Juneteenth, or Freedom Day, commemorates the end of slavery in the United States following the surrender of General Robert E. Lee in 1865. Since that day, each year Black communities have commemorated that fateful day by uniting in celebration. Over the last year, however, following the murders of George Floyd and many others, Juneteenth has taken on a new meaning.
As a person of color who has worked in Corporate America and gone on to start my own company, Juneteenth is a time for me to reflect not only on the progress that has been made, but also focus on the steps we need to take to give Black and other minority founders the same opportunities as our non-minority counterparts.
When looking at the makeup of Corporate America, it’s disappointing but no surprise that most boardrooms and C-Suites are homogenous as minority individuals often experience significant challenges when trying to move up the ladder. In fact, a recent study from McKinsey & Company found that Black employees make up just 7% of the managerial workforce. Additionally, data from 2017 found that Hispanics, despite being the largest minority group in the United States, only occupy 4.3% of executive positions. These figures clearly outline just how hard it is for professionals of color to climb the corporate ladder.
Now imagine what it’s like for a minority founder. It’s hard enough for anyone to start a business in this landscape, but when ethnicity complicates that further, the obstacles continue to mount.
Complexities of Navigating the Business World as a Founder of Color
In the early stages of starting a company, many founders look to secure initial funding from friends, family, and their extended circle of contacts. The amount of money one raises is usually tied to the demographics of your network. And, unsurprisingly, minority founders often don’t have access to the affluent circles that non-minority founders do. One explanation for this is the increasing minority wealth gap; according to the Federal Reserve, a typical white family has eight times the wealth of a Black family and five times the wealth of a Hispanic family.
Digging deeper and looking beyond initial friends/ family funding, minority founders also struggle to secure funding from venture capital firms. Looking back at 2020, Crunchbase’s Diversity Spotlight Report found that as of August 31st, Black and Latinx founders only secured 2.6% of all venture capital funding. And recent research from ProjectDiane shows that Black and Latinx female founders received less than 1% of all venture capital funding in 2020. While these numbers highlight the uphill battle minority founders face when trying to secure funding, they also bring up another, related point.
Unlike non-minority founders, it is often unconsciously assumed that minority founded businesses will have a lower likelihood to success, which can exclude these organizations from securing funding from accelerator programs. A partial explanation for this assumption is the fact that minority entrepreneurs don’t fit the stereotype of what a “successful entrepreneur” looks like, thus making it easier for investors to write them off.
Additionally, venture capital firms have historically been risk averse and look for opportunities based on previous patterns of success. Looking back over the last decade, of the minority founders that pitched their businesses to angel investors, only 15% were able to secure funding. This mindset explains why investors are more likely to take a risk on a non-minority founder even when minority driven business concepts are more developed.
As an example, when I took part in a past accelerator program, my peers came from a wide variety of economic and educational backgrounds, however, the few minority entrepreneurs in the program, including myself, all had Ivy League educations and/or past job experience at top tier institutions like Goldman Sachs just to get their foot in the door. While accelerator programs have slowly improved the diversity of their participants, there is still a long way to go with minority founders working twice as hard to get the same recognition and opportunities as their counterparts.
Boardroom Representation in the Investment Community
When members of a VC firm all come from the same background, it can be hard to understand the challenges faced by other communities. This can be particularly challenging for a minority founder as you need your business and your story to resonate with the people making investment decisions. For example, the first company I launched provided credit cards to international citizens who did not have a Social Security number or traditional American credit score. When I presented the business concept to investors, they often had a hard time understanding why this issue was a real pain point because they had never had to face these obstacles head on. On the other hand, immigrants in my personal network to this day believe it was a great idea because they have experienced first hand the challenges of accessing financial services as a newcomer to America.
The lack of understanding on the part of some investors shows why diversity on the board matters. With a more diverse board, VCs can make better, more equitable investment decisions and spread out money in a way that doesn’t overlook the needs of under-represented groups or communities, while still capturing attractive investment returns.
Diversity at All Levels Benefits an Organization
It’s not just the boardroom that benefits from diversity; senior leadership teams and companies as a whole reported great outcomes from more diverse teams. In fact, a 2019 Gartner study predicted that through 2022, 75% of companies with diverse and inclusive decision-making teams will exceed their financial targets. Going one step further, companies with gender-diverse and inclusive teams outperformed their counterparts by 50%.
One of the biggest benefits of a diverse organization is access to new, unique perspectives. If a company’s employees are all from similar backgrounds, it limits the company’s ability to innovate and cater to the needs of all its employees.
While we have started making strides in the right direction when it comes to leveling the playing field for minority entrepreneurs, that progress isn’t enough. We need to take bigger steps to ensure that all founders have equal opportunities, because at the end of the day it will spur the development of previously unseen ventures, drive up investment portfolio yields for VC firms, and positively impact our society as a whole.