How Black investors are capitalizing on venture capital’s gaps in diversity
The venture capital industry plays an important role in empowering small businesses—the backbone of America’s economy. The industry makes up a mere 0.2% of GDP, but delivers a stunning 21% of U.S. GDP in the form of revenue backed by venture capital. That said, the practice of leaving founders of color out of the VC equation is being exacerbated in real time, as Black startup entrepreneurs only received 1.2% of the $147 billion invested in American startups during the first half of 2021.
The chronic underfunding of high-growth companies led by Black founders is not only concerning, but expensive. According to a Citigroup study, the U.S. economy has lost $16 trillion over the past 20 years because of discrimination. This money wasn’t lost by only Black Americans, but by all Americans.
Let me put this in terms that my fellow venture capitalists understand: This is an example of self-interest at work. It’s in the best interest of all of us who participate in our capitalist system, regardless of racial identity, to solve anti-Black racism, if for no other reason than it costs too much not to.
Given this reality, some VCs are starting to shift their investment narrative. For example, 61% of VCs say that the Black Lives Matter movement has influenced their investment strategy; 43% of VCs say that finding opportunities with multicultural-founded companies is a “top priority”; and 68% of VCs say they are more likely to invest in multicultural-founded companies in the coming year.
That said, talk doesn’t equate to action. Thus far, there hasn’t been a sizable shift in the industry’s investment strategy. Instead, the narrative has changed, which doesn’t equate to opportunities for minority entrepreneurs, but positive news headlines for VCs that have spent decades knowingly ignoring opportunities to empower Black and minority businesses.
However, a new generation of Black investors, like me and our team at Genius Guild, a platform for growing and established companies, and the Greenhouse Fund; and others including Rarebreed Ventures and Refashiond Ventures, are changing this reality by launching our own funds, realizing returns, and injecting capital into Black founders and their startups. Given our inclusive approach, it should come as no surprise that emerging VCs perform better than established VCs in today’s environment.
As a CEO and the general partner behind the Greenhouse Fund, I have made it my mission to invest in Black and minority entrepreneurs that build scalable businesses serving Black communities. I invest in Black founders at the pre-seed level, using my time and money to support these companies as they rapidly scale in traditionally overlooked markets like women’s health and sustainable consumer products.
To date, my fund has invested in startups like Health in Her HUE, QuirkChat, and The Labz—all companies led by Black female entrepreneurs. Our fund is disrupting traditional structures of the VC industry even further, as we recently launched a VC-in-residence program at the Greenhouse Fund to empower Black investors to build their fund and reinvent the outdated framework of venture capital.
The next generation of Black investors are here. And we are writing checks. We’re investing in opportunities overlooked by the limited vision of others and on track to deliver alpha for our investors. I call on the greater VC industry to figure out concrete ways to invest capital into these emerging entrepreneurs and funds.
Kathyrn Finney is the CEO of Genius Guild, a business creation platform and the general partner of the Greenhouse Fund. She is the author of Build the Damn Thing: How to Start a Successful Business if You’re Not a Rich White Guy, which is set to release summer 2022.
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