When I authored my MIT Sloan master’s thesis, “The Online Obstacle: A Study of African-American Enterprise on the Internet,” nearly a decade ago, it spoke to the fact that not one runaway blockbuster success of an internet company a la Facebook, Twitter, LinkedIn, Google, and other brands that have generated billions of dollars in intergenerational value has had an African-American founder.
Part of what inspired me to take up this study on the absence of blockbuster digital consumer concepts founded by black entrepreneurs was that there had been a Pew Research report that found the digital divide was closed. African-Americans as a group had experienced a notable increase in access to the internet via mobile devices. I contested this takeaway on the basis of distinguishing the access modes of consumers versus producers.
My hypothesis was that it was not for a lack of understanding of technology nor of its value, as there was and continues to be a significant presence (and some would tout an overindexing) of black consumers on a majority of these online services. It was also not fundamentally about access to knowledge or to the tools of production. Instead, it is about the “online obstacle.”
Among the collection of impediments that have historically inhibited blockbuster success for African-American-founded internet companies is access to capital. It’s an online obstacle that doesn’t originate online, and in fact it has a direct correlation to issues black entrepreneurs have spoken about for decades.
Each of the companies I studied as examples of breakout internet-based concepts, by and large, received funding of at least $500,000 within their first year of existence. And it’s not uncommon for them to have an early-stage investment in excess of a million dollars. This is certainly not to say there is a minimum level of early-stage capital for an online startup to achieve blockbuster success, but it seems reasonable to say that lower levels of startup financing among black entrepreneurs at a minimum handicap the likelihood of supersuccess.
I defined “blockbuster” status as having at least 50 million unique users and at least $25 million in third-party funding, which I found to be common among iconic companies. Looking at companies with a female founder as a proxy for improvements in diversity and inclusion in blockbuster company creation in the digital space, I came across a Crunchbase News article that showed female-founded unicorn companies did in fact all achieve at least a $500,000 investment, and in many cases such as FabFitFun and Glossier, it was multiples of that.
We need look no further than the “PayPal Mafia” for historic representation of Asian-American (Steve Chen) and Indian-American (Premal Shah) founders, and there have been others involved as founders of billion-dollar startups since.
Yet a search for black founders within digital consumer-facing unicorns returns little more than pointing toward 2040 as the transformational moment when black and Latinx people become 40% of the U.S. population. A 20-year outlook, as if nothing has happened in the last 20 years that changed the game.
Furthermore, these types of reports are well-intentioned and great to see, but there is a constant amalgamation of multicultural and female founders, which warps the lens of action and results.
The Information has maintained a VC Diversity Index since 2015, and the most recent update creates a context for the low numbers of black investors we often see headlines about.
A quick scrape of this data reveals that:
- 73% (or 520 investors) of the senior investment professionals are identified as white.
- 24% (or 170 investors) are identified as Asian.
- 11 (or 1.5%) of the senior investment professionals are identified as Hispanic.
- 7 (0r 1%) are identified as black.
- 2 are identified as other.
If we set the landscape up as an equitable meritocracy (that is, each professional “belongs” where they are and has an equally weighted vote at the investment table), then we would come up with $179 billion in VC investment capital being managed by white investors (think: the size of the GDP of Hungary or Qatar) and $2.4 billion managed by black investors (think: the size of the GDP of Aruba).
Who is trying to change the game?
The seven black senior investment professionals identified in the VC Diversity Index are scattered across seven different firms that have a black investor who has influence over capital deployment at the firm. These are:
- YC (Michael Seibel, CEO and partner)
- Lightspeed Venture Partners (John W. Thompson, venture partner)
- GV (Tyson Clark, general partner)
- Upfront Ventures (Kobie Fuller, partner)
- Revolution (David Hall, partner)
- WndrCo (Anthony Saleh, general partner)
- General Catalyst (Kenneth Chenault, managing director)
Within this group, six of the seven individuals have degrees from Harvard/Harvard Law/HBS, MIT Sloan, or Yale, two were CEOs of companies with 10s of billions of dollars in revenue, and all seven are men.
What to do for underrepresented entrepreneurs
So there is no black or otherwise visibly ethnically underrepresented investor for the diverse entrepreneurs to call. I’ve commonly heard that there is a pipeline issue. There are just not enough of these entrepreneurs to consider. If we’re thinking only about finding them in Silicon Valley, then perhaps it is a moot argument.
On the other hand, there are highly visible initiatives to increase black engineering graduates. The Historically Black Colleges and Universities (HBCU)-focused initiatives which include the most recent efforts of Robert F. Smith, who is the first black billionaire to pledge more than 50% of his wealth to charity.
The VC ecosystem needs to see HBCUs as a natural resource because they graduate about a third of the black computer scientists and engineers in the U.S., and they teach a third of black business school students. The VCs would benefit from being increasingly present, and for residency-worthy periods of time, on these campuses, offering paths for these students to solve digital and new-economy gaps the VCs have identified and are skating toward.
VC scout networks, where participants invest a “small quantum of capital” on behalf of a larger VC firm while receiving apprenticeship-worthy training, is one of the latest widespread efforts that would benefit from a deliberate turn of attention toward the Northeast and the South in search of underrepresented entrepreneurs who are working on underequitized platforms of passion beyond Silicon Valley.
VCs can also benefit from having a presence in places where black entrepreneurs typically live, which is highly likely to be either where they received schooling or where their families are located. The last U.S. census told us that approximately 54% of black citizens lived in the southern U.S. Atlanta has a concentration of black tech founders who, like Tristan Walker, Jewel Burks Solomon, and Paul Judge, decamped from the Bay Area to bring talent, VC investments, and change to the region.
Not only do these efforts serve to source ideas and perspectives the investors would not have gained otherwise, but it sets in students and entrepreneurs the idea that building a massively fundable company is an option for them.
Allen Lamb is the current chief operating officer and general manager of a global live events platform, a veteran of Wall Street, and a serial entrepreneur.