Where are the Black women in VC and private equity?

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Worldwide, 2020 was among the worst years on record for funding to female founders. Only 9 per cent of all funds disbursed to technology startups went to founding teams that included at least one woman. Solo-women founders and all-women teams were able to raise just 2 per cent of all venture capital (VC) dollars, according to a Crunchbase report.

And the numbers for Black, female founders, while not tracked, are widely seen to be miniscule.

Similarly, when it comes to Black women involved in investing, especially in venture capital or private equity, the underrepresentation is obvious.

But these three Black women from different backgrounds laid out the challenges and opportunities they have faced as outsiders in the investor ecosystem.

Lise Birikundavyi

Principal and Fund Manager, Black Innovation Capital, the first institutionally-backed Black-led VC fund in Canada

What are the challenges for Black, female investors?

The main challenge is that of the first impression, especially when you are speaking with men. My experience is to, at first, be dismissed. We are first-time fund managers but Isaac [Olowolafe, her business partner] and I have been investing for years and have relevant experience to make this fund excel.

Is it difficult attracting capital to funds focused on the Black community?

Some investors were skeptical about our ability to consistently get a strong pipeline of investments during our four-year investment period. That’s why we decided on a small fund, to act as a proof of concept. Since our launch, we have been inundated with pitch decks. We have been able to demonstrate in a short period of time that Black founders are present and that many of them are ready to receive VC money.

Does being outside of the traditional network mean it is more difficult to be aware of quality startups?

Isaac and I are fortunate to have those traditional networks, networks that complement each other’s. For greater impact, we decided not to invest in isolation of the greater VC ecosystem. Our goal is to not only invest in winners and support the creation of role models, but also to nudge the ecosystem into having a more diversified portfolio. We are constantly looking for co-investors or thinking about our exit strategy to more traditional funds. Despite the fact that we invest in early stages (seed and pre-seed), we do see a lot of quality startups that we are also quite happy to share with our network of investors. There is an increased appetite for funding companies these days, and our ambition is to see a good portion of this funding supporting excellent but traditionally underestimated founders. Our objective is to generate great financial return for our investors and support wealth creation for our founders. Entrepreneurs who succeed very often reinvest in their community and inspire younger generations. This will have the impact of also enlarging and diversifying the ‘traditional’ networks, decreasing unconscious bias and creating a long-term positive change in our ecosystem.

Does focusing on a niche demographic limit the type of investment opportunities available?

Not at all. We are investing in the technology space and are sector agnostic. This allows us to look at a wide variety of companies. We also value diversity, which means that the team does not need to be 100 per cent Black, but we need to see a minimum of 25 per cent of the founding team that identifies as a member of a Black community. Since our launch in June, we have been privileged to interact with about 150 companies and we are only scratching the surface. We have partnered with accelerator programs such as Ryerson’s DMZ and HEC Montreal’s entrepreneurial lab to also ensure a continuous quality pipeline as time goes by.

Is it possible to run a fund or VC firm aimed at a niche demographic without an institutional anchor investor?

Everything is possible but we are yet to see it. The initial support from [Business Development Bank of Canada] and [Royal Bank of Canada] as anchor investors has really changed the game for us.

Toni-Tanille Kerr

Investment partner at Portland Private Equity

What are the challenges for Black, female investment managers?

Since arriving in Canada in 2019, I’ve been working with Portland Private Equity, a minority owned [firm] focused on providing transformational growth capital to the Caribbean Basin. I’ve been fortunate enough to work with a team that values diversity and inclusion. Our firm is currently 30-per-cent women, and we are actively pursuing gender balance at all levels to eventually increase this figure to 50 per cent. Unfortunately, I suspect my story is unique; women remain underrepresented at all levels within private equity firms globally. A March 2021 Preqin study showed that women accounted for only 20 per cent of [alternative assets] employees and [about] 12 per cent at the senior level. Very little data is available on the level of Black female representation in private equity, which itself may be an indicator of how underrepresented we are in this space.

However, there seems to be a real intentionality to change the status quo. Investors now have data to show how embracing diversity yields superior returns and are helping to drive change by pushing for greater female representation at all levels within their [general partners]. My hope is that these efforts will evolve into also focusing on representation for Black women and other visible minorities to ensure that diversity includes broader ethnic representation.

Is it difficult attracting capital to funds focused on minority-owned businesses?

Attracting risk capital is a challenge for any business. Statistically, though, minority-owned businesses receive less funding. In the U.S., this has been noted and at the allocator/pension fund level ‘emerging manager’ programs have developed, which are intended to support funds with strategies that concentrate on minority-owned businesses. While there is evidence that emerging managers outperform, there has recently been a divergence in approaches to emerging manager programs, with some allocators increasing their commitment (e.g. Texas TRS), and others scaling back dramatically (e.g. Calpers). The net consequence is that there is less capital now than several years ago targeting the emerging managers who invest in minority-owned businesses.

Does focusing on a niche geographic region limit the type of investment opportunities available?

It’s a matter of how well you know your target region. Most parts of Caribbean Basin remain overlooked and underserved, particularly by firms that don’t focus their investment activity on Latin America and the Caribbean; they lack the domain expertise and deep relationships needed to uncover opportunities. But we see the current environment as quite favorable for varied types of investments in this region. While uncertainty regarding further waves of COVID could serve as a headwind, several companies are now seeking funding to capitalize on secular growth trends including digitization and nearshoring.

Is it possible to run a niche fund without an institutional anchor investor?

An institutional anchor investor is critical to the success of any niche fund. Aside from providing much needed capital during the early investment phase, a commitment by an institutional anchor investor signals confidence in the GP and its investment strategy and helps to build momentum in fundraising.

Amoye Henry

Entrepreneur and small business consultant, and co-founder of Pitch Better, a start-up that trains entrepreneurs to build and scale sustainable small businesses

What are the challenges for Black, female investors?

Lack of access to capital: There is a desire to invest in the financial and professional development of other businesses, but sometimes there is the challenge of not enough aligned capital to do so in a meaningful way, leading to significantly smaller cheque sizes.

Reduced networks: Institutional networks that want to join or back female VCs feel like they need more “validation”, so are almost not sure about my decision-making ability despite my track record.

Venture capital remains a highly homogenous industry, and it is no surprise that the social and economic interactions and decisions of human beings remain deeply biased by [this]. Birds of a feather seem to ‘flock’ and ‘fund’ together irrespective of the amount of work put in by Black women as founders and as investors.

Is it difficult attracting capital to funds focused on the Black community?

It is no secret that the Black community has, or people of color have, faced economic inequality for centuries. Systemic racism is often to blame, but truly limited networks that are built on trust often result in many disadvantages for Black-owned startups, businesses and investment funds alike. VCs are still more inclined or biased towards white-owned businesses than businesses from the Black community. A recent study showed that a Black profile picture in a funding portfolio was 25-35 per cent less likely to receive funding than a business led by a white-owned founder.

A recent study by Howard, Smith & Nwaigwe in 2020, revealed that the barriers having the most significant effect on Black-owned businesses were poor creditworthiness, poor financial literacy, institutional discrimination, and social capital deficit. Data like this may leave interested investors thinking Black businesses may be a risk.

Does being outside of the traditional network mean it is more difficult to be aware of quality startups?

Being on the inside of a traditional network does have its perks, as you typically have firsthand and legitimate information on viable startups or quality startups. Through due diligence teams, market research and market intelligence, networking, attending events, and the internet, Black investors can generate information on viable start-up ventures and participate more and more in the ecosystem. There is also a plethora of accelerator programs and incubators that have quality startups. These do not necessarily require membership or being part of the network to gain access to the featured startups.

Does focusing on a niche demographic limit the type of investment opportunities available?

Focusing on a niche demographic is a double-edged sword; it could cut both ways. A particular demographic you focus on at a particular time may be limiting the investment opportunity or ability of certain businesses to scale, depending on their target customers. During the peak of the pandemic last year, for example, many young women who operate Black businesses went into the production and sale of e-commerce products, goods and services. However, the businesses were not built to scale and truly innovate and were at times makeshift businesses put in place to supplement the loss of income. There are, on the other hand, a myriad of investment opportunities within a specific demographic or niche demographic when we shift to Black-owned businesses that understand and value innovation and high-growth.

Is it possible to run a fund or VC firm aimed at a niche demographic without an institutional anchor investor?

If it was easy there would be far more Black women investors, senior partners and decision makers at high performing investment firms. There are some incredible Black women investors leading the way and doing fantastic work in Canada, writing reasonable cheque sizes and actively participating in this market – women like Lianne Hannaway from WealthNuvo, Lise Birikundavyi from Black Innovation Capital, Giselle Melo from Matr Ventures, and Pelra Azondekon from Quebec. In the U.S., we see remarkable firms like Fearless Fund headed up by Arian Simone, and Backstage Capital by Arlan Hamilton. In the U.K., there is Impact X Capital Partners, headed up by Yvonne Bajela, and in Nigeria there is Ingressive Capital, led by Maya Horgan Famodu. Whether these funds are backed by institutional investors or not, they are still making history being led by Black women.

Responses have been edited for length and clarity.