What Does It Take to Help Women of Color Build Successful Startups?

Women of color are America’s fastest growing entrepreneurial population. More than 4.5 million black and Latina women now sit at the helm of their own companies, and women of color have started between 600 and 800 new businesses every day since 2007.

Even as more black and brown women become entrepreneurs, studies show that their companies tend to make less money than women-owned businesses overall—representing a substantial loss that goes beyond a select few founders. For example, if American firms owned by women of color generated the same revenue as those led by white women, they would add 4 million new jobs to the US economy, according to the 2018 State of Women-Owned Businesses Report, commissioned by American Express.

The Atlanta-based social enterprise DigitalUndivided (DID), which helps women of color build technology businesses, was among the first to assess how black and brown women fare in the high-growth space. Back in 2014, while putting together their lauded BIG Incubator program, the DID team went looking for data on the number of black and brown women who launched high-growth tech startups. Instead, they found a black hole. “There was no data,” founder Kathryn Finney told TriplePundit. “It was almost as if no one thought we were in high-growth.”

Uncovering the data on women founders of color

With scant information on the population she hoped to serve, Finney—who worked as an epidemiologist prior to launching DID—gathered a team to create it. Their findings were shocking: Though black women owned more than 1.5 million businesses, they received a mere 0.2 percent of all venture deals from 2012 to 2014.

“One of the most significant things we found was that people weren't asking the question of race and gender because they didn't want anyone to pay attention to the fact that the numbers were so bad,” Finney told us. “In the process of finishing our report, we realized the data was too stark to keep to ourselves. It told a bigger story about the systemic issues within the startup innovation space.”

DID made its findings public in a 2016 research study called Project Diane, which eventually prompted others to begin gathering data on women entrepreneurs of color. “The first Project Diane had a really big impact on the interest,” Finney told us. “We had no idea it was going to be as influential as it's become.”

Still, outside investment in women founders of color remains low: According to the most recent Project Diane data, released earlier this year, black women–led startups raised $289 million in venture and angel funding since 2009, over $200 million of which was raised last year. That represents an infinitesimal 0.0006 percent of total tech venture funding over that same period.

Those numbers are chilling, to say the least—and they no doubt play a role in the consistently lower revenues generated by women of color-owned firms—but Finney says funding is only the tip of the iceberg. “We know that funding continues to be an issue, but one of my concerns is that people tend to focus on the funding problem and not on the pipeline problem,” she told 3p. “Within a two-year time period, there's been a threefold increase in the number of black women who have raised over $1 million, but there hasn't necessarily been that big an increase in the number of black women-led startups—and that’s what we want.”

More than a “money problem”

While 34 black women founders crossed the $1 million venture threshold last year, the majority of black women–led startups don’t raise any money and remain underrepresented in the high-growth space. DID identified 8,000 women-led, high-growth-potential startups in its most recent analysis, but a mere 4 percent of those companies were led by black women. These numbers represent not only a lack of VC capital moving into black women-led startups, but also a lack of access to resources that form the building blocks of their companies, Finney said.

“This isn't necessarily a money problem,” she explained. “[VCs and funders] also need to open up their networks. They have to do some mentorship and make sure that founders are connected to the right people. All of these things are equally important to money when it comes to building a successful company.”

Since 2013, DID has made resources like these available to more than 2,000 high-potential black and Latina women entrepreneurs through its 26-week BIG Incubator program. Rather than focus on the elusive hunt for outside financing, the BIG model hinges on customer, product and company development—helping founders to understand their target market, create a product that market wants, and build a team that can deliver it.

“Some of the fears I had about talking about my business went away because... I knew I had a business,” Bryanda Law, a former cytogenetic technologist and founder of Quirktastic, a media tech company for “quirky” people of color, said of her experience with the BIG Incubator. “I can look at my unit economics and know what’s working. I can tell you my month-over-month growth rate. I can tell you my customer acquisition costs. That helped me become more confident within my business.”

Rethinking capital

BIG’s evidence-based model won the US Small Business Administration Growth Accelerator Competition for two consecutive years, and it now serves as a direct pipeline to the top accelerator programs in the world. Though the incubator helped founders raise $25 million in investment, Finney encourages BIG cohorts to look beyond venture capital to build their businesses.

“I would love it if our companies would never have to take investment, because when you take investment, you're adding a boss,” she explained. “We teach our founders that raising a lot of money doesn't mean you're necessarily building a successful company, because that's just the money raised. Measure success by revenue and—more importantly—by profit.”

Growth fueled solely by revenue is the holy grail, Finney told us. But vehicles like debt financing through Community Development Financial Institutions (CDFIs) may also prove more lucrative than VCs deals—which tend to be unfavorable toward women of color and command high equity stakes for low investments. “Rethinking capital is a conversation that most of us in this space are starting to have amongst each other: How do we think about capital differently? Are there other instruments that can be developed that would be more appropriate for our community?”

The bottom line

By almost every measure, these numbers simply don’t add up. Black and brown women are starting more businesses than any other demographic, yet the necessary resources don’t reach them and investors still aren’t paying attention. Powered only by bootstrap funding that averages less than $50,000, according to Project Diane data, women of color often don’t earn enough to build their companies, launch new products or hire more workers.

The fact that women entrepreneurs of color still struggle to earn revenues on par with their white counterparts is reflective of systemic issues that permeate every aspect of American life, Finney said. “Money, who gets it, and who can use it is a subject that is really fraught here in the United States, so the problem is not just about investment,” she argued. “It's literally about who we think deserves to innovate and create a company.”

Even as the definition of a startup founder expands slightly beyond the white guy in a hoodie—to, maybe, a white woman in a power suit—we’ll continue to lose out until decision-makers accept that anyone, of any background, has the potential to develop a profitable idea. That isn’t just conjecture—once again, it’s all about the data, and the numbers don’t lie: If their revenue reached parity with firms led by white women, women of color-owned companies would add $1.2 trillion to the US economy, according to the AMEX report.

“Until we have discussions around our beliefs about money and who should have it, it's going to continue to be an uphill battle for women of color founders,” Finney said. “We have to push past the funding part of it and think about what it takes to build a successful company and the resources that founders need to do so—then we have to get those resources to women of color and to anyone who wants to build a company.”

Image courtesy of DigitalUndivided/Facebook