The Lead 👈
Is the Southeast’s venture scene friendlier to diverse-led startups?
“How a New Generation of Black Entrepreneurs Built Atlanta's Hot Startup Scene” [Inc]
“Southeastern states have a higher concentration of black businesses,” [HuffPost]
“Atlanta’s black tech founders are changing entrepreneurship in America.” [Fast Company]
The Southeast has recently garnered a slate of aspirational, optimistic media hits that paint the region as a mecca of diverse entrepreneurship.
But does the flood of headlines tell the full story, specifically when it comes to the dollars flowing to Black entrepreneurs? Readers of a few of these stories can’t help but notice that, though they appear in different publications, just a few interviewees seem to represent the entirety of the Southeast’s Black entrepreneur population.
We decided to dig in on whether the numbers match up to the headlines, specifically when it comes to venture-backed, diverse-led startups.
Here’s the less-clickbaity, but likely more accurate headline: the region with the largest concentration of Black-owned businesses does not appear to show a demonstrable increase in venture capital dollars flowing into those businesses.
The venture firms don’t stack up.
We took a hard look at the portfolios of the most active institutional investment firms in each state across the “core” of the Southeast (Florida, Georgia, North and South Carolina, Alabama and Tennessee). The firms were selected based on last year’s CB Insights rankings.
We then divided the number of Black founders in each firm’s portfolios (including non-CEO founders such as COOs or CTOs) by the total number of active startups the firm backs, to obtain a rough percentage.
While some firm’s portfolios were more diverse than others — Jumpstart Foundry, based in Tennessee, backed the highest percentage of Black founders of the firms we looked at — none came even close to matching the actual demographics of their respective home states.
In fact, several firms in particularly diverse states (where one-quarter or more of the state population is Black) commonly had one or even zero Black founders in their portfolio.
[*Note: we recognize this research is approximate, imprecise, and informal. This exercise was intended to get a rough idea of what diversity looks like across the Southeast’s VC landscape. We also did not delve into the dollar amounts of invested capital, which can be split unequally between a firm’s portfolio investments.]
The startups that aren’t getting funded.
So if we accept the premise that funding is still not playing out on an equal level, the question becomes: why? Could the explanation be that these founders are not building startups that fit the investment criteria of the most active firms?
The Southeast is largely a B2B hub, with big regional successes in B2B software, fintech, cybersecurity, logistics, and marketing technologies. Local investors tend to bring that focus and bias to the table, and B2C startups therefore may have less investment potential here.
We conducted another informal survey, this time categorizing Southeast-based, Black founder-led startups. These companies were sourced from several places, including the Black Founders Exchange at Durham’s American Underground; the It Takes A Village Pre-Accelerator at Atlanta Tech Village; the Intentionally Good program in Atlanta; Ascend2020 in Atlanta; and individual VC and accelerator portfolios.
This led to a list of 60 companies which fall along the spectrum of stage, funding, and size, categorized as B2B, B2C, or both/either. You can see the full list here.
The results came out to an almost equal split between B2B and B2C startups. The B2B companies seemingly cater toward a wide swath of industries and technologies: marketing technology, AI, big data, education/govtech, health IT and more.
In other words, the list of Black founder-led startups looks similar to a list of… any startups. And thus the lack of venture funding cannot be explained by the companies or products themselves.
An unsatisfying conclusion…for now.
Similarly to investors and analysts across the rest of the country, we did not find a demonstrable reason as to why venture funding for Black founders is so significantly lower than counterparts. It seems safe to say that, given the diversity of the Southeast, it is not a pipeline problem. It is reasonable to also propose that it isn’t a product-investor fit problem.
In a future issue, we’ll turn to the next set of questions: what are the attempts or ideas for solutions that are actually working?
What We’re Reading 📚
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Which candidate is Silicon Valley supporting in the California Democratic primary?
“At the same time, the donations of rank-and-file employees in tech don’t always square with the industry’s interests, at least not on the face of it. This primary cycle, the most successful fundraiser among Big Tech workers is one of its loudest critics: Sen. Bernie Sanders.”
“In recent weeks, Iguodala has taken on new roles in both the basketball and startup worlds. He recently joined the Miami Heat with an impressive debut. And on Feb. 5, he was tapped as a venture partner for Catalyst Fund, the venture capital arm of Comcast Corp…For Comcast Ventures’ Head of Funds and Managing Director Amy Banse, Iguodala’s investment experience and network, combined with his “his passion for supporting entrepreneurs from diverse backgrounds,” is a perfect fit for the firm’s Catalyst Fund.”
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