Last year, venture capitalists funneled a record $34.8 billion to Massachusetts startups. But only a tiny fraction — 0.4% — went to startups with black founders, according to a Globe analysis of Crunchbase data released in January. The figure has barely changed since 2016, when nearly 0.3% of venture capital went to state companies with a black founder. And that’s lower than the national average in 2021, which hovered just above 1%.
Massachusetts ranks third among all states in total venture capital funding since 2016, behind California and New York. But it ranks 20th in the percentage of venture capital going to black founders. By comparison, 3.2% of New York’s venture capital goes to black-founded companies. In California, it’s about 0.8% over the past five years. (Seven percent of Massachusetts’ population is black, compared to 17 percent for New York and nearly 6 percent for California.)
Despite the national reckoning, change is happening slowly, if at all. Between 2019 and 2021, funding for black founders in Massachusetts grew by just two-tenths of a percent. And many black entrepreneurs continue to feel underappreciated at every turn.
“It’s frustrating,” said Daniel Acheampong, co-founder of Boston venture capital firm Visible Hands, which invests only in underrepresented founders. “It’s a missed opportunity.”
“Delegitimized”
Shironda White knows how a lack of funding can jeopardize a dream. In 2017, with $10,000 from her father, she founded CauseEDUa crowdfunding platform to help students who are struggling to pay for their education.
White then met with investors to pitch a bigger project: a comprehensive online financial planning platform for students and their families. She came armed with two decades of experience in financial services, philanthropy and higher education management. She had almost completed her MBA at Boston University.
But none of that mattered, she said, when she sat down in front of a white female investor to discuss funding. White presented his business plan, but the investor paid it little attention. Instead, she spent most of the meeting explaining why White lacked the ability to grow the business.
In the end, White walked away with no investment and soured on venture capitalists, instead raising nearly $100,000 through accelerators, pitch contests, and donations. In half a dozen VC meetings, she said, she often felt undervalued because of her race. (She is black.)
“[There’s] a perception that we’re not going to be as successful as other companies,” White said. “It has a negative impact.”
Paris Smalls, co-founder and CEO of geothermal energy company Eden GeoTech, also remembers feeling slighted. He has a black doctorate. candidate in a geophysics program at MIT and the Woods Hole Oceanographic Institute, and a Forbes 30 under 30 winner.
But when he tries to raise money for his business, it’s not the first thing investors see, he said.
Once, at a pitch event in Rhode Island, Smalls was talking with an Indian programmer on his team. An investor approached Smalls and said, “Hey, you must be the seller. He must be the brains of the company,” referring to the programmer. Another time, at a startup accelerator in Canada, an investor shook his hand and said, “You must be one of the interns here looking to work and understand the industry better.
Smalls said these experiences speak to a larger issue in the startup community.
“I feel like a lot of African American founders probably have to deal with the same thing,” he said. “You’re automatically delegitimized in the eyes of people who don’t necessarily understand your background because they’re not used to seeing a black guy who’s also the engineer behind the company, or a young African-American CEO. “
“Prejudice rendering”
Jeff Bussgang, a partner at Flybridge Capital and a fellow at Harvard Business School, said in a January blog post that research on hidden biases can help explain the racial disparity in venture capital funding. When making funding decisions, venture capitalists often rely on their intuition, he said.
“Instinct is a powerful force in decision making,” he writes. “And instinct is full of biases, both conscious and unconscious.”
Systemic issues cannot be ignored, added Bussgang, who is white. Black families have less wealth overall, making it harder for young professionals to take risks and start businesses. White founders often have richer professional networks with connections to business leaders.
Couple these systemic issues with unconscious biases, and it helps explain why venture capitalists keep investing in the same types of founders.
“Like many other human beings, they are very biased decision makers operating within the context of a historically racist system,” he said. “Unlike many other humans, these biased decisions have massive economic consequences.”
Despite all this, investor Acheampong, who is black, said it was helpful to support founders of color in the early stages of their ventures. “The most critical part is the start of the funnel,” he said. “If someone isn’t lucky enough to come through the door, there’s no way they’re even in the room.”
Venture capitalists should step out of their usual networks to find founders from different backgrounds, he said.
“Support them not just with words, not just with your high-fives,” he said. “But support them with meaningful capital.”
“It’s as simple as DNA”
At the same time, there is an entrepreneurial divide between the state’s elite private colleges and its public universities. Some say the latter could do better to nurture a diverse group of high-quality entrepreneurs, and venture capitalists should seek talent there.
Adjoa Edzie, a black woman who founded the music startup Gruuvv, recalls having the opportunity to take an entrepreneurship course at Harvard while earning her MBA at UMass Boston. The differences were apparent.
At UMass Boston, the entrepreneurship classes “were all about theory and what Airbnb does,” she said, “but not how to start your own Airbnb.” At Harvard, she was asked to start a company, so she founded Gruuvv. At the end of the semester, the general manager of Mark Cuban Companies gave his opinion on the work of the class commercial pitches.
William Brah, founding director of the venture capital development center at UMass Boston, said VCs could invest in more college founders with diverse talents. He pointed to research showing that in 2020 and 2021, MIT and Harvard ranked second and third, nationally, for producing startup founders who have funding after graduation. No public universities in Massachusetts were on the list.
“At most of these universities on this list, they have these incredible networks of students and alumni who support their fellow alumni and current students with seed funding and introductions, experts and advisors,” said Brah, who is white. “UMass students don’t have that kind of advantage.”
Malia Lazu, a senior lecturer at MIT’s Sloan School of Management and former executive vice president of Berkshire Bank, said the road ahead was long and delicate.
Founders of color find it easy to leave Boston and expand their businesses to places like New York or California, she said. Venture capitalists don’t do a good job of explaining why diversity matters, beyond issuing statements about supporting equality.
Crucially, the stalwarts of Massachusetts’ startup community — from universities to investors to startup incubators — are overwhelmingly white.
“It’s as simple as DNA, isn’t it? Lazu said. “When your cultural DNA is not inclusive, you will constantly struggle to be inclusive.”
Pranshu Verma can be contacted at [email protected]. Follow him on Twitter @pranshuverma_.
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