Investing In Black Women Tech Founders Is An Investment In Innovation And Growth

Female founders are not monolithic. The intersection of gender and race has a multiplier effect on the challenges Black women face as founders starting and growing technology companies. 

To better understand Black women tech founders’ challenges in building scalable businesses, Black Women Talk Tech, the first chapter-based association of Black women tech founders, and its nonprofit arm, Talk Tech Association, undertook research. Results are based on 671 responses from Black women tech founders. 

The New Face of a Founder: Uncovering Black Women as the Next Billion Dollar Founder was commissioned by Samsung NEXT, Surdna Foundation, and the New York State Energy Research and Development Authority (NYSERDA). The Report highlights Black women’s strengths and resilience and highlights their companies and how they are improving the lives of people, commented Esosa Ighodaro, co-founder at Black Women Talk Tech. 

Why should you care about supporting Black women tech founders? Black women represent 42% of net new women-owned businesses, which is three times their share of the female population (14%), according to the American Express 2019 State of Women-Owned Businesses. Between 2014 and 2019, their growth in the number of firms (50%) outpaced all women (21%) and businesses in general (9%). 

Diversity breeds innovation. Creativity doesn’t just happen. It is the result of making unexpected connections based on things we already know. That’s why life experiences are so meaningful. Without diversity, the life experiences we bring to solving problems are limited. Black women are an untapped force that can rekindle the economy, create jobs, increase innovation, and improve the United States’ competitiveness. More than one-third—37%—of Black women founders of tech companies are in high-growth sectors, such as education, financial services, and healthcare, as well as emerging industries like artificial intelligence, machine learning, clean energy, and wearables. The combined market size for these industries is $5 trillion. 

Black women tech founders are highly educated: 85% have a college degree and 46% an advanced degree. With an average age of 37, they have years of business experience, though less than their male counterparts. Nearly two thirds—63%—increased traction in their businesses in the past six months. Very early-stage tech companies are often piloting their minimum viable product (MVP). They haven’t developed their revenue models: four in 10 Black women tech founders have paying customers.

Structural differences in personal wealth, the wealth of friends and family, business experience, and networks result in Black women’s startups’ underfunding. The typical high-growth startup has a friends-and-family round raising between $25,000 to $100,000. Only 18% of Black women raised money from their friends and family. They averaged $36,600. Of the 52% who have raised some capital for their businesses, over 50% raised non-traditional capital, such as crowdfunding, grants, and loans. 

Instead, 91% rely on a day job to support themselves. In fact, 52% of founders provide more than 20% of their income to their businesses. These were the most surprising stats to Ighodaro. 

While you may see this as a sign of true grit, determination, and passion for their businesses, angel investors and venture capitalists see this as a potential red flag. That true grit becomes an impediment to later-round funding. 

Oddly, investors—especially at the pre-seed stage when there are few indicators of a startup’s likelihood of success—rely on a founder’s passion as an indicator of success. However, they want their founders 100% dedicated to the companies they fund. 

Another red flag to investors and also to top business accelerators is not having at least two co-founders. Seventy percent of Black women tech founders are solo founders. 

The result: Between 2009 to 2018, tech startups led by Black women raised $289 million to launch, build, and sustain their businesses. This represents only 0.06% of the $425 billion in total tech venture funding raised. Clearly, investors don’t understand the unique challenges Black women face. 

For investors, policymakers, and support organizations that want to change the ratio:

  • Step outside your existing network. Look to those who are highlighting and funding Black women. Yes, Black Women Talk Tech does a conference. Attend Morgan Stanley’s Multicultural Lab Demo Day and Founders of Color Showcase—produced by Next Wave Impact (which I recently wrote about). Invest in Venture funds that focus on investing in Black women, such as WOCstar Fund. Or, check out Project Sage to find a list of 34 funds with a gender and ethnic diversity lens.
  •  Don’t rely on the typical pattern you look for in a founder. Seek out new metrics to evaluate the likelihood of success.
  • Look beyond Silicon Valley for companies to invest in. Top states for Black women tech founders are New York, California (Los Angeles), Georgia, New Jersey, and Texas.
  • Develop innovative financing programs that better support the needs of Black women.

How will you help support the growth of Black women tech founders?

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