Only 12 Black women startup founders raised more than $1 million in outside investment, and only four have raised more than $5 million in capital, according to a recent report from DigitalUndivided’s #ProjectDiane.
In the world of tech and innovation, without proper funding, a company cannot properly test their ideas in the market, and ultimately cannot scale as quickly or effectively as comparable companies.
Just .2 percent of venture deal funding went to startups led by Black women from 2012 through 2014. That essentially translates to only 24 companies out of over 10,000 that raised during that timeframe.
“We’re not getting that money to then build the data to then be able to get the large institutional rounds,” explained Kathryn Finney, in an interview with Ebony. Finney is the founder of DigitalUndivided who produced the ground-breaking report.
“We don’t have lead investors. We don’t have people willing to write that first big check,” Finney shared in an interview with Forbes.
It’s not a question of whether Black women founders are qualified to launch businesses that generate revenue, because they are doing it more than any other group. As the report points out, over 1.5 million businesses are owned by Black women making them part of the fastest growing group of entrepreneurs in the United States. It’s been found that these companies generate $44 billion a year in revenue.
Something bigger and more systematic is at play. In order to dissect what is going on with Black women led startups, #ProjectDiane conducted their own research where they evaluated 88 Black women-led startups that fit the criteria of a startup. The report provided the data to support what we all already know: companies led by Black women are underfunded. On average, Black women-led startups raise $36,000 in funding. In comparison, the typical white male-led failed startup raises $1.3 million in funding.
The report not only focuses on the state but also evaluates contributing factors and points out key indicators that create an environment for a successful fundraise for Black women-led startups.
One key indicator for successful fundraising was experience working at a tech company. Among Black women founders who raised over $1m in funding, 75 percent had worked at a tech company at some point in their career. However, the number of Black women who have worked at a tech company is severely low due to the lack of diversity within tech companies.
Accelerator programs also offer a huge head start to startups by way of funding, mentorship, connections and exposure to resources. However, only 34 percent of Black women founders were part of an accelerator. These founders are 40 percent more likely to receive funding than founders who don’t get the chance to take part in an accelerator. And all accelerators are not created equal. Only 5 Black women went through the top accelerators like Y Combinator and Tech Stars where the average amount of funding from an alum is $1.8 million.
Within the group evaluated, #ProjectDiane found that more than half of the founders received less than $100,000 in investment. Since Black women are not able to successfully fundraise they have to depend on funding from other sources including retirement, and savings. This is significant because it has a domino effect on not just the woman and her company but her family and community suffer as well.
The wealth gap is greatest for women of color, and studies have found that the average net worth of a single Black woman is only $100. In comparison, White women have a median net worth of $41,000 and the average White family has a net worth of $141,900 compared to just $11,000 for Black households.
The report specifically highlights a point that is often whispered about but never fully broadcast, “we must acknowledge the cultural and structural challenges that Black women face as startup Founders.”
What does this mean? Well, Fast Company summarized it pretty poignantly:
One way to parse this data: Even if you’re one of the black women so extraordinarily talented and driven as to overcome all the hurdles our society throws at you in your quest to form a startup, once you do, your odds of securing significant funding for that startup appear to be about one in eight.
#ProjectDiane goes further with specific suggestions for action areas to create change that include: redefining entrepreneurship, finanicailly supporting accelerators and programs that produce Black women founders and quite simply giving promising Black women founders access to capital.
Within each action area there are specific suggestions for policy makers, foundations, individuals and the tech industry as a whole. For example, with redefining entrepreneurship small things as simple as making yourself visible as a Black person in tech and make an impact. Don’t be afraid to promote yourself, your company and put yourself out there by seeking out speaking opportunities and blogging about your journey.
“We knew it was bad, but no one was quantifying it,” explained Finney. You can read the full report, here.