The past decade has seen Black founders raise a vanishingly small portion of venture capital funding. How to fix the problem? That question is always met with the same answer: Allocate more capital to Black entrepreneurs.
But that has yet to happen. In fact, Black founders receive less than 1.5% of all VC funds, whether bull or bear market. So what’s going on?
Perhaps it’s time for this discussion to center on limited partners (LPs), especially because they sit at the very top of the VC power structure. According to McKeever Conwell, founder of RareBreed Ventures, if LPs aren’t allocating more money to diverse funds or managers, then, in some ways, there will always be a dearth of capital that can — and possibly will — be allocated to diverse founders.
On an institutional level, the onus for change lies on those with the power to make it happen. Backing diverse funds means supporting diverse thinkers and their networks. It’s imperative, then, to put pressure on LPs to back more funds that prioritize diversity, support diverse funds and managers, and create specialized funds to invest in diverse founders.
“Reward the actual behavior and not intent.” Kerry Schrader, co-founder of Mixtroz
The amount of capital allocated to diverse individuals needs to go up, and LPs must first care and rehash their own core values in order to drive economic equity.
“There will always be reasons to question how much they actually care,” Conwell said. “But we’ll see over time.”
The mandate of responsibility
LPs have the power and flexibility to demand that at least part of their capital be allocated to diverse founders because fund managers are beholden to them as the source of their money, Black Women Talk Tech co-founder Esosa Johnson told .
“Their feet haven’t been pushed to the fire,” she said about fund managers. “After all this time, they need to be held there.”