic development as their cornerstone to set aside a percentage of their investment dollars to fund diverse managers — or to divest in funds that have no racial or gender diversity in their portfolios.
“The irony of it is that a lot of Limited Partners of these funds are pension funds from states that are very diverse,” she said. “If, say, the Ford Foundation said they’d only invest in diverse funds, you’d see VC firms hiring black women.”
Finney cites Portland, Oregon’s $1.25 million Inclusive Startup Fund and Ohio’s $10 million JumpStart fund as examples of cities and states taking the lead, giving women- and minority-led startups access to capital.
She expects policy makers in cities with diverse populations like Washington, D.C., Philadelphia, New York, Atlanta and Chicago will soon follow suit.
“It’s so much easier to talk to someone about market opportunities if they actually value the market,” said Finney. “In Silicon Valley, we find ourselves validating the market, validating that black people matter.”