The real reason Latina and Black women founders don’t receive VC funding

As the world braces for what seems to be continued shifts in the finance sector, Latina and Black women founders continue to push for funding in the venture capital space. Despite compelling narratives, Ivy-league education, and dynamic MVPs, these women receive very little funding. Although the industry claims to seek disruption and change, these founder experiences expose how much bias maintains the status quo.  

“Only 2% of women receive VC funding. We walked into investor meetings knowing the bleak data but not speaking to it. The investors are aware of the data, as well, while also acting as though it doesn’t exist. Suppose I move through that world accepting that reality when the bar is astronomically high. I was meeting with people who were processing my vision while asking themselves, ‘Is she in the top 1% of women?’ Whether they are doing so consciously or not, there’s a level of pattern-matching in human beings,” says Tanya Menendez, founder of Snowball Wealth. “I decided to imagine a world where I was walking into an ecosystem where 98% of venture capital goes to women. The data already impacts the questions that people ask. You have to ask yourself, ‘Are they looking for reasons to say yes or reasons to say no?’ I’ve reflected on this quite a bit, imagining the reverse. So I walk into each meeting having studied pitches and negotiation in the mantra of ‘98% of venture capital goes to women.’”

Tanya is not an anomaly. In fact, she’s like most women founders—more specifically, women of color founders—who often push up against barriers to their success. Though they have experienced some significant growth in the past few years, women of color founders are still battling unique funding challenges that directly impact their ability to scale their businesses, and more broadly, widen a gap that’s existed in the VC world for far too long. 

I currently serve as interim CEO and chief operating officer at digitalundivided. I am a founder with a background in litigation, DEIB strategy, and leadership development, and led the digitalundivided team to produce the 2022 publication of our “Project Diane: Latina and Black Women Entrepreneurs in the Tech & Innovation Ecosystem.” This report quantifies the entrepreneurial experience of Black and Latina-founded startups in the United States. Named after esteemed organizer and anti-segregationist strategist Diane Nash, Project Diane examines the current state of venture funding and opportunities for founders to navigate a landscape that is, at best, challenging and, at worst, hostile. 

Companies founded by just women receive roughly just 2% of VC capital. So let’s examine what this means for Black and Latina women founders. The number of Latina and Black women startup founders who have raised $1 million or more is now over 350. More than 100 of these founders have raised over $10 million. If you think that sounds like “enough,” and that these founders are in a great position, let’s look at the broader venture capital landscape for perspective. We estimate that while digitalundivided founders reached record levels of funding in 2021, the combined share of Latina and Black women founders’ venture capital is only slightly over 1%. If we evaluate by demographic data, that is .64% for Latina and .41% for Black women founders, respectively. This is still double the level of funding these founders received in 2020. 

Is it that Latina and Black women are not founding companies? No. Black women are the fastest-growing demographic of entrepreneurs, with nearly three million businesses across the United States.

Is it that women are inherently less successful as business leaders? Of course not. In fact, many of the skills traditionally encouraged in women (relationship building, empathy, emotional intelligence) are fast becoming the most highly sought-after skills in executive leadership. Research from Business Insider shows that women are more effective leaders than men when evaluated by competencies, including taking initiative and driving results for change.

Is that they’re founding businesses in stalling industries? Again, no. We see Latina and Black women founders across various industries. More than half of the startups profiled in the ProjectDiane report are in health and wellness, business products and services, education, personal care and beauty, and financial services sectors. 

So if we know that these women are starting businesses, are successful as leaders, and have projected success across industries, what is stalling progress? Bias.

At any given moment, our brains are presented with about 11 million points of data, but we can only consciously process about 40 to 50. It’s safe to say, we miss a lot. This is where bias comes in. Bias is defined as a “prejudice in favor of or against one thing, person, or group.” In an effort to become more “energy efficient,” we unconsciously compile narratives, beliefs, and present-sense impressions to come to quick conclusions about the information and/or people we’re presented with. 

Bias is why when you read the word “founder,” you likely think of a young white man in a Brooks Brothers button-up and a Patagonia vest, or a young blonde woman in a black turtleneck. As thoughtful and kind as we believe we are, we are simply not wholly in control of who our brains lead us to believe is capable of leadership and innovation. It’s these antiquated biases that negatively impact Black and Latina women founders when it comes to valuation. 

Black and Latina founders are under no delusion about the problems they face. When they’re stepping into investor meetings, the disparate data is often circulating in the back of their minds. “[S]tudy pitching, negotiation, and frame control, and check your industry in and out because you have to be very prepared for these conversations,” says Tanya. That over-preparedness is a byproduct of succeeding as the exception, rather than the rule.

As threats of constriction within financial markets loom, many VCs may seek to disengage from the conversation about the undervaluation of Black and Latina-founded startups. For those with the courage to be curious about ways to examine and intercept their bias, the first question to ask is, “What do I believe to be true about these founders?” Ask yourself the following: Do I believe they are less likely to be successful because of how they present and their life experience? Do I perceive the problems they are solving as valuable? Is it possible that there are problems in markets that I am unfamiliar with that may be profitable if solved? 

Last, but certainly not least, know that you do not have to do it alone. Use the data you’re presented with to take action. Engage those who work tirelessly to develop more equitable approaches to your investment strategies. Don’t let comfort impede your ability to succeed.

Brittany S. Hale is an attorney and a leadership and organizational design expert. She currently serves as Interim CEO and Chief Operating Officer of digitalundivided, the leading nonprofit leveraging data, programs, and advocacy to catalyze economic growth for Latina and Black women entrepreneurs and innovators.