We Must Invest More in Black Businesses
February may be short, but it is packed. We emerge from the euphoria and promise of the New Year to really sit down and evaluate where we came from and where we are heading. Presidents’ Weekend, Valentine’s Day, Groundhog Day are notable – but February is also the month we celebrate Black History. It furthers an opportunity to examine growth and the potential of black standing across sectors.
In this analysis, we look at the economic standing of black entrepreneurship.
As is usually the case, venture capitalists and investors tend to speak to methodologies, theses, and formulas. How they discuss their process is vague and many final decisions are, ultimately, based on intuition and gut. A seminal issue arises. If you do not inherently "get" a culture or have the empathy to understand a culture, then your decision-making is subject to both your bias and/or your limited understanding of the choices presented. This level of mismatched communication happens at every level, from regulators, investors, to charities. Although there are promising signs of progress in terms of year-over-year investment in black-founded startups – nearly 4x in 2021 vs. 2020 – there is still a distinct disconnect.
The total amount of capital raised and deployed by black-founded startups in 2021 was approximately $4.3B. Yet, this accounts for less than 1.3 percent of the total market. Meanwhile, according to the Q4 2021 PitchBook-NVCA Venture Monitor, "US VC-backed companies raised $329.9 billion in 2021, nearly double the previous record of $166.6 billion raised in 2020." There is still a long way to go to achieve better standing within new enterprises and the necessary funding to complement and support black-owned businesses and innovation.
Current investors and fund managers are predominantly white…still. Interestingly, if you look at the DEI research in the investment community, it focuses on gender, not race. Seemingly, the investor community is looking to invest in white women more than people of color. For groups who are genuinely trying to bring more racial diversity to their portfolios, it is not as simple as just opening the door and waiting for people to walk through. This applies to many financial forums: banking, VC, and wealth management.
This trend has prompted Prosono to work on bridging capital markets to the benefit of a racially diverse society. For black entrepreneurs and investors, there is a monumental bridge to build. It starts with investors building their own relationship-based pipelines, based on cultural understanding and education in the financial sector.
We recognize that four weeks in February is woefully insufficient to discuss Black History. Furthermore, the positive upward climb in investments in black-owned business is painfully slow. The challenge is tremendous. Even Chris Sacca, of climate-based venture capital firm, Lowercarbon, has faced challenges in his effort to fund allocations to historically black colleges and universities on a no-fee/no-carry basis. It has not yet happened.
We highlight these issues because of our desire to make a difference and our hope to open doors and provide real opportunity. The candied hearts, the holiday weekend, and the promise of spring are nice, but Black History Month will only be truly meaningful when equity and level playing fields are within our grasp. Then February would truly be celebratory, and the months before and after would really feel good.