Enterprise Capital Funding Stays Elusive Regardless of New Inflow of Discovering

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(Reuters) – When Donnel Baird first presented his idea in 2014 to create a technology platform that could help make small homes and other urban structures energy efficient, the US government promised him $ 2.1 million if he got one was able to raise a similar amount from elsewhere, but not from any of the 200 or so venture capital firms that he turned to, agreed to invest at the time.

Baird believes the initial funding was elusI am in part becauseusAs a black man with no background in software development, he was an outsider. Investors failed to seize the opportunity that seemed obviousus For him as someone who grew up in a largely black, low-income neighborhood of Brooklyn, Baird told Reuters.

“That’s one of the hardest things to do when you’re black. It’s really hard to figure out why things happen. All I know is that the VCs decided I can’t go with what I was talking about, ”Baird said in an interview. “Silicon Valley has a narrow archetype of what they like to invest in.”

About seven years later, the 39-year-old received one of the largest early-stage funding rounds ever made by a black entrepreneur. His company, BlocPower, has raised $ 63 million in debt and equity with the help of Goldman Sachs Group Inc and other investors. Most of the money goes into financing energy-efficient heating and cooling systems for BlocPower customers.

The funding is both a sign that America’s growing recognition of the diversity issue is starting to lead to change and a strong reminder that the pace of change is slow. Interviews with black entrepreneurs and investors as well as a Reuters analysis by CrunchbaseusIness Information Company, show Baird is an outlier.

The share of US venture capital in companies founded by Schwarz was just over 3% of the total business volume of $ 147.6 billion in 2020, the data shows. In the past six years, that percentage has not gone above 5%, although about 10% of US companies are black-owned, according to US Census Data.

Only a handful of venture capital firms have provided consistent assistance to the founders of Black, and many of them are relatively small.

“One of the challenges for black entrepreneurs is that you have a good idea, are ahead of the curve, and have the skills to make it happen, but becauseusIf they haven’t seen a black person, wait for another person to do it, ”said Jon Gosier, a black entrepreneur who said he had to sell one of his more successful businesses a few years ago because ofusHe couldn’t find any investors.

FEW BACK

Venture capital firms, which typically provide funding in exchange for participation, fund only a tiny fraction of the United States. B.usinesses. However, your support can make a world of difference to an entrepreneur’s success. Amazon.com Inc, Facebook Inc, and many other corporate institutions have benefited from such early supporters today.

Former founders and employees of such companies have in turn supported other successful companies. Black entrepreneurs were largely unable to generate such wealth. The value of the equity that black founders hold in their companies averages around a quarter of the value of their white colleagues, according to a study by McKinsey & Company.

“This is the number of times that people who have worked in such companies who have achieved financial success can return to the people in their community,” said Deldelp Medina, executive director of Black & Brown Founders, a nonprofit that supports Black and Latin American entrepreneurs. “We haven’t been able to expand that.”

According to Crunchbase data, black founders have consistently supported only a handful of venture capital companies. Only 16 companies out of hundreds of venture capital firms participated in 10 or more rounds of funding for Schwarz-founded or Schwarz-owned early-stage companies between 2015 and 2020, the data shows. The list includes big accelerators like Techstars and Y Combinator, the famous program that Airbnb Inc and DoorDash Inc. funded.

Among the top 10 Black founders backers during this time, three were founded by African Americans: Backstage Capital, Precursor Ventures, and MaC Venture Capital. Another company in the top 10, Kapor Capital, focusThis affects companies that are filling “access gaps”, particularly in black and Latin American communities. Kapor Capital and MaC Venture Capital have both invested in BlocPower.

DIVERSITY P.USH.

Backstage, Precursor, and MaC collectively manage less than $ 200 million, Pitchbook data shows. In contrast, the top 20 US venture capital firms each managed tens of billions of dollars or more.

“We can only meet a tiny fraction of the demand,” said Charles Hudson, managing partner and founder of Precursor Ventures, referring to Black-founded venture firms like his. “The largest of us are not very great in the grand scheme of things. “

The lack of venture capital funding is forcing business owners to look for alternatives, which can be limiting when they need more money, business owners and investors said.

“When you have an investor base made up of individuals and angel investors, and possibly accelerators and less institutional capital, it’s much harder to go back to those predecessorsus Investors and ask them to help you out in a possible downturn, ”said Monique Woodard, founder and managing partner of early stage investor Cake Ventures.

Larger venture firms are under pressure to make greater efforts towards diversity, but the trials are still ongoing. For example, Andreessen Horowitz’s Talent x Opportunity Fund launched in June was criticized for its relatively low initial funding of USD 2.2 million. The company, a previous The investor in BlocPower has since announced investments in seven companies through the fund.

Andreessen Horowitz declined to comment on the fund.

Some companies have taken steps to build a pipeline of diverse talent. For example, Kapor is working on a program to work with other companies to train potential investors with underrepresented backgrounds.

But too often, said co-founder Mitch Kapor, other investors have turned to him as a potential scout for various talent rather than building broader networks themselves.

“Where can we find black founders to invest in?” Kapor said he was asked often. “As if the answer were something like ‘Aisle 12’.”

(Reporting by April Joyner and Arriana McLymore; editing by Ira Iosebashvili and Edward Tobin)