‘Not going to beg’: why entrepreneurs of color are increasingly self-funding
Raising funds from investors is unfavorable for marginalized founders, who face racial bias in the world of venture capital
Rechelle Balanzat, an Asian-American founder, has led her startup Juliette, a self-funded, app-enabled dry-cleaning startup since 2014. As a double minority in tech, Balanzat said she faced gender bias with investors, and also encountered investors who inflicted racial bias. Investors would often expect Balanzat to speak with an accent and if not they were amazed she could speak English, she said.
Balanzat said her decision to self-fund her startup was born out of necessity. In fact, she is not the only founder of color that finds venture capital fundraising to feel more like a marathon than a sprint. In actuality, many report that the process can feel more like running on a hamster wheel, endless and with no positive outcome.
During the pandemic and the nationwide racial reckoning following the killing of George Floyd, the challenges that Balanzat and so many other marginalized founders face were underscored.
As a Filipino-American, Balanzat feared she or her loved ones would be targeted by the rising number of Asian hate crimes during the Covid-19 pandemic. As an entrepreneur and tech executive, she feared for the life of Juliette, a company that she delicately cared for and worked to build.
“Given my prior experience with trying to fundraise early on in my company (and failing at that), I did not try to fundraise because I was in survival mode,” she said. “I knew I was not mentally, psychologically or emotionally present enough to do so.”
Social justice movements in 2020 placed a huge spotlight on the disenfranchisement communities of color deal with. From nationwide Black Lives Matter protests, to rallies against Asian hate during the pandemic, the entire country witnessed the yearning for equity across multiple marginalized groups and business sectors.
And while social media users rallied together over hashtags, posts or created mutual aid funds to combat racial and housing issues, the world of venture capital was pushed to respond to the social unrest by funding startups led by people of color.
“More times than not, men receive investments based on their potential and women receive investment based on their performance,” Balanzat said.
Rise and decline of funding
Venture capital, which usually involves investors at a firm owning a percentage of a tech startup or company in exchange for money to grow, has long been an industry that is unfavorable for marginalized founders and has been called out for the funding disparities.
And yet, those calls for equitable funding opportunities have historically gone unheard. Under the mandated Covid stay-at-home orders, investors had no choice but to listen and learn from communities that are often silenced.
In 2020, Black and Latinx founders together raised $2.3bn in funding, of the total $87.3bn in venture capital dollars that were invested. Women-led startups regardless of race or ethnicity pulled in just over $2bn during the same year.
Following 2020, it seemed that marginalized founders’ voices began to be heard.
In return, founders of color experienced a record-breaking year of venture capital funding in 2021. Of the $309bn US venture dollars deployed in 2021, Black founders raised $4.2bn Crunchbase reported. Although this funding milestone marked a huge increase overall for Black founders, it is still severely less in comparison to money given to white-male founded startups.
Nonetheless, Latinx-led startups witnessed a similar uptick in 2021, by raising $6.8bn , which is up tremendously in comparison to the $2.8bn raised in 2020.
The concept of equitable funding across marginalized founders of all backgrounds seemed to be on the horizon, but with the thought of a possible recession, tech companies slashed staff and investors cut down on deploying cash in 2022.
Consequently, funding for founders of color and women was once again on a sharp decline.
Last year, Black founders raised an estimated $2.2bn out of the $215.9bn in US venture capital money deployed, which is nearly half of what was raised in the prior year.
“The 2022 decline just might mean that a lot of investors may have wanted to check off a diversity box in 2021, rather than actually commit to consistently investing in founders of color,” Balanzat said.
‘They weren’t that interested’
Marcus Medley, founder of real estate deal-signing platform Apace shares similar sentiments to Balanzat. Medley began fundraising for Apace in September 2020. But after feeling like a diversity quota to some of the investors he worked with during his fundraising efforts, Medley chose to remain self-funded.
His fundraising process happened in a period of time where funding for Black founders was on the rise. Yet, despite having a previous career at Silicon Valley Bank and a network of connections in the space, Medley told the Guardian that as a Black man, he still ran into a lot of issues such as racial bias and discrimination that many founders of color have said after interacting with investors.
“I knew what they were looking for,” Medley said. “But it felt like a lot of the investors I spoke to were just speaking with me just to say that they spoke to a Black founder. I could just tell based off of like the little research they did on the Apace that they weren’t that interested.”
Providing space, tools and support
On the opposite side of the fundraising spectrum, Kimberly Bryant, founder of Black Girls Who Code, a Stem education non-profit, built her grassroots program in to a $30m organization over the last 10 years.
While Bryant did disclose that non-profit fundraising is different from obtaining venture capital funding due to non-profits being able to obtain government grants and donations to fuel their efforts, she noted that founders of color in both sectors often likely have to outperform their white peers to get access to funding.
In regards to the peak and plateau of funding for marginalized founders since 2020, Bryant predicted that the window of opportunity for equitable funding would not be open long.
“It was a good milestone and it’s a good marker for those that could take advantage of that opportunity,” Bryant said. “That said in tonally, what I have seen as a benefit to the rise and fall in funding is a very strong emergence of internal communities, founder communities and ecosystems in places that one might not have expected before.”
With her latest venture Ascend, Bryant hopes to become a solution maker by contributing to the growing networking spaces built for marginalized founders.
Launched early last year, Ascend Ventures will provide Black founders with the space, tools, and support needed to get them from idea-stage to receiving funding.
Bryant plans to build an innovation lab that aims to better equip Black founders to obtain funding despite industry bias and limited access to resources.
‘Need to start judging by metrics’
Outside of utilizing innovation labs and similar programming to help prepare for fundraising, Bryant encourages founders of color to also rethink their business models and rely less on the venture capitalism model, especially in 2023’s tight market.
Similarly, Balanzat believes that founders of color have to find empowerment as they seek investment opportunities. Rather than looking at venture capital funding as an opportunity for investors to make their money back, to Balanzat, founders need to remember that they are the ones offering an opportunity for financial growth to investors.
“I have so much confidence in my vision, I operate as if I don’t need the money (which by the way, I really do),” Balanzat said. “But, I’m not going to beg for it. Every entrepreneur, regardless of stage or background, needs to go to meetings with the mindset.”
When it comes to investor solutions Medley believes that venture capitalists have to rip up the rulebook that they have used for years, in determining how they invest in companies.
“They have to stop investing in companies, strictly based on what their founder looks like,” Medley said. “They need to start judging off of their metrics and taking external factors beyond the founder’s technical background or ivy league affiliation into consideration.”