Just when you thought Black business owners were the only ones struggling to snag funding for their companies, it turns out Black venture capitalists are having just as hard a time securing resources for the minority-owned businesses they wish to invest in.
Last year, American venture capitalist funds raised nearly $40.6 billion, and 2017 is on track to be the fourth consecutive year with more than $40 billion raised, according to a report by capital market company PitchBook. Less than three percent of VC funds employ Black and Latino investment professionals.
Fast Company reported that some VC firms are now working to boost diversity among startups by hiring more diverse fund managers or devoting a portion of their current funds to minority-owned businesses only. But VCs report they struggle to get investors or “limited partners” to allocate their money that way.
“There are well-intentioned LPs out there that haven’t quite figured it out yet, and I want to believe they’re working to figure it out,” Marlon Nichols, founding partner at Cross Culture Ventures, told the news site. “I’d like to see LPs legitimately put more capital into funds started by qualified, diverse fund managers.”
Monique Woodard, a venture partner at California-based 500 Startups, said she’s also had trouble getting capital from investors for the companies she’s interested in. Woodard said despite U.S. government data showing Black women as the most educated and fastest-growing group of female entrepreneurs, investors still don’t see the opportunity for returns. For her, LP’s failing to invest in businesses majority-owned by Black women is not only frustrating and illogical, but it’s just bad investing.
“They think of it as ‘diversity’ and then decide they aren’t interested in investing with a diversity lens, and ignore the very real market shift and its ability to deliver returns,” Woodard told Fast Company. LP’s who pass up these businesses “are skating to where the puck is, instead of where the puck is going to be, as we see a new multicultural majority in the U.S.”
The diversity issue puts Black VCs in a unique position to highlight nonwhite communities and to spot talent other VCs might overlook.
“The best person to solve a problem is someone who truly understands it – someone who is of it,” Ryan L. Smith, director for investments at Magic Johnson Enterprises. “There’s an opportunity to help facilitate that … provide capital, mentorship, relationships … all with the goal of helping solve those issues in the optimal fashion.”
Though VCs like Woodard, Nichols and Smith are working to diversify the startup world, there’s still much more work to be done. The solution might start with diversifying the best-funded VC firms that give out resources.