The Inequities in Venture Capital Investments

Inequities Venture Capital BeLatina Latinx
Photo courtesy of forbes.com

2020 Was a year of historical events: a pandemic, an election, and a tumultuous racial reckoning. As we head farther into the new year, we are forced to come face to face with all that needs to be done to dismantle structural racism in our society. Right now, experts and activists alike have shined the spotlight on one particular inequity that the mainstream hasn’t quite reached the mainstream: the disparities in venture capitalism. 

Silicon Valley is considered by many to be the wild west of American business. Indeed, the possibilities of technology and entrepreneurship seem to be boundless. But recent studies (and countless anecdotal experiences) have shown us that, when it comes to raising venture capital to fund new projects (a necessity to give projects momentum), people of color are getting the short end of the stick. And women of color are by far the worst off. 

An annual study conducted by Digital Undivided, a non-profit that “leverages data and advocacy to catalyze economic growth for Black and Latinx women entrepreneurs,” has reported that altogether, Black and Latina-led businesses raised less than 1% of the $276.7 billion 2020 venture capital funds. It doesn’t take a genius to see that these numbers are troubling. Black women make 0.27% of the pot, while Latinas make 0.37%.

But why does it matter? 

It’s easy to gloss over these statistics as unimportant. After all, there are many different ways that women of color can go about making money. But the bottom line is, it does matter. One of the most significant factors contributing to the U.S.’s “race problem” is wealth disparity. On average, Black households make 65% of what white families make. Latino households make 63% compared to white homes. 

To close the racial wealth gap, we need to start fixing the problem from the inside out. It’s no accident that Latinas and Black women aren’t being funded as much as their white male peers. 

It isn’t just an implicit bias preventing women of color from raising venture capital (although it is undoubtedly a major factor). It is also the preponderance of insular networks and the lack of networking opportunities that stifle their access to venture capital. 

In an insightful op-ed for TechCrunch about the racial and social inequities of venture capitalism, Joseph Heller, the Black CEO of SuppliedShop, a wholesale platform for small businesses and brands, described the venture community as a “closely knit elite who wanted nothing to do with outsiders.”

In other words: Silicon valley is run mainly by white, male, Ivy League techies. It follows that these white, male, Ivy League techies hang out with other white, male, Ivy League techies. When they mingle and socialize, they are doing it with each other. They refer their friends to their other friends. It makes their social network look more like a social bubble. 

In light of this information, we must ask ourselves the tough question: how can we as a nation work towards closing the racial wealth gap if white gatekeepers are still preventing people of color from accessing the same resources that their white colleagues have access to?

Well, according to Lauren Maillian, CEO of Digital Undivided, the statistics are grim, but they are getting better. In 2016, a paltry 12 Black female-owned startups received more than $1 million in venture funding. In 2018, that number almost tripled to 34. 

“For a long time, I was just seeing entry-level change,” Maillian told Vogue Business in December. “But this year’s report shows that we are not only seeing more women of color as entrepreneurs in the ecosystem, but we are also seeing greater funding.”

It’s possible that with more work towards actively creating connections between women of color and the change-makers in Silicon Valley, we can keep seeing women of color succeed in the tech sphere. Stranger things have happened, after all. “I pray it happens in my lifetime,” said Maillian.