Since the unrest of 2020, governments, companies and local ecosystem builders have implemented various new programs, mandates and goals that aim to support founders of color.
But all of these mandates, goals and company declarations too often lack any sort of tangible proof — in the form of financial investments — of their effectiveness. And that’s a real problem when you consider, as DC VC entity 1863 Ventures found, that it costs entrepreneurs of color at least $250,000 more to start a startup. On the whole, that means that if there’s not enough investment to back the declared support for founders of color, they very well might be missing out on creating a successful startup at all.
On the funding side, 1863 founder Melissa Bradley told Technical.ly that when looking to fund founders of color, investors need to understand that the journey has been different. More likely than not, it’s been more expensive.
“You cannot make these investment decisions or acceptance decisions by using the same criteria — not because they’re Black or brown and they’re different, but it’s because their pathways were different,” Bradley said. “They’ve actually already invested a significant amount of capital that cannot be said for some other entrepreneurs, and that should be taken into consideration.”
Alexander Knight, the senior VP of business development at entrepreneurial law firm Cooley LLP’s DC office, told Technical.ly earlier this month that he thinks underrepresented founders tend to be over-educated yet under-resourced in financing. When he recommends accelerators and other programs to startups, he said that actually writing checks often separates a good program from a great one.
“It’s costing underrepresented founders $250,000 more to get started, and you tack on top of that the fact that they lack, generally, the historic network to be able to write friends and family checks to get them supported and off the ground at an earlier stage,” Cooley said. “Those two challenges have created this real sense of need to, yes, have the education, but also make sure we’re investing in these companies as well.”
And it’s not just VCs or wealthy private citizens committing this investment. In the DMV, local government-affiliated or -created agencies frequently tout their successful financial and qualitative support of companies (including those with non-white leaders) that choose to grow in their jurisdictions. So, how much are the local state funding orgs actually giving to founders of color? We asked two state funding agencies, Maryland’s TEDCO and the Virginia Innovation Partnership Corporation (VIPC), for their numbers. A representative from DC’s Office of the Deputy Mayor for Planning and Economic Development (DMPED) also explained some of that agency’s own relevant work but declined to be quoted by name.
For TEDCO CEO Troy LeMaile-Stovall, you can’t separate the funding amounts from the overall wealth gap. Le-Maile Stovall actually takes issue with that term, explaining that a wealth gap can never really be closed: those without wealth need to rely on those with wealth to redistribute and, once that happens, often pay it back. So it’s a bar that constantly changes as often as the economy and inflation do.
“When you say ‘wealth creation,’ more times than not, what you’re really talking about is creating wealth for those who already have [it],” LeMaile-Stovall told Technical.ly. “So, I think you have to change the language, you have to have a new wealth equation. We have to change the wealth equation of how we really do something different for those [comparatively disadvantaged], and I think it has to be about wealth inclusion and wealth expansion.”
When LeMaile-Stovall came to TEDCO in the summer of 2020, he said the agency’s only project specifically focusing on founders of color was its Builder Fund, which was a $1 million fund at the time. The Builder Fund is designed for pre-seed tech startups and requires at least 50% of a company’s founders to demonstrate an economic disadvantage. In the first year, TEDCO invested that million into about 16 companies, which LeMaile-Stovall said went on to raise another $20 million. That success led to increased funding from the state, and the Builder Fund will grow to $5 million over the next two years.
Alongside the cold, hard cash it provides, LeMaile-Stovall (who admits he wanted to be an astronomer) said that TEDCO also focuses on pulling founders into new “orbits.” In other words, it tries to get founders from across the state to connect and expand their reaches to create a more cohesive ecosystem.
“When celestial bodies collide, the critical gravitational constant still attracts and creates a new celestial body, and that’s what we want to do in Maryland,” LeMaile-Stovall said. “We talk about this notion of scaling, and that’s how you do that because you bring together those that would not have come together otherwise.”
The Builder Fund now actually sits under the umbrella of TEDCO’s Social Impact Fund, a newer entity. TEDCO recently received $50 million from the State Small Business Credit Initiative (SSBCI), a federal program (the state of Maryland got about $200 million as a whole) designed to provide funding to what the Department of the Treasury called “socially and economically disadvantaged individuals and communities.” For its part, TEDCO plans to commit about $someillion into a number of new funds, each of which will get around $3 million. One is designed for first-time fund managers while the other two are for women and people of color, respectively.
It also plans to put another $10 to $12 million into the Social Impact Fund, to grow the Builder Fund and an Inclusion Fund. The last of these funds will invest in founders who are over-recognized but under-invested. The remaining funds will be put in its Seed and Venture funds.
So, how much did it collectively invest into founders of color? From 2019 to 2022, TEDCO made 75 investments totaling $18,191,105. Of those, 41, or $7,21,125, were invested into (self-reported) companies led by underrepresented founders. That includes 10 Black founders, 10 women and two veterans.
The district works a little differently in terms of funding but does have government funding options for residents. Many come from city government initiatives to support equity impact enterprises — which DMPED defines as resident-owned small businesses that are at least 51% owned by founders who are either economically disadvantaged or “subject to racial or ethnic prejudice or cultural bias.”
In a statement to Technical.ly, DMPED said that its funding programs are built on equity and inclusion, which is reflected in its creation of opportunities via the equity impact enterprises.
Here’s a breakdown of some of its larger funds:
- Its Inclusive Innovation Equity Impact Fund, which offers equity impact enterprises access to capital, has invested $2.5 million into Washingtonian-owned businesses to date. DMPED plans to invest another $2 million later this year.
- The Commercial Property Acquisition Fund, which offers down payment assistance to businesses looking for commercial property in DC, has received up to $4 million in investment from the district this year. Through the program, businesses can receive grants up to $750,000 or 25% of the sale price, whichever is less. Mayor Muriel Bowser also said this program will receive another $4 million next year.
On the other side, VIPC, Virginia’s startup funding entity, actually began tracking some of this data in 2018. VIPC hosts a number of different funds, and VP of Commercialization Sean Mallon and Chief Investment Officer/VP Tom Weithman broke down some of the data for its larger funds.
For 2022, VIPC made 30 investments in local startups; 12 of those identified as having a founder of color in their applications. In 2021, its Virginia Venture Partners fund, formerly known as CIT GAP, invested in 164 companies; 88 had either founders or executives of color. The fund has completed about 250 investments over the last 15 years.
VIPC’s Commonwealth Commercialization Fund, which launched in 2020 and replaced its CRCF Fund, is designed for seed-stage tech startups. In FY2022, 47% of its awardees had a founder or leadership team member of color. To break it down further: six grants (15% of the total, altogether $450,000) were awarded to Black founders; eight (20%, $600,000) went to Asian founders and three (7.5%, $225,000) were for Latinx founders. While not an exact match, the breakdown loosely aligns with the state’s demographics).
Since the CRCF program was established in 2012, about 424 startups and projects in Virginia have received funding, totaling close to $42 million.
“We’ve certainly seen an uptick among founders of color, without question,” Weithman said. “I think it’s the work of a lot of organizations out there. ”
Alongside these, VIPC launched several other funds over the past few years. It initially began its Virginia Founders Fund, which has about $3 million for traditionally underserved founders, in 2018; It was officially deployed by the summer of 2021. That success led to the launch of the Virginia Founders Fund II, which has an additional $3 million for women founders and founders of color. VIPC also hosts the Virginia Partners Fund, which has $3 million for traditionally underserved regions like HUB Zones, low-income U.S. Census Bureau tracts and Opportunity Zones.
VIPC was additionally a recipient of the SSBCI funding. It will be nabbing $175 million, although Weithman and Mallon didn’t yet have specifics on how it would be spent.
“The greater the numbers, the greater the sense of community,” Weithman said. “So there are opportunities really to build mutual aid, certainly within the Commonwealth of Virginia ”
Conaway Haskins, VP of VIPC’s division of entrepreneurial ecosystems, added that VIPC helps fund local accelerator programs. Since VIPC only partly funds the programs, he didn’t have a breakdown of how much of those funds reached founders of color. He did note, however, that several of the programs VIPC supports have made investing in founders of color a priority.
Mallon also said that VIPC wants to grow the overall ecosystem and funding pipeline among founders of color, as well as support good startups.
“We have a process that actually makes it difficult to do a grant if the opportunity is not good,” Mallon said. “So we need to make sure that we have a good pipeline.”