New Models For Tech Start-Up Funding

May 2016

I have the opportunity research and reflect on an important topic for a Congressional Briefing Panel focused on new models for tech start-up funding. At task is a discussion on the significant challenges related to female and minority entrepreneurship. To start, here are some recent sobering statistics from CB Insights:

  • Earning the lowest share of investments for all minority groups were companies led by African Americans. Only one such company acquired capital funding in the time period during which data was collected, totaled at $1.9 million, which factors to less than 1 percent of the total share.
  • For female entrepreneurs, the news is even worse: Companies headed by male executives received 98 percent of all investments, totaled at nearly $1.88 billion. By comparison, female executives only received $32.2 million in funding, while mixed-gender leadership teams took in $9 million, or less than 1 percent.

In addition:

  • The National Women’s Business Council (NWBC) found that male founders start with twice as much capital on average as their female counterparts, and women-owned business are much less likely to get loans from banks or the Small Business Association.
  • Snagging venture funding is equally difficult, in part because only 6% of VCs are women, according to Babson College’s Diana Report. Only 0.2% of black female founders, for example, received VC funding between 2012 to 2014, according to a study by digitalundivided.

The good news is that there is an increasing amount of dialogue about these issues and hopefully  those in the tech startup scene will straighten-up and pay increased attention.

Without getting into the causes of the situation we are facing, what are some ways to improve the current state? I think it comes down to a similar approach that many entrepreneurial ecosystems can use to drive new participation and growth.

First, success begets success. Just as one generation of successful entrepreneurs helps to fund the next generation, successful female and minority entrepreneurs should ensure that a disproportionate amount of their financial and social capital is allocated to a new generation of entrepreneurs that may have similar backgrounds and challenges.

Second, board representation is critical and tech startups should be consistently reminded that companies with diverse boards that mirror their customers’ demographics have been shown to function better. It’s incumbent on tech startups to purposely be more diverse and more inclusive.

Finally, female and minority entrepreneurs should develop focused venture funds that allocate capital to amazing entrepreneurs who may be challenged in finding capital through current financing sources.

I am hopeful that current and future discussions will lead to unparalleled action, addressing a fundamental and structural flaw that could inhibit true entrepreneurial growth.

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