July 22, 2020

Investors Can Fight Structural Racism by Supporting Black VCs

Put your money in funds that invest in Black-owned startups

Unrest in the streets has made its way to Wall Street. JPMorgan CEO Jamie Dimon was photographed kneeling in solidarity with protestors; Morgan Stanley promoted two Black women to high-profile roles; and Citi, Bank of America and Goldman Sachs published inspiring anti-racist messages and pledges. Many financial firms announced donations to the NAACP or similar organizations.

These are all commendable efforts, but they won’t address the root causes of structural racism in finance. In fact, in the absence of deeper solutions, well-meaning diversity webinars and other token efforts amount to very little. What really matters is how much capital is allocated to Black investors to deploy themselves in Black entrepreneurial communities. (Full disclosure: my fund, WOCstar, focuses on investing in women of color.)  

A few companies are getting it right. Netflix is moving $100 million to Black-owned banks. Google will be directing $100 million to Black-led funds and companies, and SoftBank is bringing onboard Stacy Brown-Philpot, former CEO of Taskrabbit, to help run its new $100 million fund dedicated to investing in firms led by people of color. The Regenerous Institute is working with WOCstar Fund and others like us, as well as business leaders and investors intent on driving capital to overlooked communities. 

Individuals, corporate diversity funds, pension funds, college endowments, foundations, Giving Pledge members, family investment offices and VC funds can all put money into in investment funds led by people of color.Black fund managers and Black-led funds — like the $250 million fund by Base 10 — exist. They have track records, a pipeline of deals, and experience. They know where some of the next great companies and founders are and how to help them expand. We’ve got a growing list on our website.More fromTikTok Ban Would Leave a Giant Social-Media HoleWho’s ‘Politicizing’ Human Rights? EveryoneTrump’s Golf Misadventures Didn’t Stop With His PresidencyA $2 Billion Bet on Pfizer’s Covid Vaccine Is Worth It

Society benefits from Black innovations every day. Black women led developments in caller ID, CCTV security video, call waiting, and fiber optic cables, central heating, and laser surgery for cataracts. Entrepreneurs of color are busy in healthcare, education, clean energy, supply chain logistics, agriculture, media, retail, fintech and more.

Black women are extraordinarily entrepreneurial; from 2014 to 2019 the number of businesses started by Black women rose 50%, when the increase in all new businesses was only 9%, according to an American Express report. Businesses owned by women of color generate more than $400 billion in revenue, and they have the potential to reach $1.4 trillion if they achieve parityin funding with the businesses owned by White women. Such an expansion would create four million additional jobs.

But too many people with capital to allocate are keeping that money in the hands of White investors and letting them do the choosing, as if Black venture capitalists can’t make smart investments, or build companies and generate returns. The opposite is true: White investors and White venture capitalists can’t evaluate startups in my community as well as I and my peers do.

The result is that Black startups are being starved for capital. Only 1% of venture funding goes to Black entrepreneurs, according to a study conducted by RateMyInvestor. A 2018 study by Harlem Capital found fewer than 100 Black founders who’d raised at least $1 million over approximately 10 years. Last year, only one Black woman put together a $100 million fund, despite many in the market seeking investors.

As long as Black entrepreneurs are overlooked, White America and the investing community will continue to miss out on the 30% higher returns that ethnically diverse founding teams generate over and above all-White teams.

Innovation. Profits. Jobs. Growth. Lower risks. Aren’t these the foundations of smart investing? So why aren’t people investing in Black companies and Black venture funds? I’m reminded of something Marc Morial, the president of the National Urban League, said to me: “The business case for investing in Black-owned businesses is abundant. Unfortunately, the willingness of society to participate as equal investors and partners is not.”

Being an ally to Black entrepreneurs is about more than attending conferences, launching corporate initiatives, using Black Lives Matter hashtags or having Black friends. Investors can be real allies by doing what they do best — opening their social networks, sharing their intellectual property, and investing their money.Wall Street investors who want to show their support for Black entrepreneurship in the U.S. should trust Black venture capitalists to know which companies will bring the greatest return.

Gayle Jennings-O'Byrne

Gayle Jennings-O'Byrne is a venture capitalist and founder of the WOCstar Fund, a venture capital firm that invests in women of color and diverse inclusive teams in the tech sector.

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