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One Reason Black Founders Don’t Get Enough Funding? Black VCs Don’t, Either

These African-American venture capitalists say it can be a struggle to get investors to fund the minority-led companies they’re excited about.

The fact that African-American founders have limited access to investment has been well documented, but you might not know that that problem is replicated in the venture capital world, too. In recent years, several black-owned or -directed VC funds and firms have opened their doors, with a focus on minority- and women-owned businesses. But as it turns out, many VCs are hitting the same obstacle as the founders they’re trying to invest in: access to capital.

According to Pitchbook, American VC funds raised $40.6 billion in 2016, with this year on course to make 2017 the fourth consecutive year with more than $40 billion raised. But with less than 3% of VC funds employing black and Latinx investment professionals, only a small fraction of that sum will find its way to businesses owned or run by people of color. Here’s what several VC partners and fund managers say is at the root of that problem, and what they’re doing to adapt to it.

VCs frequently have trouble convincing investors, typically in the form of limited partners (LPs), to spend their money this way. Marlon Nichols, founding partner at Cross Culture Ventures, has found that “there are well-intentioned LPs out there that haven’t quite figured it out yet, and I want to believe they’re working to figure it out.” In the meantime, Nichols says, “I’d like to see LPs legitimately put more capital into funds started by qualified, diverse fund managers.”

Monique Woodard has also had difficulty getting capital from investors to put into the types of companies she’s excited about–and that’s despite being a venture partner at 500 Startups, a name-brand firm. “Even after seeing the data, many LPs don’t understand this investment focus or see the opportunity for returns,” she says. “They think of it as ‘diversity’ and then decide they aren’t interested in investing with a diversity lens, and ignore the very real market shift and its ability to deliver returns.”

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