Hey VCs — We Can Do Better

The state of VC funding of diverse founders has improved, but we still have a long way to go. Our expert makes recommendations for how to improve the ecosystem.

Written by Matt Harrigan
Published on Jul. 03, 2024
Hey VCs — We Can Do Better
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Since our inception over a decade ago, Company Ventures has been committed to fostering a robust startup and technology economy in New York City. Among a variety of other initiatives, this has included working with the city government where appropriate to bring in and cultivate overlooked talent to foster innovation and drive better outcomes. 

One of the ways we do this is by partnering with the NYCEDC on Boost, a founder fellowship program for first-time tech founders. Having run the program for years now, I’ve seen firsthand the hurdles that underrepresented founders face. The VC landscape has been challenging for the last two years, and even more so for founders from underrepresented groups. Recent data from DocSend this month showed that women and minority founders spent the most time fundraising to raise the least amount of money in 2023. 

In our conversations with the founders in the program and our partners in city government, we’ve heard suggestions for how VCs can do a better job providing support for those new to the ecosystem. Here is some of what we heard.

3 Problems Diverse Founders Face

  1. Limited access to networks and resources.
  2. Bias in the funding process.
  3. Scaling difficulties due to limited capital.

More in VC + DEIHow to Start Funding More Than Just White Guys

 

Problem One: Limited Access to Networks and Resources

One of the most consistent challenges underrepresented founders face is limited access to the networks and resources that their counterparts enjoy. Early startup success is often propelled by who you know — whether advisors, potential customers or strategic partners. Founders from outside of the tech/VC/finance world are less likely to have connections to these influential networks. So, what can VCs do to help?

Network Building

As VCs, we can proactively introduce these founders to our networks, offering meaningful connections to media, along with prospective clients, partners and talent. 

Mentorship Opportunities

Creating mentorship programs or pairing founders with experts in their respective fields can facilitate knowledge-sharing and open doors to new market opportunities.

Resource Guides

Share trusted and well-curated guides that help founders succeed with the  essentials of running any business, from setting up bank accounts to tax formation and so on. 

 

Problem Two: Bias in the Funding Process

Unconscious bias permeates many aspects of all of our lives; unfortunately, the investment landscape is no exception. Whether in the pitch room or behind closed doors, many underrepresented founders encounter assumptions that can disadvantage their funding prospects. Here are some ways VCs can alleviate this problem.

Standardize Evaluation

Create a standardized framework for evaluating startups that eliminates bias by focusing on key metrics such as market size, traction and revenue potential. Many VCs have already had success with these actions in recent years. 

Awareness Training

Implement unconscious bias training for investors teams to ensure teams can recognize and counteract these tendencies. This is mandatory now for many public companies and can be conducted annually.

Employ Diverse Decision-Makers

Incorporate diverse voices into investment committees so you consider different perspectives during funding discussions.

 

Problem Three: Scaling Difficulties Due to Limited Capital

Many underrepresented founders find themselves caught in a cycle where limited early-stage funding restricts their ability to scale, thus hindering them from reaching the revenue and metrics that larger investors seek. This creates a funding gap that many struggle to bridge. Women-founded companies received 2 percent of venture capital dollars in the U.S. last year, with Black founders faring even worse at 0.48 percent. We can do better.

Education on Capital Access

Guide founders on strategic capital deployment and prepare them for follow-on rounds. This could involve hosting direct workshops, creating guides, or connecting them with financial consultants and fractional CFOs

Grant Funding and Competitions

Many government agencies, nonprofits and private organizations offer grants and host competitions specifically designed to support startups. These funds are typically non-dilutive, meaning founders can finance their early stages of growth without giving up equity, which is ideal for those in the research, social entrepreneurship or technology sectors. 

Diversity Fuels InnovationHow Underrepresented Founders Can Increase VC Funding Opportunities

 

Improving the VC/Tech Ecosystem

The first week in June was Tech Week in New York City. The level of activity and enthusiasm made clear that we have come a very long way over the last decade. And I would certainly attribute some of that success to active collaboration between the public and private sector to create an ecosystem where investors, tech companies, and startups can work together to both build next generation companies and bring new talent into the industry.

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