One thing is evident as the year 2022 gets underway: there are billions of dollars worth of possibilities ready for investment, many of which will include female leaders.
According to Astia, 1,103 enterprises totaling $3.024 billion in 2021 were evaluated 2021, marking an increase of 119 percent over the previous year, thereby ending rumors of pipeline concerns. However, the terrible statistics surrounding venture funding channeled toward minority entrepreneurs, particularly Black female founders, continue to be a problem for the industry.
While just 2.3 percent of women-led firms will obtain venture capital investment in 2020, the percentage reduces to 0.64 percent for Black and Latinx women in that same year. Women of color are systematically excluded from the wealth creation, job creation, and innovation impact that entrepreneurship brings – and systemic prejudices continue to be perpetuated due to such inequities in venture funding.
We decided to modify this three years ago. In the end, we concluded that firms run by Black women were in plenty in our pipeline and that the only failure we could find was the failure to invest in these companies.
Identifying hidden gems is the key to finding opportunities in business. Investing in best-in-class ventures enables investors to identify underinvested, outperforming firms with the potential to transform the world. We discovered a whole class of hidden jewels right in our backyard due to our attempts to locate those elusive treasures – and on the premise that we had done so years earlier.
While we were very saddened to hear that, because we were African-American, we would have invested in several firms that we did not, we were also delighted by the chance to remedy something over which we had total control and agency – our own investment choice.
This prompted us to conduct a thorough analysis of our data to identify concrete steps that might be taken to address the intersection of gender and race in our investing activity. Three years later, we have put remedies for the significant issues identified during the Astia Edge investment pilot, and the results are undeniably positive.
Following this self-examination and subsequent course correction, the Astia Fund portfolio now has 50 percent Black female CEOs, and 17 percent of the Astia Angels’ funds allocated following the course correction have been invested in firms with Black female CEOs.
Even though we have arrived, the road has not been without its share of sad moments of introspection.
Some of the critical parts lacking from today’s venture capital model regarding racial fairness are highlighted in our new research, which provides an eye-opening look at some of the most important results. Briefly stated, pilot company deals took 245 days to close, compared to only 161 days for the broader women-led portfolio of Astia. Additionally, the pilot company deals required more than 60 outside introductions by Astia to attract syndicate investment (compared to fewer than five for the other companies in Astia’s portfolio), and deals required more than 100 hours of hands-on work by the Astia team serving as advocates to counter investor bias directly.
The softer data was just as depressing as the hard facts. According to the company, the Astia pilot discovered that firms run by Black entrepreneurs disproportionately came to Astia with less cash invested at the seed and “friends and family” rounds, even though they had typically done significantly more with their modest investment. One may easily trace a large portion of this financing disparity to systemic pressures produced by the wealth inequality in the United States. Furthermore, investors often judged these entrepreneurs based on “who else had invested” – a query founded in prejudice against individuals who do not have access to or networks of money – rather than their development, tenacity, and potential.
Because the reality is that we, as members of the investing community, must accept responsibility for the inequality in financing and take deliberate actions to rethink the paradigm and status quo, according to the data, 17 percent of Black women are in the process of establishing or operating a new company, compared to just 10 percent of white women and 15 percent of white males in the same situation. This is not a problem with the pipeline. Black female entrepreneurs are abundant; all that remains is to identify them, objectively evaluate them, and invest in their businesses.
We have personally observed the anguish that comes with this knowledge, but we have also witnessed the strength of stopping the cycle of violence. We are urging every venture capital company to do the same thing. It’s a new year, and it’s time for a new venture capitalist — one who works for the good of everybody, not just the wealthy few.