Black British entrepreneurs seek to overcome VC funding declines inkeinspires

Ancient Goldman Sachs Executive Ayesha Ofori was confident that investors would be willing to fund her investment platform startup – then came the wall of refusals.

Some of the venture capitalists who gave a cool reception to Ofori’s financial investment platform, Propelle, aimed at women, ultimately rejected it, citing its lack of experience. Ofori discusses his experience at Morgan Stanley, Goldman Sachs and his MBA from London Business School.

“Fundraising is extremely difficult,” Ofori told CNBC. “I try not to think about it, because it depresses you… It’s like your gender and the color of your skin is the reason you don’t progress as quickly as others.”

Ofori was one of the few black founders in the UK who finally secured funding for their business. But Black founders received just 0.23% of venture capital funds in 2018, according to data from Extend businesses. This market share reserved for the minority group has increased little since.

The UK tech sector saw record investment levels of over $40 billion in 2021. Of this, black founders saw their proportion of investment by value reach a high of 1.13%, while Corporate diversity and inclusion efforts have skyrocketed in the wake of the Black Lives Matter. Movement of matter. The investment value represented by the group has since fallen to 0.95% in 2023, according to data from Extend Ventures.

Ofori was confident she “checked all the boxes” when it came to what venture capital firms expected from founders.

“Through closed-door conversations, I was told that a few black women had their chance. They actually raised venture capital money. It failed and went badly, and some of these companies venture capitalists are not, so I am willing to take risks with us,” Ofori explained.

Only 13 Black women raised venture capital funds between 2019 and 2023, compared to more than 3,700 white men, according to Extend Ventures.

Like other black founders in the UK, Ofori is looking to reverse the declining funding trend by targeting high-profile investors and adopting a more community-focused approach that includes support from family and friends.

CNBC spoke with several founders and venture capitalists who pointed out that Black business leaders often face systemic challenges ranging from racial stereotypes to a general lack of diversity in the industry.

Sarah Werner, who co-founded property management company Husmus with her Swedish husband Mattias Werner, said some venture capital firms sign up for quotas and turn away black founders once they reach their threshold. Other venture capital firms will pit Black founders against each other to compete for the limited funding allocated to them, Werner said.

“You’re pitting people against each other who are already struggling… Pitching black people against each other, fighting for the space in your wallet that’s allocated to a person of color is ridiculous,” he said. she declared.

Werner, who said she is the face of Husmus, told CNBC that her generic-sounding name has often opened doors for her because people aren’t immediately aware of the color of her skin. She also said that using her white husband’s email address allowed her to secure meetings with high-profile investors.

Karl Lokko, founder and managing partner of Black Seed, a Black-led venture capital fund for startups, told CNBC that greater diversity at the leadership level of venture capital firms is needed to overcome these prejudices.

“If the CI [investment committees] reflect a more diverse perspective, then there can be a more comprehensive review of the proposals evaluated and decided upon,” Lokko said. “So yes, more diversity, but more diversity that is actually in the ocean of decision-making, because as to where the money will be allocated.

At the end of October, thousands of students, venture capitalists, CEOs and diversity, equity and inclusion (DEI) experts gathered in north London for the fifth edition of Black Tech Fest, a festival hosted by former Google employee Ashleigh Ainsley and Silicon Valley CTO Dion. McKenzie.

A recurring topic at this year’s Black Tech Fest was the lack of available data tracking the proportion of funding and support received by ethnic minority founders. McKenzie described Europe as a “data desert”.

In response to the lack of data and representation in their industry, McKenzie and Ainsley created Colorintech to foster a new community for people of color. Since launch, they say their program’s underrepresented founders have raised over $50 million in funding and the community now numbers over 60,000 people.

“We wanted to shine a spotlight and give a platform to people in the industry who are underrepresented,” McKenzie said.

They have partnered with some of the biggest names in the industry, like the owner of Facebook Meta, Google, PwC and JPMorgan.

Google also supported Ofori from Propelle and Werner from Husmus, offering funding through its Google Black Founders Fund for Startups. Ofori, who received an initial investment of $100,000, said joining Google for Startups was a “catalyst” for money to start coming in.

Even when people who previously rejected her became interested, Ofori decided to focus on her own community and network moving forward.

She also reached out to some of her former colleagues at Goldman and recruited high-profile investors, including female entrepreneurs. One of Propelle’s investors is Stefan Bollinger, a former Goldman partner and current CEO of Julius Baer.

Werner called this support a “friends and family” round — a type of initial fundraising when founders ask friends and family to invest in their business. She said her first check for her business came from a university friend who gifted her £10,000, which encouraged her to contact other acquaintances.

“These are the people who know you. You’ve been in the trenches with them. You’ve spent sleepless nights in the library with them. They know you and they trust you, and they gave you money from their pocket and there’s nothing more humiliating than that to be honest,” she told CNBC.

A rise in diversity and inclusion programs in 2020 when the murder of George Floyd sparked protests and racial unrest failed to inspire long-term investments in the Black community — a failure that comes at the expense of the tech sector, according to Colorintech’s McKenzie and Ainsley.

A more diverse workforce leads to “better products, better teams and, ultimately, more revenue,” McKenzie said, adding that more inclusive employers allow companies to ensure “the best talents.”

“If we think about the whole concept of Britain growing and becoming a more productive country, then we cannot achieve that by increasing productivity disparities between certain social groups,” Ainsley said, emphasizing that although these Social groups may be minorities, they are not “insignificant”.

Four years after the Black Lives Matter Moment, sentiment around diversity efforts has changed. Several companies including McDonald’s, Google, Ford, Lowes And Walmart have scaled back their diversity efforts in the United States for reasons ranging from cost-cutting to political pressure. Donald Trump’s new administration in the White House has raised concerns about the future of DEI, given the president-elect’s proposals to roll back federally funded diversity programs.

In the UK, the Labor Party’s pre-election pledge to remove barriers to opportunity through the introduction of a Racial Equality Act offers a stark contrast to the outlook in the United States. Although the decline in corporate DEI programs may be less widespread in Britain, the value of investments represented by black founders in the country has not yet exceeded 1% as it did in 2021 and 2022 , according to Extend Ventures.

Ainsley and McKenzie said DEI has become “politicized” and “weaponized” to silence the efforts of organizations such as Colorintech.

“For better or worse, DEI will certainly be a focal point during the next administration. We’ve heard a lot of anti-DEI rhetoric in the run-up to the election and planned actions once in office, but ultimately Ultimately, business leaders will have to decide whether they, their employees and their shareholders see the importance of being diverse, inclusive and equitable or whether the alternative is better for creating value and attracting top talent. ” McKenzie said.