How Black Female Founders Can Finally Break Through The Fundraising Gap In 2018
Although 2017 saw a few welcome success stories, the generally dire fundraising landscape for female founders is well documented. Of the $60 billion in venture capital invested the year before, just 2.19 percent went to women.
Drill down deeper into those numbers, and the story gets much worse. Black women are trailing far behind. Between 2012 and 2014 for example, the percentage of capital they received was almost negligible at less than 0.2 percent.
To say these numbers are unacceptable is a gross understatement. Women of color make up a disproportionately high percentage of new businesses, increasing at a rate of 126 percent, fifteen times the national average. But the average amount of money they’re able to raise is just $36,000 compared to $1.5m for the average white male. And of the 15,000 women who’ve ever secured in excess of $1m, just 16 are women of color. Asmau Ahmed, the founder of Plum Perfect, a makeup color matching mobile app, is one of the 16 black unicorns (as I like to call them) who’ve raised over a million dollars. “I don’t consider myself successful in terms of fundraising,” she says. “I know I’m one of the few, but $1m is not a sustainable amount of funding to grow a company. I do realize that there is success in the amount I’ve raised but I’m not celebrating.”
To build large-scale sustainable businesses that can stand their ground in a competitive marketplace, founders need access to real and sustainable capital from the outset. Lisa Skeete Tatum is a former investor, and the founder of Landit, a tech platform that helps women navigate the workplace. She’s raised $2 million in seed funding. “Without the right amount of seed capital, it’s hard to cross the milestones required to get to an A round. You have to have the runway to prove what you need to.” And that statement is borne out by the fact that the number of black women who’ve gone on to raise a series B or C is in the single digits.
This is not a challenge of capability or potential, not least because black women are the most educated group in America. So why are so many languishing? Unconscious bias plays a large part.
Stephanie Lampkin, another deeply qualified founder who launched a tool called Blendoor to combat unconscious bias in the workplace has this to say: “The challenge is that no one thinks they’re racist or sexist or ageist and the truth is we all are and we can’t rely on our own human judgment to make truly meritocratic decisions.”
Despite the challenges, a handful of women have broken through the fundraising gap, but can more of us stack the deck in our favor?
Disrupt the pattern
Hurdle number one is getting past the prototype of what a successful tech founder looks like to the investment community: “You walk into a meeting and you have 30 minutes to make an impression and the first five minutes has your investor going through a mental adjustment – wait a minute she’s a woman and a black woman and she’s built a technology platform. This is new. Sometimes people get over that and sometimes they don’t,” explains Ahmed.
Lampkin agrees: “Studies have shown that because of unconscious bias we’re really bad at judging other people, especially people who don’t fit the mold or stereotype of a particular role.”
But if we’re never given the opportunities and the funding to grow and scale our businesses, how will we ever match the prototype? It’s a vicious circle. Nikhil Kalghatgi is an investor and advisor who was previously a partner at Vast Ventures and led early stage investments at SoftBank Capital. He acknowledges that it’s hard to police an industry where bottom line is the only focus. “For a large venture firm, the target is to make money (not diversity). So if it’s easy to make money using their current model, where’s the incentive to change?”
And the truth is that there are so many young, white, male ‘so-called’ prototypes out there and they are so well connected, it’s very easy for investors to fill up their meetings with them. We need an industry-wide push for VCs to consciously and continuously check their own biases, such as this example shared by Kalghatgi, about a fellow investor. “To gain a baseline understanding, he wrote down the gender and race of every meeting he took and found that 46 percent of his meetings were with white men. And he’s not a white male! He was shocked at himself and made it a point to actively diversify his meetings.”
This should be standard procedure. The industry pushes back against quotas but at a minimum they should diversify their pipeline. Angela Lee, chief innovation officer at Columbia Business School and the founder of 37 Angels agrees. “Pipeline management mandates that when you’re interviewing, you at least the reflect the national demographics.”
Network like crazy
Fundraising is all about access, the door openers and connectors who will pick up the phone for you and use their currency on your behalf. “From an early stage investing perspective, it’s so much about networks,” says Lee. “36 of 44 people we invested in were referred by people we knew.”
It’s essential to take advantage of events and insert yourself into the right ecosytems. “Networking is so undervalued when it comes to fundraising. Being involved in the community is critical,” agrees Kalghatgi. “Getting outside your network is the hardest piece. Do your homework in advance. Target who you want to meet. People waste a lot of time. Be directed.”
Women are often great at building networks but not as good at leveraging them. Lee suggests getting on Linked In. “Identify 10 funders, and find a connection that knows them. Ask for an introduction. Be aggressive and persistent. Do the work for them, write the email and bug them till they do it.”
But what if you don’t have those base relationships? “Then find someone in the sector who does.” Kalghatgi advises: “It doesn’t have to be an investor, it could be an entrepreneur who’s raised money successfully. Approach them for mentorship or advice.”
Another way around the problem is via an accelerator or incubator. Ahmed joined Astia which is geared towards women in tech and is plugged in with investors, particularly those investing in women. “I recognized what I was good at and where I needed to fill the gaps. I’m an engineer by training and went to business school. I knew that what I enjoyed was building products and innovating, so I joined an accelerator program that appreciated and enhanced those skill sets.”
Her first seed round from K4 Capital came as a result of that network. And having a seed round investor helped her get subsequent rounds. “Once you have one person who believes in you, you become more credible.”
Skeete Tatum also didn’t start out with connections but found a way to build them: “It’s about the people you meet along the way eg school. Who do I know that’s an expert in that space willing to open those doors for me? They obviously have to be sold on the opportunity and potential before they’ll do it.”
She is also a fan of accelerators especially for women of color. “Accelerators are actively seeking women of color. They become your connector and you access a built-in network as well as other founders.”
Investors are looking at your team, the idea, the market and your formula for success. But ultimately it’s about the picture and potential you paint. The storytelling. You have to speak the investor’s language and be prepared for every tough or crazy question that may come your way. Not everyone is a great pitcher but there’s a formula for how you present and places where you can learn, such as Springboard which is dedicated to supporting female founders.
“We women often the sell the dream,” explains Skeete Tatum. “But it’s about storytelling that huge opportunity. Why you are the winner and that you understand what it takes to cross the finish line.”
For Ahmed, a key component of the preparation process was to ensure she was actually ready to accept funding. “You’re only ready to take in money when you can clearly and succinctly say how every dollar is going to result in a dollar plus. It doesn’t matter how great the product is, or your projected conversion rates. How you are going to provide value for that investor?”
“You had also better be quick in that meeting” adds Skeete Tatum. “And know what to pitch and what to emphasize. Don’t pitch incremental. Don’t only define the opportunity but what is distinct about it. And a clear revenue model. Are you going after the big market? Are you the one?”
Target funders that want to invest in you
Both Lampkin and Ahmed initially cast a wider net for funders but found that approach to be a waste of time. “I had better success aligning myself with investors who saw the value in my skillset and gender,” Ahmed explains.
Lampkin agrees: “I was more successful pitching individual strategic investors who appreciated my skill set as an engineer. Those are precisely the types of people I should have targeted my energy toward from the beginning. They get it, they’re in the thick of it.”
A good place to start is to look at firms with diverse leadership because as Lee explains “people tend to invest in people most like themselves.”
It’s also important to identify the right firm. “Who’s really going to get behind you? Pick your investing partners wisely,” warns Skeete Tatum. “Not all money is the same.”
Lampkin had success with Pipeline Angels, a network of female investors, who were their first outside money in, and provided her with that extra boost and validation that comes with the support of an outside party. “They really get what a pre-seed raise means vs other funds who still want to see you have a product that’s been in the market. What Pipeline recognizes is that founders like me who come from humble beginnings often don’t have that friends and family round.”
Believe in yourself and persevere
Above all, you’ll get nowhere without a bullish approach. Be in it to win. You’ll hear no a lot but you’re not alone.
“I got very immune to the no’s”, shared Ahmed. “I didn’t spend a lot of time of time dwelling on the fact that I was getting no because I was a woman or a black woman. I knew it in the back of my mind but I didn’t let it affect my approach. That would be letting others win. I went into those meetings every day not being a woman or black woman but a founder with a great product and I hope that passion came through.”
“I get told no every day”, agrees Skeete Tatum “but I am relentless in my belief, conviction and dedication.”
So build networks, do your homework and put your best foot forward but above all, we cannot let the investment community off the hook and those who have a voice must hold them to account.
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