Black women don't get much startup funding. These founders are trying to change that – CNN

“When I originally would go out and pitch Possip to people, especially to typically wealthier men, they sometimes didn’t understand the problem, and part of why they potentially didn’t see the problem is because they may not have ever had the experience of not feeling entitled and empowered to share their voice or share their opinions,” Dowell said.

“Some investors in the education technology space had a jarring disconnect from what was happening at schools and what parents might actually need,” she said.

Luckily, after running the company for almost three years, Dowell had insights from roughly 100 schools to back her up, and finally, she found an institutional investor, too: LaunchTN, a public-private partnership led by a female CEO and funded in part by the State of Tennessee.

The report, which tracks publicly-announced funding of Black and Latinx women-founded businesses, is compiled by digitalundivided, a nonprofit focused on supporting entrepreneurial women of color. It uses data from Crunchbase and Pitchbook to track crowdfunding, angel, seed and venture round investments. It’s possible the data doesn’t include some founders who are not listed in those databases or didn’t disclose funding publicly.

According to ProjectDiane, at the start of 2018, just 34 Black women had raised $1 million or more in outside investments for their businesses. But now, in data tracked through August 2020, more than 90 Black women have hit or exceeded that level. The numbers of Latinx women who’ve reached that milestone also grew quickly, although they remain incredibly underrepresented in VC circles, too. Still, it’s an impressive upswing that could signal a shift in a startup landscape largely dominated by White men.

This milestone comes amid a backdrop of protests against systemic racism and an unprecedented push to support and buy from Black-owned businesses. Founders and advocates are hoping to build upon that momentum, but also wonder if the support being shown to Black-owned businesses, let alone those founded by Black women, is here to stay. 

“Businesses founded by women of color are in focus now, and specifically those founded by Black women because of the racial reckoning,” said Lauren Maillian, CEO of digitalundivided. “But we want and we need to make sure that they continue to gain great investment moving forward.”

Bridging the funding gap is long overdue 

Many of these companies are small, local businesses and not necessarily seeking outside investors. That said, for those founders who are focused on scaling up quickly, there’s a huge gap between their entrepreneurial ambitions and the funding they’re able to secure: Black women have received less than 1% of venture capital funding, analyzed by ProjectDiane since it started tracking the data.

“You have this huge deficit within the ecosystem for Black women,” said Dell Gines, senior community development advisor at the Federal Reserve Bank of Kansas City who conducted a year-long study on startups owned by Black women released in 2018.

“Venture capital is by and large a network-based industry, where you have a series of gatekeepers and other hurdles to get in front of because there’s greater demand for capital than there’s usually supply. You also have these filtering mechanisms that traditionally don’t include people of color and women, because that’s how the networks originated.”

There’s been improvement in the last couple years, but not enough to close the gaps.

“If you improve the rate of Black women entrepreneurship — their ability to grow and scale — then you improve the entire community,” he said, pointing to research that connects entrepreneurship growth rates with economic growth.

Black women aren’t newcomers to entrepreneurship. Even before women could vote, they owned businesses. 

Raising funds is not a one-size-fits-all

Black women may now be starting businesses at a record pace, but they’re still having to overcome massive obstacles in doing so.

Black women also reported being less likely to receive some or all of the financing they requested and are significantly more likely to not apply for financing because they felt discouraged by a lack of credit opportunities.    

Rather than turn to debt or equity financing to fund their businesses, many rely on financial reserves like their savings as the main source of startup capital.  According to the Fed survey, 31% of Black women business owners rely on personal funds to finance their businesses, whereas only 16% of nonminority women business owners say the same.

Much of those reserves, Finney says, come from “our own personal funds, maybe refinancing our mortgages, or taking loans from our 401(k), all things that impact our long-term wealth.”

Woodard started off with a Kickstarter campaign before raising capital from family and friends. In spite of the growing traction her products were getting and local placement in Whole Foods and Wegmans, Woodard was forced to empty her 401(k) and sell her engagement ring to keep the company going.

“It was definitely difficult,” she said. “It was coming in dribs and drabs of like $5,000 and $10,000 checks and not fast enough.”

But a breakthrough finally did come.

After being turned down by nearly 100 investors, Woodard received the ‘yes’ she needed from Jay-Z’s Marcy Venture Partners, which led a seed round of $1 million for the company last summer that also included her former Coca-Cola boss, Chuck Muth, now chief growth officer of Beyond Meat and The Factory.

She’s since raised new investment from Grammy award-winning singer H.E.R. along with additional funding from Marcy Venture Partners. And the company’s footprint has expanded to nearly 3,000 stores including retailers such as Target, Whole Foods, Sprouts and Wegmans.

Woodard is also trying to boost Black and brown representation in the food and beverage industry, with the launch of a fellowship program for students at historically Black colleges and universities to explore career pathways at consumer-packaged goods companies. She hopes the program can make the journey smoother and more seamless for others.

“As I’ve grown the company, I’m realizing that Partake has the opportunity to stand for something much larger than people with food allergies being able to partake, and just this bigger feeling of inclusivity and everyone having a seat at the table, regardless of their gender, race, socioeconomic class or food restrictions, this idea that everyone is welcome,” Woodard said. “I started Partake with a tiny picture, and it’s really broadened a lot since we’ve been in business.”

Changing the ecosystem

The country’s racial reckoning may have sparked some new efforts to rectify years of gross underfunding of Black women founders, but there were a number of positive forces that emerged even prior to 2020.

New funds, online communities, programs and alternative sources of funding are focusing on diversifying who receives startup capital.

Another effort, Founder Gym, founded by Mandela SH Dixon, is an online training program for underrepresented founders including Black women, which teaches them how to raise money to scale their startups. Several of the more than 90 Black women who have raised millions for their startups have been a part of the program, including Shani Dowell of Possip, as well as Olamide Olowe, who founded Topicals, a skincare brand for people with chronic skin conditions and Jasmine Shells, who cofounded Five To Nine, an event management platform.

Another such example, Black Girl Ventures, a nonprofit organization launched by Shelly Bell in 2016, has helped to scale more than 100 Black and brown women-owned businesses across 12 cities through its pitch competitions.

Many Black women founders have also found success by tapping into alternative sources of capital such as crowdfunding.

Dawn Dickson-Akpoghene raised over $1 million in an equity crowdfunding campaign in 2019 for her company PopCom, which makes touchless vending machines for regulated products like alcohol, tobacco and cannabis. The founder of Ethel’s Club, Naj Austin, raised $25,000 by using crowdfunding to establish her company, a social and wellness club for people of color. She went on to raise more than $1 million from institutional and angel investors.

With these efforts combined, advocates like Maillian from digitalundivided hold hope that even beyond the moment of racial reckoning in 2020, Black women founders will still continue to thrive.

“We have a culture of embracing entrepreneurship as Black women and seeing other Black women continue to do it is what really makes the difference,” she said. “And signals to our peers and to future generations, what is truly possible.”