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Black women are the fastest-growing group of entrepreneurs. So where are the investors?

Entrepreneur in studio
JGI | Jamie Grill | Getty Images
Entrepreneur in studio

Black women may be leading the overall charge among new small-business owners, but a new report says that for black women in tech, it's not with the help of big investors.

A new report by Digital Undivided surveyed 378 companies led by black women across the country, 88 of which qualified as startups. For those startups, data showed that in 2015, only 56 percent of the black women startup founders in the study raised outside funding. And they raised an average of only $36,000.

This pales in comparison to the industry-wide average: The typical failed startup, most often led by white men, usually raises $1.3 million in backing.

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But investor and Digital Undivided founder Kathryn Finney is trying to change this difference by bridging the gap between women of color tech entrepreneurs and investors who want to back the next hot startup.

Digital Undivided provides training, networking, and fundraising opportunities to get these new companies off the ground. So far, Finney's company has helped fund 48 companies.

As an angel investor, Finney sometimes also provides the first small investment to companies she really believes in — around $5,000 to $10,000. While the contribution may be small, it can be helpful.

Finney talked to Vox about why investors are ignoring businesses run by women, particularly women of color, and what America's future looks like without a focus on diversity in tech. (This interview has been lightly edited for length and clarity).

Victoria Massie: There's been a lot of talk about a lack of diversity in the tech industry. Is that also reflected on the investment side?

Kathryn Finney: It's worse on the investment side.

There's only one black woman, Kesha Cash, who is the head of her own [venture capital] firm. There's only about three to four black women venture partners. We are the lowest group of venture partners across, I think, almost every racial group. So I mean, if you're talking about diversity in general, it's bad.

When you talk about intersectionality, it gets even worse. Women are severely underrepresented in the venture world. Black men are also very underrepresented — something like 34, 36 black male venture partners. And then there's black women, which is maybe three. So it just goes way down.

VM: What's the barrier to increasing wider representation among investors?

KF: I think there's a lot of things. Particularly, you have to differentiate between angel and venture investing. Angel investors are a lot more diverse than venture investors. So that's one.

I think, two, to become an accredited investor is incredibly hard, and I think that's one of the major barriers, to be honest. To be an accredited investor, you have to earn net $200,000 per year as an individual, $300,000 as a couple, or have a million dollars in assets. There are very few people of color who have that. Very few.

VM: But why are angel investors more diverse?

KF: A venture fund is an actual company, whereas an angel investor can just do it as an individual. There's a lot more rules with venture capitalists than with angels: You have to file with the SEC [Securities and Exchange Commission]. For setting up a venture firm, you'd probably have three or four different entities that are a part of that one entity. Also, venture firms are larger, and you have to be able to raise money from "market partners." You have to be able to go out and get people with money — usually foundations or wealthy individuals — to give you sums of money. That's really difficult if you don't know people with large sums of money.

'Liz #1 (Early Colored Liz)' by Andy Warhol, photographed by Emmanuel Dunand | AFP | Getty Images.

VM: Are there common misconceptions that people have for investing in startups founded by black people or specifically black women?

KF: I don't think they think about us. I don't think there is any misconception. I mean, if anything it's that there are none to invest in. I'm not even sure if we're at the top of their mind.

VM: What do you think that kind of invisibility means for how we understand tech innovation when an entire demographic is not even being thought about?

KF: It definitely has an impact on how we see tech. Tech is a particularly interesting industry versus other industries with diversity problems — you know, finance, law, and so forth — because tech is creating the future. It's being created right now. And everything we do in our life is touched by tech.

So if a whole group of people is not a part of creating what is going on, that means we're not a part of the future. And that's really problematic, because the future is going to be brown. If brown people aren't allowed in creating it, what does that mean? I think it's important to ask tech people that, because it's one thing to ask me as a brown person. But to ask them, "Why aren't you doing it? Why aren't you taking the steps?"

I don't accept their reasoning. Here are the brightest people in the entire world [with] 50, 100, 200 billion dollars in cash in the bank —Apple, and Google, and other companies like that. And you're telling me that with the smartness you all have, with the money you all have, you can't find a solution to [tech's diversity gap]?

These are people who created driverless cars. These are people who can land rockets on the moon and move asteroids, but you can't figure out how to deal with this? I just don't think that's acceptable.

VM: Even with barriers to investments or jobs in tech, black women are launching businesses at faster rates than any other group. Why is that?

KF: I think there are many different economic reasons. Black women lead 70 percent of black households in the US, and I think for many of us, we need to have multiple streams of revenue and income. We have practiced income diversification. Many of us have small entrepreneurial endeavors along with our regular day job.

I was at a big event speaking at Morgan Stanley. One of the top managing directors is a black woman who was telling this story about this other woman who is a managing director at Ernst & Young — [somewhere around the] top level, partner level. She's making very good money. Doing well for herself. But on the side, she makes necklaces. This woman does not need to make necklaces, does not need to have a side gig, has a side gig.

As black women, I think that's really intuitive to us. Many of us have side businesses, things that we like to do, things that we like to sell, things that we do as an outlet. We have 1.5 million small businesses, we're the fastest-growing group, but our revenues are often under $40,000. We actually have the lowest revenue of any ethnic group. So we've started, but we're not exactly scaling it. So the question is how do we do that?

But I also think historically and culturally, we've always had jobs. I think we also diversify income, especially [after] the stock market crash in 2008. We saw that we're not going to be able to work 50 years at a place and get a pension. We're gonna have to start to be very entrepreneurial. So I think all of those things combined go into this large number.

Also, I think people started to actually count us. I don't think people were counting women entrepreneurs in general, but especially black women entrepreneurs.

VM: What are some of the specific barriers women of color face when it comes to raising funds for their companies?

KF: I think some of the barriers they face are not understanding that people want the big idea, so [women often] undersell themselves. There's a big thing: describing a million-dollar problem, or a billion-dollar problem. Not being big enough in terms of speech. And I think that's because we're used to not being big enough. We don't over-embellish like that, but in tech that's rewarded. They want people who are going to think big even if they know your numbers aren't ridiculous. And we often do ourselves a disservice by thinking small. We think we're being safe, but that's not what investors want to hear.

VM: So why do you think black women's startups are undercapitalized?

KF: One, there aren't enough black women investors — there aren't really any — so there's very few people who can identify the market opportunity and understand it. Two, there's inherent racism and sexism, but we already know that.

Then I also think there's this belief by some that black people can't handle money. I've had really interesting discussions with people not believing that we can be good stewards of money, and so they may not want to give us as much. It's a very unconscious bias.

When you think of money, black people in general don't usually pop into your head. It's usually a white guy on Wall Street. But I do think there is this undercurrent of belief, almost paternalistic, that we need help in getting money and guiding money. And maybe we shouldn't give them too much money because we're not sure they'll know what to do with it. I mean, that's completely anecdotal because I don't have any hard evidence of it.

VM: What are your words of wisdom for women of color in tech in general?

KF: It's a marathon, not a race. You will have to be twice, three times as good. You will need to know your numbers backward and forward and backward again. It's going to take you twice as long to raise [money]. It's just a fact. But saying all that, it's not impossible. It's not impossible. It's just going to be harder.

I think if you're a black woman, growing up in the US, you already know things are going to be a bit harder. So it's not anything we can't do. And if you go in there knowing that, and understanding that you're going to be challenged, everything you're going to say is going to be challenged, your numbers, everything, and if you're overly prepared, you'll do okay.

By Vox's Victoria M. Massie. Read the original article here.

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