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New Report Reveals Just How Badly Black Women-Led Startups Are Being Underfunded

The #ProjectDiane report finds that the ridiculous amounts of money flowing from VCs to tech companies stops if the company was founded by a black woman.

Illustrations: windesign via Shutterstock

Black women lead just .04% of the total number of women-led tech startups in the U.S., according to a newly released report by Digital Undivided’s #ProjectDiane—a research study evaluating 88 tech companies led by black women. Of that group, only 11 had raised $1 million or more. The remaining 77 raised an average of just $36,000, a gaping discrepancy compared to the average of $1.3 million raised for all startups—led by mostly white, male founders—who have historically received over 97% of all venture capital funding.

The disparity in funding, the report says, shows a critical need for increased attention to where venture capital dollars are flowing, and how those decisions play a significant role in the lack of long-term success for diverse startup founders.

Kathryn Finney, who leads Digital Undivided, conducted the study in partnership with Cleary University's Marlo Rencher, to provide empirical data to show the growing need for investment in black women founders. The study evaluates for the first time the state of black women in tech entrepreneurship in the United States; no other explicit study has been conducted on this set of tech entrepreneurs.

"No one has cared about this issue before, nor believed that it was important enough to quantify," says Finney. "[Now that we have the data], it’s hard to deny a problem once you’re confronted with it."

The report shows evidence of the existing barriers black women tech founders face in creating high-growth, scalable companies without ongoing capital support.

Finney argues that lack of education and training—the common "pipeline" argument—are not the culprits for the lack of talent development and lack of businesses launched by black women in the tech industry. According to the report, 92% of the founders in #ProjectDiane have an undergraduate degree; 60% are alumni of a top-20 ranked school; and 67% of those who raised over $1 million in venture capital are alumnae of Harvard, Columbia, and Northwestern.

Black women founders in this study have similar backgrounds as most startup founders: well-educated and well-equipped as leaders to run high-growth businesses. Most hailed from Ivy League schools, five graduated from top accelerators like 500 Startups and Techstars, and yet, it seems the dilemma of unconscious bias is still a pervasive barrier to receiving adequate funding and the mentorship necessary to get access to funding.

Like most startup founders, nine of the 11 identified black women founders worked in the tech industry prior to launching their company—an industry known for its glaring lack of diversity (African American employees at companies such as Google and Twitter represent less than 2% of the total employee population).

Though qualified, black women are grossly overlooked and underrepresented at top tech companies, and within the venture capital community—a fact the industry seems to be working to tackle, with recent campaigns to improve diverse talent recruitment and retention, invest in diverse leadership, and spend major dollars on changing its course. In 2015, Google committed to spending $150 million on bias training initiatives.

Despite its best intentions, the industry may have missed the mark when it comes to understanding the contrast between culture fit and required assimilation. Finney says these diversity programs are designed more for optics than effectiveness, and mimic the same initiatives that have been in place since the post-Civil rights-era to increase opportunities for people of color. Unfortunately, many of these one-off programs continue to mask the true issue: dollars need to be spent and allocated toward investing in diverse talent and diverse founders.

"Once you unpack unconscious bias, you still don’t have people to hire. Tech says that it wants diversity, but they want black and female versions of themselves," says Finney. "The problem with that, very few black and Latino and women have the same cultural experiences as a 25-year-old white guy that went to Stanford."

Finney also calls into question tech’s comfortability with venture capital firms that are largely managed by all-white, male leadership teams. Lack of diverse representation in critical leadership positions is a growing reflection of the lack of focus on funding and support for investment in diverse founder groups and businesses.

A 2008 study conducted by the Massachusetts Institute of Technology found that liquidity constraints for minority entrepreneurs due to discrimination results in a loss of efficiency within the economy. By equipping black women founders with the resources to develop and grow their business, the potential for increased economic access for their communities becomes exponential. Minority business owners largely invest back into local communities and neighborhoods, which are largely underserved, by contributing to job creation, new industry innovation, and impact on upward economic mobility for equally diverse peoples.

"[Black women] are leaders within our community," says Finney. "Over 70% of us are considered the head of household in the United States. We impact every shape and form of its outcomes, and yet no one is developing us or committed to investing in our businesses,"

Finney doesn’t believe that just waiting for incremental improvements in venture capital culture is the way forward. Instead, the solutions detailed in the report include looking to foundations, civic organizations, and governments as places that could be better sources of more equitable funding.

The report also calls organizations to stop funding one-off "hackathons" to help solve the issue. As Anjali Sastry and Kara Penn argue, these events are a waste of time and resources:

"For companies and universities, they represent quick, relatively inexpensive ways to encourage collaboration, produce new ideas, and generate publicity. But they very rarely spark real, lasting innovation."

The #ProjectDiane report asks instead, that institutions and foundations look to give real dollars to programs that target black women founders and help solve their challenges within the startup community. Finney points to Digital Undivided’s BIG Accelerator for black and Latina women, which provides equity-based funding, office space, and access to a network of other black women startup founders.

The report also focuses on what foundations can do to work to solve the problem, by participating as limited partners in funds like the Harriet Fund and Impact America that are responsible for the majority of investment in black women tech founders.

If they don't, there are ways to apply pressure "We know that many firms and foundations have recently divested from the fossil fuel industry. We should do the same for funds that are not diverse or seeking to serve the diverse people in which these dollars are coming from," says Finney.

Public dollars could also be put to better use. For example, last year, the city of Portland launched its Inclusive Startup Fund which will provide $3 million in seed funding to women and underrepresented minority entrepreneurs. Similarly, Ohio launched its $10 million JumpStart seed fund to solely invest in women and minority-led tech startups.

"Our hope is that we foster this discussion internally at companies, foundations, and organizations and re-think how they distribute the financial part of what they do" says Finney. "Others will start to develop venture funds to support and employ some of that capital within our communities."

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