There is a growing body of articles about the important issue of the lack of investment dollars flowing to Black women founders. For anyone following venture news, this data should not be new: Fortune reported that while the numbers have tripled since 2018, Black women still only receive 0.27% of all venture dollars in the U.S.; Sifted reported the number in the U.K. to be 0.24%.
But data, though important for building a case, rarely seems to change behavior (just look at vaccination rates or climate change policy). And data does not begin to articulate the complexity and interconnectedness of the hurdles and barriers causing those numbers, meaning that even well-intentioned investors may be unwittingly contributing to the paltry statistics.
We must do better. As we have worked at Astia to improve our own investment statistics around racial inclusion, we have come face-to-face with some of the nuances behind the numbers.
As a white female investor, I am conscious that my vantage point is one of privilege looking from the outside in, and that there are many more layers that I am not in a position to address. I believe, however, it is important to share some of what I have observed as these are problems that must be addressed -- not just talked about -- by all investors if we are ever to actually change the investment landscape.
Attention must be paid to the many repercussions of the prior-funding hurdle. Because systemic racism in the U.S. has stymied wealth creation over generations for Black women, most Black women founders do not have family and close friends to tap into for that first essential round of funding.
Even if a CEO has broken through barriers and made it to a top university, as was the case in one Astia deal I led, she is less likely to be included in the kind of network that could provide that initial round of funding because networks still, for the most part, divide along gender and race.
One outcome of this lack of a "friends and family round" is that a CEO ends up raising in dribs and drabs over many years with smaller check sizes spaced out over a longer time. This can result in her never being able to make key senior hires, invest adequately in marketing or hire top legal professionals, as just a few examples.
The result is a double bind -- the key performance indicators compared to competitors are deemed not good enough to attract investment, but without investment, those KPIs cannot be improved.
Another outcome of raising small checks over time is a cap table can become bloated with hundreds of investors. Most VCs walk away from such a large cap table, missing out on potentially great companies founded by CEOs who lack a wealthy circle of initial investors.
In these moments, it is important to double down and do the work to get the company investment-ready, as a large and potentially messy cap table is the result of a problem with the system, rather than the company or an entrepreneurial red flag.
Coupled with the above, what I have observed is that investors judge Black women to a far higher standard than their counterparts, including white women and especially white men. Rather than being praised for how much she has accomplished with such limited resources, she is judged for what she has achieved to date and not a day further.
Conversely, men -- again, especially white men -- are judged on the vision of what they will create, the promise of what will be. In all cases, when I held conversations with potential syndicate investors, I was struck by how often the reasons for not investing sounded rational but never would have been reasons to not invest were the founder a white man.
Because the reasons sound rational and are connected to KPIs, however, the investor can avoid considering that their own bias might be at play. Never did an investor flip their logic and remark how incredible it was that the KPIs were what they were given the meager funding history to date.
We need to shift the perspective from one of insufficiency -- what hasn’t the founder accomplished? -- to one of opportunity -- what has she accomplished despite the odds and what could be accomplished with resources?
The first time I heard an investor use the word “trust” when discussing his interest (or lack thereof) in investing in a Black woman founder, I was struck.
In my experience, that word had never come up in conversations about non-Black CEOs. “I don’t trust her numbers” is a different sentiment than "That’s an aggressive financial projection," which would be the more likely phrasing if she were a man (and were she a man, the reaction would more likely be, "That CEO has great vision").
A huge driver of early-stage investing is betting on the CEO and their team. But through media depictions of male leadership, stories and culture, we have, for the most part, been socialized to more easily trust a white male persona, so when it comes to early-stage investing, this concept of trust is quite insidious.
It is important we pay attention to what words and concepts are being used and point out when words like trust are thrown around. We must question the investor to look deeply at where that is coming from and try to help them see that they are applying a biased lens to their assessment. Sometimes having an uncomfortable conversation directly can help shift a perspective.
Venture capital places substantial value on a company having a lead investor who brings in a significant portion of the round. This construct is potentially problematic for the success of Black women CEOs given that less than 0.3% of venture capital is invested into them. Not only this, but the majority of new funds coming to market that have a focus on underrepresented founders are sub-$100-million funds, due in part to allocators not committing enough capital to that segment (but that is the subject for another column entirely).
Taking these stats into consideration, finding a lead investor who can support a majority of the round is far more challenging -- if not impossible -- for a Black woman CEO. While having one investor negotiate and set terms can be helpful, the idea that a lead has to take a majority position in the round is one that we have chosen to ignore.
Twice we have led the deal into a company run by a Black woman with only a fraction of the full raise to deploy. Eyebrows were raised, especially when we claimed a board seat. We countered those raised eyebrows by saying, "If you would like to lead, please step in."
No one did in either case. By putting a stake in the ground, however, and backing the companies with our reputation, support, contacts and connections, we were able to start attracting additional investment. So while Silicon Valley lawyers or other investors may insist “that’s not how it is done,” remember that what they are saying is “that is not how it is done for white men” -- and go ahead and be a non-traditional lead.
Unfortunately, it often seems that naysayers need to experience the problem themselves or be overridden by converts. In the case of funding to Black women CEOs, the overall trend may not change very much until the small number of VCs who are making the bets on Black women CEOs show the world that those bets are paying off.
Happily, there are several new firms taking proactive steps to invest in Black women CEOs, but many have limited pools of capital dedicated to that strategy. My experience with the deals I’ve worked on was that I often had to call upon social capital to pressure other investors to step up as advocates within their own investment committees.
Extra time and thought were required to clean up the historic investment mess that was a result of the prior lack of funding and get the company investment-ready. With far less capital to deploy than I would have wanted, we had to structure investor-attractive deals that gave other investors little reason to say “no” and forced them to push past their biases.
For two of the deals, we held a first close at only 15% of the round, which also raised eyebrows because, again, “that’s not how it is done,” but we had to get cash in the door to support the companies so that they could get through the raise, again due to the lack of prior funding. By taking these abnormal steps, we were finally able to get the ball rolling and investors started to come to the table. In one case, the story ended up a success -- the round was oversubscribed.
But this happened due to a huge amount of intentionality, of constantly facing and confronting biases -- including our own -- and working through them and of learning to become comfortable with uncomfortable conversations.
Without intentionality, these investments could easily have not happened at all, and one -- or four -- more exceptional founders could have ended up out of business, not because of a lack of vision or execution or market size or product-market fit, but because of the numerous barriers tied up in race and gender and that unfortunately are too often overlooked or misunderstood, even by a “well-intentioned” investor.