Yet Another Year of Venture Capital Being Really White

By Arielle Pardes

Last year, Vern Howard met with a number of venture capitalists to pitch his digital events startup, Hallo. The meetings did not always go well. In the office of one prominent VC, Howard, who is Black, was mistaken for a deliveryman. Another meeting ended with the investor joking about Howard running off to Mexico with the money. Still, by January, Hallo had closed a $2 million seed round—although when Howard looked at comparable startups, some of them had already raised 10 times as much.

None of this surprised Howard, really. Venture capital, the money machine powering Silicon Valley, has always been about as white as a new pair of AirPods. By some estimates, just 1 percent of venture-backed startup founders are Black; the numbers are even grimmer for Black women. But in 2020, it seemed like the industry might finally start to care. A summer of protests against police violence and racism in the US led to heated conversations about wider systemic inequality, and finally, the reckoning came to Sand Hill Road. Venture capitalists made promises to invest more money into underrepresented groups and vowed to take Black founders more seriously.

The rhetoric was historic, and some Black founders are finding it easier to get meetings with VCs. But other founders, including Howard, say they’re still waiting for meaningful action—investments, not just conversations. “There’s a ton of noise,” says Howard, who recently started fundraising again, “but I can’t say I see a ton of change.”

This fall, after Howard heard from Black founders who were still struggling to raise money, he pulled data from Crunchbase to see what was happening industrywide. Looking at startups whose total funding fell between $500,000 and $20 million, he found 1,383 companies raised a round in the third quarter of 2020, for nearly $5.9 billion in total. Only 31 of those startups, which together raised $114.8 million, had Black founders—about 2 percent. (Another six startups with Black founders raised less than $500,000.) Howard shared his findings in a post on Medium and called on the VC and startup communities to do more.

The issues with diversity in venture capital are not new, but the problems rarely received the sustained public attention that came this year. Over the summer, Crunchbase began an effort to add data about founders’ race and ethnicity to its database for the first time. The company found that, since 2015, investments to Black founders account for less than 1 percent of all venture capital—and that the number hasn’t changed much in 2020. “People have been reporting on these numbers in the industry for years, but having gone through the effort of collecting and checking that data, I was quite shocked that it was actually so low,” says Gené Teare, Crunchbase’s data evangelist. (And while VC's gender diversity had been improving recently, Teare has found that female founders saw a significant drop in funding in 2020. In her analysis, she also notes that Crunchbase's database "has a documented pattern of reporting delays" and that numbers may shift over time as more data is added.)

Some prominent venture firms set up special funds this year to get more money into the hands of founders from underrepresented groups. In June, Andreessen Horowitz announced its Talent x Opportunity fund, which gave investments of $100,000 to seven startups—ranging from streaming music platforms to a press-on nail brand—with Black founders for its first cohort. SoftBank also created a $100 million Opportunity Growth Fund, to “invest in untapped markets.” The fund currently lists 18 startups on its website, all of which are led by Black, Latinx, or Native American founders and CEOs.

Those funds can go a long way toward getting startups the seed funding they need. But special “diversity funds” have also been criticized as sidestepping the real problem: that VCs’ conception of what a “promising” founder looks like, where they went to school, and what their startup does is still too limited. “I never want to be the earmark of ‘diversity fund.’ I want to be the best,” says Howard. “We need to look at when a fund says, ‘This is just good business,’ because that’s when we start to win.”