10 Takeaways From MaC Ventures Research On Black Talent In Tech

Avatar
Written by Peter Pedroncelli
Marlon Nichols Black talent
Black talent is not fairly represented in the U.S. tech sector, with less than 2.1 percent of startup executives coming from the Black community. Marlon Nichols is the Co-Founder & Managing Partner of Cross Culture Ventures, along with co-founder Troy Carter | Photo: Anita Sanikop

Despite more Black talent than ever before graduating from college, the number of tech jobs going to Black candidates has not grown.

The tech sector in the U.S. is not representative of demographics in the country — less than 2.1 percent of startup executives come from the Black community which makes up 13 percent of the working-age population in the U.S.

A new study from Kauffman Fellows and MaC Venture Capital delves deeper into the facts and examines the case for more diversity in tech.

MaC Ventures is a new Los Angeles-based investment firm formed from the merger of Marlon Nichols’ Cross Culture Ventures and Adrian Fenty’s M Ventures. Nichols and Fenty are the two managing general partners of the new fund.

Listen to GHOGH with Jamarlin Martin | Episode 08: Marlon Nichols

Jamarlin talks with Marlon Nichols, co-founder of Cross Culture Ventures, about the culturally-themed fund he started with Troy Carter.

Here are 10 takeaways from MaC Ventures’ research on Black talent in tech.

Corporate diversity data is not easy to access

To conduct research regarding diversity in startups or tech-related companies, quality data is important, but this can be difficult to access. This is because only 3 percent of Fortune 500 companies make their diversity data accessible to the public. MaC Ventures overcame this challenge by using software to analyze the profile images of more than 260,000 U.S. startup founders and executives to gather empirical answers using publicly available demographic models.

A discrepancy in startup executive representation

The research shows that 79.2 percent of startup executives are white, 15.6 percent Asian, 2.6 percent Latinx, and only 2.1 percent Black. The data points to a large discrepancy between the Black working-age population in the U.S., at 13 percent, compared to startup executive representation — which is only 2.1 percent.

No educational pipeline problem

Black students have been earning bachelor’s and master’s degrees at record rates, but those gains are not translating into representation, according to the projections of the National Center for Higher Education and Public Policy and the U.S. Bureau of Labor Statistics 2018 report. In fact, U.S. startups would need to hire around 5.6-times more Black executives to match working-age U.S. demographics and ensure that startups portrayed a true demographic representation of the country. This clearly disproves the educational pipeline problem theory that suggests that there is not enough Black talent available in the tech space.

Diversity is good for profit but still not popular

Black executive representation is incredibly poor in top Fortune 500 firms. As of 2018, there were only three Black CEOs and only one out of five board members are non-white. “This finding is particularly surprising because studies have found that improving ethnic diversity increases Ebit, a measure of corporate profitability,” according to MaC Ventures’ research.

For diversity to thrive, the founding team must be diverse

For a startup to have a diverse and representative workforce, an example should be set early on. “If you do not have diversity early on, including on the founding team, then you will never have a diverse team. Diverse executives hire more diverse executives, so it’s critical to start early,” said Kauffman Fellow and healthcare angel investor Jason Torres.

Race affects fundraising ability

Perceived ethnicity has a large impact on fundraising, according to the research. White founding teams and white executive teams raise venture capital more often, according to the research. More than 75 percent of all rounds are raised by white founding teams. This is the case even though ethnically diverse teams consistently outperform predominantly white teams.

Less access but more dollars raised

Even though Black founders have less access to capital, they raise more dollars when they do raise than their white counterparts. This goes for fundraising across all rounds, from seed-stage to Series E. The data gives Series E funding as an example, pointing to the fact that diverse founding teams raised 60 percent more venture funding than white founding teams in late-stage private rounds.

Higher returns for investors in diverse founding teams

Diverse founding teams have higher returns when cash is returned to investors, according to the research. Historically, diverse founding teams returned 3.26x median realized multiples on IPOs and acquisitions, compared to a 2.50x realized multiple for white executive teams — representing a 30 percent increase.

Clear selection bias

The misconception of the pipeline problem and the education findings mentioned above point to a clear selection bias. As in other professions, the majority of venture capitalists invest in people that look like themselves, have similar views, and have similar upbringings. Today, 80 percent of investment partners at venture capital firms are white, compared with only 3 percent Black. This explains why 77-80 percent of venture rounds go to companies with white founding teams.

Lack of effort to increase diversity

As a startup grows it has the opportunity to increase executive team diversity with new hires. The MaC Ventures research showed that there is not sufficient effort being made to increase diversity, as 55 percent of companies at the Series-E stage still have no ethnic diversity in their executive teams.