Joseph Heller explains that Black startup founders have had to work measurably harder than their white counterparts just to get in the door to pitch VCs.
I am part of the first generation of Black tech CEOs and entrepreneurs.
I know that sounds like a pretty startling statement—that in 2020 we are just now having our very first crop of Black tech entrepreneurs. Allow me to explain.
Historians put the birth of venture capital right after World War II. It would be another 20 years before the country was legally desegregated in 1965, and venture capital as we know it today only really started to really boom around the 1980s and 1990s. Then and now, the average age of a tech founder was around forty-two years old. My father, born in 1953, was the prime age to raise VC money during the booming 1990s. But any African American in my father’s generation would have faced a level of discrimination from their birth to college-age (if they had the opportunity) that would have made doing so unlikely.
The next cohort of venture-backed companies came in the early 2000s to early 2010s, and their founders would have been born from 1960 to 1970. Although the Civil Rights Act of 1965 passed in their lifetime, their parents would still have been held back by racist attitudes and unequal access to education, putting a roadblock on their children’s progress even though they themselves had more opportunities.
Now let’s say that the most recent cohort of founders and entrepreneurs is from 2015 onwards. These entrepreneurs would have been born in the very late 1970s to the mid-1980s. This is the first cohort of entrepreneurs that would have at least a decade of separation from the passing of the civil rights act of 1965, might have benefited from Black parents that were finally given access to a college education. They would have seen the improvement of race relations to the extent that the U.S. had a Black president serve two terms just when they coming of age to be a founder.
Unfortunately, our country has a very deep history of equating African blood with inferiority, and this has not gone away with the Civil Rights Act or a newly educated Black generation. The first crop of Black politicians faced extreme opposition and their competency was questioned. The same biases that plagued African American soldiers during the Civil War were present up through the Vietnam war.
Blacks faced extreme resistance in higher education to an extent that still affects education systems today, though they’re accessible on paper. Football fans will recall that as recently as 2003, the NFL had to pass the Rooney Rule, which required NFL teams to prove that they were at least considering Black NFL coaches, reacting to the reality that so few coaches in the NFL were Black. And venture capital is no different.
In 2016 and 2017, when my company was raising our Series A, I spoke to around 150 VC funds. Of those 150 VCs I spoke with, only one Black VC had actual check-writing authority. Roughly 120 of the VCs that I spoke with were white and the remainder were non-white. I received zero term sheets from any of the white VCs and five term sheets from 30 of the non-white VCs. My win rate with white VCs was 0%and roughly 17% with non-white VCs.
The venture capital world looks a lot like the educational one of a few decades ago. Black founders lead only 1% of VC backed startups. And 80% of VC funds don’t even have a single Black investor. Not coincidentally, 40% of VCs went to two schools: Harvard or Stanford. My intent is not to bash VCs or where they tend to come from, but you know you have a problem when out of all the brilliant minds that come from different schools in the US. VCs aren’t recruiting their partners from outside of these two schools—and it doesn’t help diversity in their firms or their portfolios.
As a result, venture capital culture is extremely insular. Only a few thousand people control hundreds of billions of dollars of investment potential. As they already have a near-monopoly on this (increasingly) rare commodity, there is little incentive to go outside of their very tight network as it doesn’t necessarily increase their power. And I soon realized when raising money that although the venture world claims to be willing to take huge risks and bet on audacious entrepreneurs of any race, they are actually much more conservative than they portray themselves—sometimes.
There are countless stories of VCs pumping hundreds of millions of dollars and even billions of dollars into startups that were not sound business ideas. However, those founders had strong social currency in the VC world, so they were able to easily raise money. Investors know that if they invest in companies where the founder has social credibility, their investment decisions are unlikely to be questioned—even if the company fails. But if the founder is unknown and the company fails, then the investor has a lot of professional risks to future deals. The result is an overly cautious world with a very distinct herd mentality that sticks together and rarely admits new members. Unfortunately, white founders are a known commodity in Silicon Valley and founders of color are not.
Becoming a successful tech entrepreneur is hard for everyone, but it’s especially challenging for African American entrepreneurs. There is just not an established precedence for Black entrepreneurs to build on. We are building that foundation now as the first generation. Most Black entrepreneurs probably don’t know any other successful founders, have no connections to VCs and most will likely find it a lot more difficult of a process than inside-friends-and-family angel investors round.
Even once they’ve cracked the first round of investments, Black founders are faced with having to raise venture capital from, again, mostly white investors who are still pre-programmed to invest in people within their social circle, even with demonstrated success. Furthermore, a lot of early-stage investing is driven by emotions and not fundamentals and there are preconceived notions of racial superiority and ability that do exist—even if VCs don’t want to admit it—that sometimes defy business realities.
Every decade seems to bring a new challenge where African Americans are forced to prove that they are just as capable of delivering results as their white counterparts. Becoming a successful tech entrepreneur appears to be that next frontier for the civil rights movement. I’m convinced, given the amount of money at stake, that this is one that will have the biggest impact yet.
Ultimately, I ended up raising VC money because I had bootstrapped my company The/Studio to an 8-figure revenue by pouring years of my life, soul, and capital into the company. If I had tried to raise VC money at The/Studio’s outset or very early stages, I am certain there is no way I would have succeeded. I didn’t have the network in Silicon Valley and I definitely think race would have been an overwhelming factor.
It was nearly insurmountable even when the company was thriving. Instead of the usual startup route—creating a PowerPoint deck, getting a few meetings on Sandhill Road, and raising a few million dollars—I had to prove that I was worthy of attracting VC money before I even got that opportunity to pitch. The/Studio’s success comes down to the fact that I was totally relentless and grew the company with no resources. By literally pitching almost every VC in Silicon Valley, eventually, I couldn’t be ignored.
That unceasing drive is familiar to anyone who studied the African Americans who had to go through years of jumping hoops to be the first army general or the first student at a public university, or even to use the same public spaces as whites. It’s a soul-draining necessity. You just keep going until you can’t be ignored. My hope now is that through my efforts—and the efforts of many other brave and scrappy Black investors and entrepreneurs—a Black founder no longer needs to be ten times more scrappy and innovative just to compete for VC money.
This is no exaggeration. To be clear: I was measurably more resilient than my white counterparts. I had to invest hundreds of thousands of dollars of my own capital into the business, pour millions of dollars of profit back into the business (oftentimes without paying myself, first), open offices in four different countries without any funding, learn all the tricks without any true business mentors, break into the Silicon Valley network by relentlessly taking every meeting I could for eighteen months across over 150 meetings just to get a seat at the table that many of my peers could have gotten by just navigating their college network.
The good news is that more investors are starting to acknowledge that this is a problem and there seem to be some well-intentioned players who are putting forth resources to solving this problem. I encourage more Black entrepreneurs to take advantage of the opportunities that are coming up every day. That may mean giving up comfortable jobs where they feel secure.
Join the Black tech entrepreneurs who are pushing for a whole new business world, one where your hard work and ingenuity are in demand at the top of the corporate ladder. There is no better way to change the world than to build a company in the image of the world that you want to create.
The more Black entrepreneurs succeeding, failing, and growing in the venture capital market, the easier it will be for future generations. This is our civil rights movement.
Joseph Heller is CEO and founder of The/Studio.
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