In 2020, venture capital investors funneled $150 billion to startups. But only approximately 1% of those funds were distributed to Black founders. Despite the rapid growth of Black entrepreneurship, there is a vast – and growing – funding gap.
The average deal size is expanding, yet Black founders’ compound annual growth rate (CAGR) is -7%, compared to 18% for non-Black founders, according to Accenture analysis of Crunchbase data. If the pace is maintained, founders of Black companies will never achieve funding parity. But this trend can be corrected by targeted actions. It’s now or never: if immediate action isn’t taken, the gap will never be closed.
Large banks approve about 60% of loans sought by white small business owners, 50% of loans sought by Latino or Hispanic small business owners and just 29% of loans sought by Black small business owners.
The cost of not acting is far too high
While Black Americans are opening businesses at a faster pace than their white counterparts, they still face one major challenge: a lack of capital. Ultimately, this prevents their businesses from scaling and reaching their full potential. The lack of venture capital is catastrophic for Black business owners and for the economy as a whole.
Lack of equality hits the economy
Up to $67B in business opportunities was lost between 2016 and 2020 (based on Accenture’s economic modeling analysis).
Lack of parity hits communities
In 2019, the median wealth in white households was 7.8x that of US Black households.
Lack of diversity hits enterprises
Diverse-led firms financially outperform their counterparts.
"Black entrepreneurs are innovating at a rapid rate, yet their funding remains lower than their peers. The time for change is now. Accenture’s Black Founders Development Program is paving the way for Black entrepreneurs to advance and grow their tech."
— PAUL DAUGHERTY, Group Chief Executive – Accenture Technology and CTO
Time for a great correction
Using economic modeling analysis, we hypothesize that the venture capital gap can be closed assuming three differently paced scenarios: accelerated, moderate and slow.
Close the gap in 30 years, and will take $1.4 trillion.
Without any action, it will be virtually impossible to close the gap. The accelerated plan is only attainable if we act now. Our research suggests that three targeted actions can help achieve parity:
Support Black founders in pre-series stages
This means increasing visibility, equality and awareness of Black founders. There is a need to elevate the Black founder pipeline and increase diversity amongst venture capital decision makers. Creating targeted investments will also encourage companies to direct investments to Black founders in areas they care about.
Support Black founders throughout funding stages (A through D+)
Our research shows only 5 Black founders have progressed to Series D+ from 2016 to 2020. A targeted strategy can equalize funding at each stage, enhance business capacity of Black founders, provide education, network opportunities and mentoring, and expand the source of capital.
Engage corporate venture capital decision makers
A truly diverse venture capital ecosystem can yield financial gain for Black founders and benefits, and spillover benefits to society. Engaging startups is critical to driving innovation, and venture capital decision makers must commit to diversifying to co-create and drive value for customers and clients.
Investing in a diverse future
SwayBrand is a Los Angeles-based multicultural media technology platform that helps brands connect with a wide range of influencers to develop content that resonates with a diverse audience.
To date, over 3,000 influencers have worked with SwayBrand, helping the company create authentic connections between businesses and their target audiences.
“Despite America's increasing diversity, most brands are playing catch-up when it comes to creating relevant content that reflects this growth. Through our work with multicultural creators, we’re able to get brands up to speed by leveraging cultural intelligence that fosters more authentic and equitable connections between companies and their target audiences,” says Horace Flournoy, co-founder and CEO of SwayBrand.
Accenture is investing in SwayBrand through our Black Founders Development Program. The program gives SwayBrand access to Accenture’s global innovation network, enabling it to co-create at our Innovation Hubs, Labs and Liquid Studios, working with subject matter experts to connect with the enterprise market.
Equal funding is only the start. Equitable racial representation throughout the venture capital ecosystem can boost business revenues exponentially. By creating parity, we will see diverse workplaces that outperform non-diverse companies. And we will empower entrepreneurs to develop solutions to systemic problems – opening up opportunities for Black business owners of today and for generations to come.