Black and Latinx tech startup founders have made almost no progress in securing venture capital (VC) funding over the past seven years in the US, a Crunchbase study released today found. During that period, startups helmed by Black and Latinx founders received just 2.4% of VC investments; so far this year, that figure is slightly higher at 2.6%.

Reasons cited for the persistent low percentage derive from the greater poverty among those groups relative to the White population. Black and Latinx would-be founders have much less access to their own seed capital and to resources from family and community members to launch their firms, yet such “bootstrapping” is considered an essential first step before investors will join in. And they often lack the professional or college networks that can be crucial to connecting with initial “angel” investors or to the venture capital community that typically funds later rounds.

That reality exists for Black and Latinx business of all kinds, a separate McKinsey study found, and shows up as a lower percentage of loans approved to non-White-owned small businesses. Black-owned small businesses, in particular, struggle to get loans, according to McKinsey, with only 29% being approved. That compares to 50% approvals for Latinx applicants and 60% for White applicants. Only 1% of Black-owned small businesses get bank loans in their first year versus 7% of White-owned small businesses. As a result, Black-owned SMBs are typically two-thirds the size in terms of revenue as White-owned business, and they ted to hire fewer employees given their smaller scale.

“The percent of VC funding for going to Black and Latinx founders has not changed significantly because of many reasons, several that extend beyond the technology industry and indicate a broader issue of systemic racism in our society,” said Gené Teare, Crunchbase’s data evangelist.

The ability of Black and Latinx startups to get venture funding is also heavily influenced by where they are located. The San Francisco Bay Area, which absorbs about a third of venture funding nationally, is one of the worst places for Black and Latinx tech startups to get funding; only 1.8% of the $4.6 billion venture funding to Bay Area firms since 2014 has gone to Black and Latinx firms.

By comparison, it’s better for Black and Latinx tech startups to be in greater Atlanta or greater New York, where they’ve received 5.5% and 5.2% of VC funding, respectively, in the last six years. In that period, greater New York accounted for $4.4 billion in total funding, a close second to the San Francisco Bay Area; greater Atlanta saw only $400 million in VC funding over the same period. 

Copyright © 2020 IDG Communications, Inc.

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