Last updated: Venture capital funding bias: Why VC business-as-usual must change

Venture capital funding bias: Why VC business-as-usual must change


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Business as usual. For some, this is a welcome relief. On the contrary, for many underrepresented founders, when VCs utter that phrase, it’s not always welcome news. Venture capital funding bias is a very real, and very big problem in tech.

Quite candidly, as a first-generation immigrant and woman working with startups for over a decade, it’s very hard to overlook the fact that in 2020 women and people of color continue to be in the large minority when it comes to receiving VC (venture capital) funding and support.

This must change.

Bias in VC funding: Breaking down the stats

Don’t just take my word for it – let’s look at the numbers.

According to Pitchbook, “While overall US venture capital investments in 2020 are on par with previous years […] Investments in women-led companies this year are on pace to be the worst since 2017.” When it comes to black founders, VC performance in Q3 2020 was just as bleak.

One founder created a Crunchbase list of globally VC-backed startups in Q3 2020 and found that only 2.2% of the startups had black founders (that’s a startling 31 startups out of 1,383 funded startups).

You might be thinking, “Okay, but 2020 has been rough on everyone in business.” But bias in VC funding has a long history.

Class is in session: An example of VC funding bias

A study noted in The Harvard Business Review “used identical slides and scripts, voiced by men and women, with or without photos of the ‘presenter’, and then asked study participants to rate the investment.

Pitches voiced by men significantly outperformed those with a woman narrator, and pitches where the narrator’s picture was a good-looking man performed best of all. Outcomes were the same whether the participants (‘judges’) were male or female.

The researchers concluded, “Investors prefer pitches presented by male entrepreneurs compared with pitches made by female entrepreneurs, even when the content of the pitch is the same.””

In other words, business is NOT as usual for many women and people of color founders. Far from it actually. Why can’t we admit it? The playing field is not level for underrepresented founders – especially during COVID-19.

When entrepreneurs don’t have a pre-existing startup track record, a rolodex of business contacts or investors, or are simply overloaded with obligations during this work and school from home environment, the barriers to VC funding and running a startup are much higher.

That said, let’s be clear. While investing in companies is one thing, another major thing is helping entrepreneurs operationally scale their businesses.

Venture capital funding bias: A playbook for change

The combination of capital plus non-monetary resources is critical for success today.

At SAP.iO (SAP’s Venture Capital arm), we provide a playbook to startups looking for success in enterprise software. The playbook ranges from best practices on pitching Fortune 500 customers to B2B growth strategy to technical integrations – and we do this with a startup portfolio of extremely diverse founders.

Every day, we live by and breathe by our “No Boundaries”pledge – a global commitment to help at least 200 portfolio startups with underrepresented founders by 2023.

At the SAP.iO Foundry New York, our mandate is to work with 100% underrepresented-led startups.

In just two years, I’ve had the privilege of advising more than 40 successful SAP.iO startups with underrepresented founders. But it’s not just my job that’s driving this output, it’s my personal passion and mission to see the success of women and people of color founders.

Recently tasked with sourcing startups for our industry teams in Automotive and Manufacturing (two traditionally male-dominated industries), I was explicit about our commitment to finding diverse-led startups – in fact, we proudly announced four female and four Black and Latino founders representing 6 startups in the NY Fall 2020 Program.

How tech leaders can eliminate venture capital funding bias

Wondering how we’re making such great progress on our goal to eliminate venture capital funding bias? There are a few factors that stand out:

  1. Unlike other technology startup accelerators, we don’t charge fees or take equity or warrants (future rights for equity ownership).
  2. We’re eradicating barriers for startups by engaging them with a large corporate enterprise, and our program is considered extremely founder friendly.
  3. Minority founders often have to give up more equity ownership with fewer fundraising prospects, so partnering with high-caliber early to growth stage startups without disrupting their cap tables is a win-win scenario.

Understanding that business as usual for venture capital funding must change, I’m inspired by diverse founders and teams who are passionate about innovation and delivering better technology and outcomes – and this inspiration motivates me to keep challenging the status quo.

To make the changes that are really needed, we must address problems with how underrepresented-led startups are funded and accelerated. Then, hopefully in the not too distant future, the phrase “business as usual” will truly be well-received by everyone, regardless of race or gender.

Purpose powers the future of business.
Learn more HERE.

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