The Diversity Gold Rush

A growing surge of female venture capitalists investing in diverse founders is poised to disrupt the VC industry.

By Jeanie M. Barnett

When the overriding vision you have for your startup is to grow fast and become a household name, those big goals need big capital. Which, these days, seems plentiful, with more private equity and venture capital funding than ever before now available to ambitious entrepreneurs striving to become the next “unicorn.”

Venture funding is plentiful, that is, unless you’re a woman or a minority entrepreneur.

2017 marked a record-breaking year for venture capital investments in US businesses — some $85 billion in total. Yet, just 2.2 percent of those dollars went to companies led by a woman founder. And of those women—who received about 15% of all deals last year—only 0.2 percent were African American.  While data for VC investmen


GingerBread’s Ita Ekpoudom and Founder/CEO Linnea Roberts

ts in minority founders overall is scant, a few studies have indicated their share of venture dollars is even smaller—just 1% per annum.

It’s no secret that the venture capital industry—the lifeblood of some of the largest, most successful companies in the world—has traditionally been an insular one, of white guys making deals with other white guys. Even in 2018, a woman being named a partner at a VC firm still makes headlines. Just eight percent of VCs in the US are women, and 72 of the top 100 VC firms still don’t have a woman holding the title of partner. Again, research on minority partners is lacking, especially African American and Hispanic men—another glaring reflection of their lack of representation in the industry.

That’s one major reason attributed to the dearth of VC capital being invested in companies led by women and minority founders. And the stats seem to bear out the old saw that it’s only “human nature” to want to do business with people who look and talk like you do.

In 2018, this shop-worn excuse is wearing thin. Change is afoot. Spurred in part by a robust economy, a flood of new capital, and recent revelations about Silicon Valley’s sexist, exclusionary “bro” culture that’s helped fuel the #MeToo movement, the VC industry is awakening to what promises to be a huge disruption—the very kind it loves to fund—in the fundamental ways it does business.

Over the last five or so years, a growing number of savvy new players are jumping into the VC game with a focus on investing in diverse founders—women, minorities, LGBTQ individuals—who are leading tech-driven, innovative, high-growth-potential companies poised to disrupt the status quo but who are chronically overlooked and underfunded.

Leading this surge are women.

Sisters Are Doing it for Themselves

“There are big untapped markets that women are thinking about much more aggressively that deserve to be funded,” notes GingerBread Capital’s Linnea Roberts, who launched GBC in 2016 after a successful, 30-year investment banking career on Wall Street.

GingerBread Capital invests in women founders whose companies have the potential of becoming market leaders in their respective industries. Part of GBC’s mission is to encourage more high-net-worth women to invest in women-led startups, too.

To date, GBC has backed about 30 women-led companies in a variety of industries, from consumer and tech to health and education. A family office fund (meaning that it invests its own capital rather than on behalf of limited partners), GBC is also an investor in women-led, women-focused venture funds including Plum Alley Investments, Aspect Ventures, Female Founders Fund and Human Ventures, just a few of the numerous VC startups devoted to investing in diverse founders.

There are now at least 114 women and minority-owned private equity firms raising capital, more than half of which are pursuing early stage venture capital investments of $1 million or less, according to a study by institutional investor Fairview Capital, one of the largest and longest standing minority-owned VC investment management firms in the US. (Joann Price, a former president of the National Association of Investment Companies, co-founded Fairview in 1994 with Laurence C. Morse.)

What Do Women Want? Bigger Checks

Stats show that women and minority founders who do get VC funding receive far smaller an

James and Kristina Jones, co-founders of Court Buddy, closed on a $6 million round of Series A funding in 2018 for their 3-year old legal services company, which matches people who need legal help with the right attorneys, at fixed, affordable rates.

d far fewer investments than white male led firms. According to a recent survey by Harlem Capital, a New York-based minority-led VC firm, just 105 Black and Latino startups have broken the $1 million mark in venture funding raised—about $2.7 billion in total. For companies led by black women, only three dozen have reached that milestone. Court Buddy is one.

“I’m seeing another purpose in our story that I hadn’t anticipated when we first started,” says Kristina Jones, who with her husband James Jones started Court Buddy in 2015. The online platform instantly matches people who need a lawyer with legal practitioners in their community who provide a specific service at an affordable, fixed rate.

The duo first tested their platform in South Florida, where James had been practicing law for 10 years and saw an urgent need for affordable legal services. Within the year it was up and running in 30 states, and has since expanded into 16 more, with plans to go nationwide in 2019. The company also provides low-cost financing options for consumers. To date, Court Buddy has raised $7.1 million in angel, seed and Series A funding from LDR Ventures, XFactor Ventures/Flybridge Capital and GingerBread Capital, among others.

Shan-Lyn Ma is another barrier-breaker. Ma is the founder and CEO of Zola, one of the top websites used by millennial couples to plan their nuptials and the fastest growing wedding company in the $72 billion wedding market. Ma tops the list of women founders this year who’ve received the largest VC investments in their companies—for Zola, a whopping $144 million in venture financing in 2018 alone, from big investors including Lightspeed, Goldman Sachs, and Thrive Capital (Zola is also among the companies in GingerBread Capital’s portfolio).

Yet, when she first started pitching her startup to VCs, Ma recalls a lot of head scratching. As she recently told Business Insider, “one investor looked me right in the eyes and said, very seriously, ‘When I got married 20 years ago, my wife seemed to be fine with the wedding registry we used then. Are you sure that women today will want anything different?'” Five years later, the answer is as clear to everyone as it was to Ma at the start: Yes. Yes, indeed.

Times They Are a’Changing…Slowly

The rising awareness of the gaping inequities in venture financing for diverse founders has yet to move the needle much, however, for the vast majority of women and minority entrepreneurs seeking outside investors, especially for seed and early stage investments.

What will truly disrupt the industry on the road to equity? More women and minority VC partners leading deals with diverse founders. More VCs focused on diversity. More women and minority founders with big goals perfecting their pitches.

“We need to systemаtiсаlly mаp out our industry аnd business proсesses аnd try to tаke the biаses out of them,” noted Aileen Lee, founder of Cowboy Ventures, a VC firm that backs seed-stage technology companies, during a panel discussion about diversity at the Code Conference in Los Angeles earlier this year. Lee is one of the first women in the industry to launch her own VC firm (she’s also credited with coining the term “unicorn,” a privately held startup company valued at $1 billion or more) and has spearheaded All Raise, a new initiative to accelerate the number of women investors in VC and investments in women founders over the next five years.

Ultimately, it will take more high-profile exits by companies led by diverse founders for the larger VC community to notice.

But VC investors like GingerBread Capital’s Roberts are patient. Sure, the financial returns are what drive the new wave of VCs. And the thrill of finding opportunities that others miss. And the chance to nurture the next, best companies in America. But there’s something more in it for them: the satisfaction of making the playing field more level for women, minorities and other diverse founders, in an industry that for too long has ignored them. At their own peril.

“There’s a lot of money being left on the table,” says Roberts. “We’re doing something about that.”