At a time when the U.S. has been thrust anew into conversations about racial inequality, many Black venture capitalists say they are grappling with their role and responsibilities in a high-stakes industry that generates extraordinary wealth for a select few and helps determine which tech businesses succeed.Interviews with Black VCs illuminate the difficulty of making a difference in a tech industry that often refuses to acknowledge the problem; the frustrations of seeking to be recognized for their work irrespective of race; and the internal conflict many face over whether they’re doing enough to create opportunities for others like themselves.
The U.S. population is 13 per cent Black, and just 4 per cent of the VC industry is African-American, according to 2018 data from the National Venture Capital Association—compared with 3 per cent two years earlier. NVCA estimates that 3 per cent of the influential general partners, who lead investments, are African-American. Even when these VCs successfully boost the founders from other underrepresented groups in their portfolio, structural forces keep funding for Black entrepreneurs stubbornly low.
Tyson Clark at Alphabet Inc.’s GV, one of the most prominent Black VCs in Silicon Valley, wondered whether he was failing to push his colleagues to support more Black startups because they didn’t fit neatly into the archetype of a successful investment. He has backed two Black founders out of his 11 investments in the past five years, but said he must do better to make a difference. Reflecting on his role in Silicon Valley caused intense soul-searching in the past two months.“Have I been so complicit that I’ve traded success for not making a difference?” Clark pondered. “Humbly, there are a group of people in my position who want to do something, but feel like we don’t have enough power yet to be influential on this topic. It’s painful for all of us to feel this helplessness.”
Clark thought he had been doing the right thing. He attended tech events hosted by his Black fraternity and judged pitches from budding entrepreneurs. He toured Southern states with other VCs to visit historically Black colleges and build new connections. He invested outside of the San Francisco Bay Area, in places where the startup scene is more ethnically diverse.
But those steps can’t demolish structural forces standing in the way of Black entrepreneurs -- reduced access to capital relative to White counterparts, fewer network connections in the tech industry because of the schools they attended and jobs they previously held. Racism in this setting is particularly insidious, Clark said, because it’s invisible to perpetrators and bystanders.
Even though some of his colleagues funded startups created by African-Americans, Clark said it took him years to feel comfortable in his job and he didn’t have the confidence to try to persuade his partners to invest in some companies led by Black founders, for fear they may have considered them too risky.
“I thought I was too junior to bring on something that didn’t fit the pattern recognition,” he said, meaning an investment that didn’t look like previous bets. “I knew what was the easy sell and what wasn’t.”
Sydney Sykes, a former VC at New Enterprise Associates, said she remembers the pernicious way race seemed to get in the way of otherwise good deals during her short, once-promising career in venture capital, and how no one acknowledged it.
When Sykes introduced talented Black entrepreneurs to her White colleagues at NEA and in her time as an angel investor since, she said she’d feel the “chemistry in the room” sour. The White investors always used the same reason for turning down the startup: they “just couldn’t get excited.”“You’re always left wondering if that person didn’t get another meeting because they were Black,” she said. Sykes, who left the industry in 2018, co-founded BLCK VC, a nonprofit advocacy group pushing firms to double the number of Black investors to 400 individuals by 2024.Sykes and other VCs say Black-led startups don’t gain backing because, in general, they haven’t achieved category-defining successes and are viewed as too much of a risk. These types of companies are less likely to have a family-and-friends round when starting a business, which totals about US$150,000 on average, and often can’t break through without funding from VCs.
“You feel you have to be a model minority, the best Black person,” said Sykes, who now works at a fashion startup in San Francisco. “If you mess it up, you ruin it not just for you but for everyone who looks like you.”
In the aftermath of George Floyd’s death at the hands of Minneapolis police and the renewed attention on the Black Lives Matter movement, at least one Black VC decided it was time to speak up to the firm’s White and Asian partners about race. The person, who asked not to be identified discussing private conversations, questioned in a videoconference the paltry number of Black-founded companies the firm had backed and recommended they fund these startups at an earlier stage to make up for the absent family-and-friends round. The partners responded by saying Silicon Valley didn’t have a systemic racism problem -- pointing to the success of Asian immigrants in the industry -- so the firm didn’t need to do anything proactive to help Black entrepreneurs.
The Black VC explained how the African-American experience differed from that of immigrants and, gradually, the partners committed to investing in startups earlier. But they’re trying to work with other venture firms to find a systematic approach to the issue, so little has changed so far.
A number of VC firms have said they want to create a more inclusive industry and have taken concrete steps, like unveiling standalone funds focused on people of color. In early June, SoftBank Group Corp. created the US$100 million Opportunity Growth Fund to invest in Black- and Latinx-founded companies, and Andreessen Horowitz unveiled the Talent x Opportunity Fund, which started with US$2.2 million in donations from the firm’s partners. Ben Horowitz and his wife, Felicia, pledged to match as much as an additional US$5 million in donations.
Some Black VCs say that isn’t the right approach.
“We should be well beyond this idea of separate but equal,” Monique Woodard, a VC who created Cake Ventures, which puts money into early-stage companies, said during a videoconference hosted by BLCK VC. “But in venture it seems as if we are moving right back there. Black entrepreneurs don’t need a separate water fountain. You have to fix the systemic issues in your funds that keep Black founders out and keep you from delivering better returns.”
That videoconference, held June 4, was an opportunity for Black VCs to convene, discussing their collective grief over the losses of Floyd, Breonna Taylor and others, and their frustration about racial problems in their industry. There was an audience of 4,000 people that tuned in, including White VC workers and Black tech employees.Read more: VC Firms Targeting Diversity Are Suddenly in High Demand
Shauntel Garvey, who co-founded Reach Capital, also has been reflecting on her VC firm’s lack of investments in Black entrepreneurs.
Reach, an education technology firm, has extended more than 50 investments, with 40 per cent to a founder who is a person of color. But none had a Black person on the founding team.
Garvey is conducting an audit to find out why that is, looking back at the times a Black founder met with her or one of her non-Black partners to see why they passed on an investment and how the startup has fared since Reach turned them down.
Garvey remembers speaking with Ruben Harris in July 2018 when he was looking for funding for his startup, Career Karma, which helped helped match computer-coding bootcamps and applicants who want to become software engineers. Garvey turned Harris down. She didn’t like the business model, in which Career Karma was paid only when there was a successful match, and the valuation of the Y Combinator-backed startup was a bit steep for its progress, she thought.
But Garvey said, in retrospect, she realized she hadn’t spoken with Harris enough about the broader vision for his company. Some Black founders are reluctant to over-promise results, she said, so they focus more on the current states of their companies.
“I undervalued him as a founder,” Garvey said. “If you believe in the product and secret sauce, the business model takes a back seat. If he has a vibrant community there, then there are different ways to monetize that. I did not do that work the first time.”
Career Karma ended up raising a US$1.5 million seed round with Kapor Capital, Unshackled Ventures, Upfront Ventures and others. (Willett Advisors, the investment arm for the personal and philanthropic assets of Michael Bloomberg, the founder and majority owner of Bloomberg LP, is an investor in Y Combinator startups.)
Garvey wondered whether she had been holding founders “to a higher standard, knowing it’s going to be a reflection of me and a reflection of the whole ecosystem.” She now sees it as her responsibility to explore a startup’s long-term vision with founders, to make a fairer judgment on whether it can grow to be a big business.
While Garvey was reviewing her past decisions, Harris reached out to provide her an update on the business and gauge Reach's interest. The racial reckoning and her audit prompted Garvey to look again. Harris had expanded beyond coding bootcamps, letting his company tap into a bigger market.
VCs need to take more risks on Black entrepreneurs, she said, because “nine out of 10 startups fail anyway. So you can’t expect one out of two Black-led startups to excel. You have to get that 10.”
Charles Hudson has had better success investing in Black-led companies than many Silicon Valley VCs. Hudson is the sole partner at Precursor Ventures, a San Francisco-based firm he founded. All three full-time staffers and an intern at the firm are Black.
In Precursor’s first early-stage fund, with a size of US$15.3 million, 18 of 83 investments went to Black founders. In the second fund, worth US$31.1 million, Hudson has made 20 such investments of 93.
“If you’re a Black founder, you’re welcome here,” Hudson said. “If you look at the investing team at most places, you won’t see a single Black face.”
Hudson has been conscious about taking risks on entrepreneurs across the U.S. rather than clustered in tech hubs. Still, his skin color has meant that when he’s fundraising, some institutional investors assume the goal of his fund is to uplift Black and Brown entrepreneurs -- even though it isn’t.
“I met limited partners and they’re like, ‘Oh, you’re a diversity fund.’ Nothing in my deck says we’re explicitly prioritizing diversity. They meet you, they see you and they instantly jump to that.”
Black VCs with their own funds have more latitude to take significant action on race than ones at larger firms with many White partners.
Adeyemi Ajao raised US$137 million at his firm Base10 Partners in 2018 and it was seen as a triumph for representation. It was the largest war chest ever compiled by a VC firm with a Black co-founder.
Ajao moved to the U.S. 12 years ago from Spain, where his Spanish mother and Nigerian father mostly raised him. For years, he said he didn’t fully understand the legacy of racial dynamics in the U.S., and while he sought to back a wide variety of founders from underrepresented groups such as women and Latinx people, he didn’t think it was his job to focus on the number of Black entrepreneurs in his portfolio. Base10’s first fund invested in two startups with Black founders out of 23 companies.
Upon his reflection after Floyd’s death, Ajao decided to try to make tech more inclusive for Black people because of the group’s “structural disadvantages” in the U.S. and the untapped economic potential of such a strategy. He unveiled a plan to invest 1 per cent of the firm’s profits and partners’ performance fees to groups seeking to diversify the tech industry, when announcing a second fund valued at US$250 million. He hopes that VCs of all races will make similar commitments and consider what else they can do to help solve tech’s race problem, which will take many years and all participants, he said.
“The problem is on the VCs,” he said. “We cannot deflect blame to anyone else. So we are saying, we want to invest in more Black founders so here’s what we’re going to do. My hope is, that is the stance most people will take.”
Clark, at GV, is still grappling with how much power he wields, with whether he’s being too hard on himself or not hard enough, with the very human guilt of being successful while others continue to struggle.
“How many other Black VCs are out there at funds as big as GV who are general partners?” Clark said. “Not many. So if not me, who? If I’m not powerful enough, then who really is?”